Threat to economic expansion from higher energy prices: Greenspan

Threat to economic expansion from higher energy prices: Greenspan

New York (Platts)--20Jul2005

A further rise in energy prices "could cut materially into private spending"
and dampen the rate of economic expansion, US Federal Reserve Bank Chairman
Alan Greenspan told Congress on Wednesday. Greenspan, in his semiannual report
to Congress, told the House of Representatives' Financial Services Committee
that the recent volatility and runup in crude oil and natural gas spot
prices--particularly for far-future delivery--indicate that market
participants "now see little prospect of appreciable relief from elevated
energy prices for years to come." 

With global energy demand expected to remain strong, "market participants are
evidencing increased concerns about the potential for supply disruptions in
various oil-producing regions," Greenspan said in prepared remarks. He did
acknowledge that technology has greatly improved recovery rates from existing
reservoirs, but he added that the "great majority" of investment needed to
convert crude reserves into new capacity will have to be in countries with
greater political or investment risks.

Greenspan also warned that, "the preponderance of oil and gas revenues of the
dominant national oil companies is perceived as necessary to meet the domestic
needs of growing populations. These factors have the potential to constrain
the ability of producers to expand capacity to keep up with the projected
growth of world demand, which has been propelled to an unexpected extent by
burgeoning demand in emerging Asia." Greenspan again touted the promise of LNG
supplies, saying that such imports "will help ease longer-term natural gas
stringencies and perhaps bring natural gas prices in the US down to
world levels."

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