Greenspan warns about tightening oil supplies

The camel now has not only his nose but his whole head under the tent and in the glaring light of the government and the marketplace.

The latest to focus on that scary issue of peak oil is former Federal Reserve Chairman Alan Greenspan.

Greenspan, in a recent appearance before the Senate Foreign Relations Committee, presented a grim picture of future oil prices, saying he doesn’t believe oil producers can pump enough oil to meet future demand.

Reuters reported Greenspan told the senators that international oil markets have grown so tight that even slight disruptions in supply could mean further big price increases. Greenspan said the flexibility of the U.S. economy to date has allowed it to absorb these higher costs with little effect.

Greenspan said: “The buffer between supply and demand is much too small to absorb shutdowns of even a small part of the world’s production. The balance of world oil supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on prices.”

He added: “The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far. However, recent data indicate we may finally be experiencing some impact.”

Since 2004, prices of crude oil have doubled. Since the beginning of 2002, the cost of a barrel of oil has leaped by $50. Crude oil prices have remained above $70 a barrel in spite of OPEC and other producers pumping at capacity. Prices still could hit $75 a barrel, a record set for U.S. futures in April.

Greenspan noted that only a few of the world’s leading producers, other than Saudi Arabia, recognize the danger that rising crude oil prices impose on the economy, and to the producers’ ability to sell oil.

He said there are few good short-term options for lowering energy prices, claiming it is “not a choice between good and bad” but “between not so good and worse.”

Greenspan said, in the short-term, hybrid and plug-in vehicles could have some effect, but corn ethanol could play “only a limited role because its ability to displace gasoline is modest, at best.” Longer term, he said, the best options are cellulosic ethanol, clean coal and nuclear power.

He said the country is gradually getting off oil, but only very slowly. “It’s like watching grass grow,” he said, “but it is working, and we have to be careful to nurture that process.”

President Ronald Reagan appointed Greenspan as chairman in 1987. He served until Jan. 31, 2006.

Congress occasionally calls on Greenspan to air his views about energy issues, even though he has stepped down as chairman.

From the June 14-20, 2006, issue

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