It is important that we address the problem of high natural gas prices as soon as possible. The high prices act like a brake on the American economy, impacting every business and household in America. However, certain industries have suffered especially hard. For instance, the chemical and plastics industries, which use natural gas as a feedstock, have been hammered by the high prices. The Manufacturers’ Alliance estimates that 90,000 jobs have been lost in the chemical industry since the year 2000.

Also, it is important to remember that there is not a single integrated market for natural gas in this country. We simply do not have the infrastructure to easily ship gas from one region to another should there develop a localized shortage, and as a result prices across the country often differ greatly. The lack of infrastructure shows no signs of being alleviated in the near future, according to a recently released Energy Information Administration report stating that new investment in pipelines actually fell in 2002, the last year for which we have reliable data. We do not have to hearken too far to remember gas prices on the east coast tripling to over $20 per mcf (million cubic foot) while topping out at $7 in Cheyenne.

We know the proximate causes for the run up in the cost of natural gas. A few years after prices were deregulated in the 1980s the Congress passed laws that in effect encouraged its use to produce electricity, sharply increasing demand. At the same time, the production from extant wells began to decline and environmental restrictions made the exploration and drilling of new wells more difficult. It doesn’t take an economist to see that policies that increase demand and decrease supply will sharply increase prices.

Let’s be clear about one thing: there exists enough natural gas in the world to meet our needs for the foreseeable future. We are not running out of natural gas by any stretch of the imagination. Here in the U.S. we still have significant reserves in the lower 48 states and Alaska. More significantly, vast amounts of natural gas reserves are available all over the world.

However, companies and countries have just begun to contemplate the massive investments needed to get to these reserves and create a truly global market in natural gas. The pipelines, cooling plants, tankers, and regasification plants necessary will ultimately cost hundreds of billion dollars. A central question for policymakers is “what can we do to facilitate these investments?”

Diagnosing the causes of high prices is easy; forecasting future prices and prescribing policies to alleviate high prices is not. The standard response would be that high prices alone will attract new investment in production, more conservation by the users of natural gas, and the forces of supply and demand will eventually balance. To be sure, we have witnessed some of this—the rise in natural gas consumption has tapered off in the last year or two, and the current rig count in the U.S. is at an all time high. However, major new investments to increase supply or conservation will not take place in an environment of major price and policy uncertainty. The latter is only in part our fault, and although we’ve tried to remedy this the current Congress will most likely escape tomorrow without ameliorating the situation. We’ve also contributed to the former as well by passing laws that stimulated natural gas demand without fully thinking through their long run consequences and dealing with them when they were more manageable.

I will leave the question of “what do we do now?” to our esteemed panel of experts that we have assembled today. The Committee is honored to have you with us today and we anxiously await to hear your thoughts on the natural gas market of today and the future.