Natural Gas Crisis Looming?

(CBS/AP)  Federal Reserve chairman Alan Greenspan said Wednesday high natural gas prices and shortages are already having an adverse impact on some industries and that he does not foresee a return to low prices or abundant supplies anytime soon.

"Today's tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon," Greenspan told a Senate hearing.

He said that development of new drilling technologies has been "unable to prevent the underlying long-term price of natural gas ... from rising."

Wholesale gas prices climbed to $6.58 per thousand feet last week, more than double what it had been last year.

In a related development, House Republicans are taking aim at environmental restrictions on drilling for new gas supplies.

Reps. Richard Pombo, R-Calif., and Rep. Billy Tauzin, R-La., are heading an effort to roll back environmental restrictions that they say prevent gas companies from tapping new domestic supplies.

The restrictions "threaten our nation's economic health and American jobs, just as our economy is showing signs of recovery," they wrote in a letter to Speaker Dennis Hastert, R-Ill.

Unless the government takes steps to allow drilling in currently closed or restricted areas, primarily in the West, the nation could become more dependent on foreign energy supplies, the Republican lawmakers said.

"Clearly something must be done to balance conflicting government policies that encourage the use of natural gas as a clean-burning fuel but restrict access to plentiful American supplies," Tauzin and Pombo wrote Hastert.

Environmental groups oppose any rollback of the restrictions.

"It's unfortunate that Republican leaders in the House are being opportunistic to seize on high natural gas prices to advance their long-standing agenda of rolling back environmental safeguards," said Daniel Lashof, science director at the Natural Resources Defense Council's Climate Center. "It won't solve the problem."

In his Senate testimony, Greenspan reiterated points he made last month at a House hearing, saying that high prices are threatening some industries - such as chemical plants producing fertilizer - that use large amounts of natural gas.

"The perceived tightening of long-term demand-supply balances is beginning to price some industrial demand out of the market," said Greenspan, adding that "it is not clear whether those losses are temporary, pending a fall in price, or permanent."

Greenspan told the Senate Energy Committee that it remained difficult to assess the impact of higher gas prices on the overall economy, but that high energy prices are expected to cause some industries to lose business to foreign competitors.

"We do see the obvious loss of jobs that will go with the inevitable movement of gas producing capacity to foreign shores because it has made us largely uncompetitive in a number of industries in which gas is a critical input," said Greenspan.

Otherwise, he said, "you don't see all that much direct economic impact, except in households where you are going to clearly see significantly higher bills ... as we go into the winter" if, as expected, tight supplies and high prices persist.

As he has in the past, Greenspan called for an expansion of imports of liquefied natural gas to allow for a safety valve in tight supplies.