Washington, DC, Apr. 28--Federal Reserve Chairman Alan Greenspan said the recent surge in oil and gas prices appears to be a long-lasting phenomenon, and would probably alter business-investment decisions.
If the rise in long-term prices is sustained, "it could alter the magnitude of and manner in which the United States consumes energy," Greenspan said.
He didn't specify what changes to expect, but he noted that when prices rose in the 1970s, it nudged Americans to buy cars with better fuel-efficiency.
Industry observers also have predicted that higher natural-gas prices in the U.S. will prompt some gas-intensive industries, such as petrochemicals and fertilizer manufacturing, to move facilities from the U.S. to parts of the world where gas is less expensive. Greenspan did say changes would be less dramatic than in the 1970s because the economy uses half as much energy per inflation-adjusted dollar of output.
The central-bank chief didn't comment on how high energy prices may affect the near-term outlook for economic growth, inflation or interest rates. He focused not on current oil and gas prices, but on the price on contracts for delivery six years in the future--long enough to incorporate forecasts of new supply. The distant-future price of oil has risen to $27 a barrel now from $16 to $18 a barrel in 1999, he noted, while that of gas has risen to $5 per million British thermal units from $2.50 in 1999.
Oil prices have risen, he said, because of "fears of long-term supply disruptions in the Middle East." The Fed chief attributed higher gas prices to the growth in demand for gas owing to its reputation for being less polluting than alternatives such as coal, while supply has been constrained by the inability to import significant gas supplies other than from Canada. He repeated his recommendation that the U.S. expand facilities for handling imported liquefied natural gas.
