07-10-06

Canada's status as a trusted neighbour and long-time ally will pay enormous dividends in the race to supply the United States with energy, says Alan Greenspan, the former chairman of the US Federal Reserve.
"We in the United States trust you," Greenspan said to an audience of nearly 2,200 people at the Calgary Convention Centre. He served five terms under four US presidents and was arguably the most powerful financial figure on the planet when he held the top job at the US central bank.

"When you make a contract, we believe it -- we don't think it's got a Russian signature on it," Greenspan added, apparently referring to the seizure of western-owned assets and abrogation of commercial deals that has occurred regularly in Russia, the largest oil and gas exporter outside of OPEC.
"It's hard to overemphasize how critical that is," Greenspan said. "When we're locked into your crude capabilities, we're taking a huge risk, but because your signature is trustworthy, we're willing to do that."

In a wide-ranging discussion, Greenspan responded to questions from Sherry Cooper, executive vice-president and chief economist of BMO Nesbitt Burns. The brokerage and investment bank's parent, the Bank of Montreal, was the major sponsor for the ticketed event that saw Greenspan speak publicly for the first time since his retirement in January.
After the 70-minute discussion, Cooper said American perceptions of Canada as a friend cannot be undervalued in a world where energy has become a matter of national security and only a handful of areas have the physical capacity to satisfy growing world energy needs. Unlike Canada, many of them are unstable, hostile or in volatile regions of the world.

"There's no question that the United States considers Canada a tremendous ally, a great neighbour, a great friend," said Cooper. "And let's face it, there's so few countries producing oil that can be trusted, that Canada will always be a very, very important economy for the United States."
Greenspan noted the supply of crude oil is, and will continue to be, an issue in the world, in part because of rapidly escalating demand in the developing world. In addition, the accuracy of information around both oil production and consumption in large parts of the world is questionable.

"We've got a very tight situation in terms of crude availability," said Greenspan. "Crude oil consumption is rising in line with proven reserves. The problem is reserves in the ground are not the same as oil above the ground."
Along with fundamental supply-demand pressures, Greenspan noted industries and consumers around the globe are paying substantially higher oil prices due to the uncertainty that has been created by potential disruptions to crude supplies.
"We have the so-called terrorist premium, which is a fairly large number," Greenspan said.

Greenspan also spoke about geopolitical developments around the rise of the economies of China and India and was also asked about the impact of the controversial Kyoto protocol, intended to reduce greenhouse gas emissions. The US was not a signatory to the Kyoto agreement and Canada's progress towards meeting emission reductions has drawn the ire of environmentalists.
However, Greenspan argued efforts to combat global warming -- which he said is a very real threat -- need to bear in mind the economic impact of their provisions.

He also questioned the logic of Canada taking steps that would decimate its economy while doing little to address the overall global problem. "That we have global warming is real. That's a given," said Greenspan.
"(But) to the extent you impose limits on energy use, you will reduce the standard of living. There is no alternative to that," he noted, adding that Canada itself can do very little. "If Canada all of a sudden became extremely pristine, it would have no effect on global warming. You can't just have one part of the boat bailing when water's coming into the whole boat."

Greenspan also argued that nuclear power needs to be considered in Alberta's oilsands industry, an idea that is increasingly gaining traction as an alternative to the burning of natural gas. Oilsands plants -- which are set to quadruple their output over the next few decades -- are enormous consumers of natural gas.
"The only concern that we have is that you're still using a lot of natural gas ... you could use nuclear up there as well," Greenspan said.

Greenspan, who carried the moniker "the maestro" while in office, is credited with twice guiding the US economy to a so-called "soft landing" by engineering milder-than-expected slowdowns in 1994 and 2001. He was described as "one of the most influential people in the world," when introduced by Bank of Montreal senior vice-president in western Canada, Ted McCarron.
"He's as much admired here in Alberta as anyone has ever been," McCarron added.