Greenspan’s Natural Gas

by Michael G. Livingston


Alan Greenspan is worried about gas. No, the powerful chair of the Federal Reserve is not flatulent. He worries about the U.S. supply of natural gas and what spikes in natural gas prices would do to the economy. In an April 27th talk Greenspan said “more extensive access to the vast world supply of gas is required” and urged investment in liquefued natural gas (Minneapolis Star Tribune, 4/28/04, p. D4).

This is not the first time Greenspan has talked about natural gas. In June 2003 he worried that price spikes in natural gas prices could wipe out any economic recovery in the U.S.

Greenspan has lots of good reasons to be worried. Worldwide, 40% of all energy comes from oil, 26% from coal, and 24% from natural gas. Currently, most electricity in the US comes from coal and nuclear power. Both of these power sources have very serious environmental costs. Increasingly the U.S. power sector is turning to natural gas—90% of all new power plants in the U.S. burn gas. In addition, with oil supplies declining in the near future, Big Oil is looking to hydrogen as the next major fuel source. Hydrogen can be made from a number of raw materials, but the cheapest way to produce hydrogen is to make it from natural gas. But here is the problem: supplies of natural gas in the lower 48 states have been declining since 1976, when gas production in the U.S. reached its Hubbert’s Peak. And the U.S. lacks the physical infrastructure to import sufficient natural gas from abroad.

One consequence of the declining supply and limited infrastructure has been dramatic price spikes. While the cost of coal, for instance has been very stable at around $1.30 per million BTUs (British Thermal Units) of power since 1995, the cost of natural gas has fluctuated between $1.98 per million BTUs in 1995 to $5.47 per million BTUs in 2003. Some industry analysists fear that the price could spike to $12 per million BTUs this year if there is high demand from either a hot summer or a cold winter.

Price spikes in oil prices pushed the U.S. and the world into recessions in 1974 (the Arab oil embargo), 1979 (the Iranian Revolution), and 1991 (the Persian Gulf War). These price spikes have a so-called asymmetrical effect—the recessions continue after the prices return to their previous lower levels. Greenspan knows that a price spike in natural gas would push the U.S. into a serious recession. Combined with price increases in oil, such a spike in natural gas prices would be deadly.

In response to the declining supplies and the increasing demand, U.S. energy companies have made plans to build over two dozen terminals in the U.S., Mexico, and the Bahamas. At present, the U.S. has only 4 terminals capable of handling natural gas imports, three on the east coast and one on the Gulf of Mexico.

These proposed natural gas terminals are facing widespread opposition from people near the proposed terminal sites because of the danger of these terminals to health and the environment. Already six of the proposed terminals have been cancelled, two on the west coast, two on the east coast, and two in Mexico near Tijuana. Many more are facing opposition (see “Fears Drain Support for Natural Gas Terminals,” The New York Times, 5/14/04, p. C1 & C6).

Efforts to transport natural gas from Alaska and northern Canada have also been delayed for years. The transportation of the natural gas requires the construction of a pipeline estimated to cost at least $20 billion. Much of the opposition to the pipeline comes from native peoples whose land would be crossed by the pipelines. They are worried about environmental costs and dangers.

Natural gas is an important source of heat and electricity, cleaner and more environmentally sound than nuclear power or coal. And hydrogen from natural gas or other sources may provide an important “bridging fuel” away from oil and coal to renewable energy. But the environmental and health dangers of the terminals are real, as are the economic dangers of price spikes which will hurt poor and working people much more than the rich. So what is a socialist to do?

First, we should demand increased use of renewable energy such as wind or solar power. Second, we should demand increased fuel efficiency in buildings, manufacturing, and transportation by, for example, working for mass transit and supporting subsidies for people to insulate their homes. Much of the energy generated in the U.S. is simply wasted or lost. Conservation (meaning both increased energy efficiency and using less energy) would go a long way to resolving environmental problems. Third, we should demand a distributed energy system, in which individuals, cooperatives, or community-owned utilities could generate their own electricity and sell their excess power to the power companies. Finally, we should demand that natural gas terminals and pipelines be as safe and environmentally sound as possible. All of these demands will be resisted by the power companies and their lobbyists.

Just as Greenspan, one of the more thoughtful and farsighted leaders of the capitalist class, is worried about natural gas and energy, so should we. Our solutions, the solutions proposed by revolutionary socialists or “red-greens” as we are sometimes called, will be different.

June 23, 2004