[BETA] Fortnightly

The United States must turn overseas for natural gas supplies, in spite of worries about energy independence.

It's been an unusual summer, to say the least. In the last few weeks, an unending parade of gas executives, attorneys, consultants, academics, bankers, and most notably, Federal Reserve Chairman Alan Greenspan, have commented on gas reserves issues before Congress. Certainly, the steady increase in natural gas prices gives cause for concern. Ordinary consumers (voters!) face higher utility bills-not only for winter heating, but for summer cooling, too. The news is bad even for those crystal-ball-gazers who tout hydrogen as the eventual savior of the nation's energy woes, since all that hydrogen would be manufactured largely from-you guessed it-natural gas.

Of course, every problem has a solution. With natural gas, that means looking overseas for imports. But will the United States embrace such an idea, given our past experience with global oil markets, our current dependence on Middle East oil, and the political and military costs that follow, as has been shown so vividly by recent events?

Yet economists such as Greenspan advocate a global natural gas market system, in spite of the odds.

"If North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required," Greenspan said before the U.S. House Committee on Energy and Commerce. Certainly, many other economists have said that the energy independence issue or hydrogen economy initiative, while a worthwhile goal, is not achievable for many, many decades. Furthermore, such a vision also depends on the presence of cheap gas as a bridge to the day when high-tech renewables run a pure hydrogen system.

In addition, the oil market is not necessarily the devil that some experts have made it out to be. While much has been made of Saudi Arabia's influence on oil markets, such as the 1970s OPEC oil embargo, it is rarely mentioned that this episode hurt that country's economy throughout much of the 1980s. Some economists say Middle East countries would be hard-pressed to put their economies in jeopardy again; besides, non-OPEC countries, such as Russia and Venezuela, diversify the mix.

In a post-9/11 world, emotions still run high on increasing energy dependence of foreign sources. But as Greenspan points out, natural gas resources are more diversified around the world, and a worldwide market, such as in oil, is much more resilient to supply shifts.

Greenspan explains: "Increased marginal supplies from abroad, while likely to notably damp the levels and volatility of American natural gas prices, would expose us to possibly insecure sources of foreign supply, as it has for oil. But natural gas reserves are somewhat more widely dispersed than those for oil, for which three-fifths of proved world reserves reside in the Middle East. Nearly two-fifths of world natural gas reserves are in Russia and its former satellites, and one-third are in the Middle East.

"Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply. Access to world natural gas supplies will require a major expansion