Energy focus of Greenspan’s talk on campus

Energy
focus of Greenspan’s talk on campus

…………………………………………………………………

BY NANCY BURCH
Special to the Rice News

Alan Greenspan,
generally acknowledged as the world’s most influential
economist, confessed to a Rice audience Nov. 13 that he
began his professional career as a musician in a dance band.
His interest in economics, he explained, was sparked by
visits to the library during band breaks. He enrolled in
New York University for graduate studies, and the rest is
economic history.

Chairman of
the Federal Reserve since 1988, Greenspan visited the campus
for a talk at Stude Concert Hall sponsored by the James
A. Baker III Institute for Public Policy. Following his
lecture, he received the Baker Institute’s Enron Prize
for Distinguished Public Service. The prize, made possible
through a gift from Enron Corp., recognizes outstanding
individuals for their contributions to public service.

Greenspan’s
speech offered an assessment of what lies ahead for the
energy industry. In the wake of the Sept. 11 attacks and
the current weakened state of the economy, he stressed the
need for policies that ensure long-term economic growth.
“One of the most important objectives of those policies
should be an assured availability of energy,” he said.

Greenspan said
that this imperative has taken on added significance in
light of heightened tensions in the Middle East, where two-thirds
of the world’s proven oil reserves reside. He noted
that the Baker Institute is conducting major research on
energy supply and security issues.

Looking back
at the dominant role played by the United States in world
oil markets for most of the industry’s first century,
Greenspan cited John D. Rockefeller and Standard Oil as
the origin of U.S. pricing power. Following the breakup
of Standard Oil in 1911, he said this power remained with
American oil companies and later with the Texas Railroad
Commission. This control ended in 1971 when remaining excess
capacity in the U.S. and oil pricing power shifted to the
Persian Gulf.

“The story
since 1973 has been more one of the power of markets than
one of market power,” Greenspan said. He noted that
the projection that rationing would be the only solution
to the gap between supply and demand in the 1970s did not
happen. While government-mandated standards for fuel efficiency
eased gasoline demand, he said that observers believe market
forces alone would have driven increased fuel efficiency.

“It is
encouraging that, in market economies, well-publicized forecasts
of crises more often than not fail to develop, or at least
not with the frequency and intensity proclaimed by headline
writers.”

Greenspan touched
on recent energy shortages in the United States and how
market forces responded. He cited the heating oil shortages
on the East Coast, which drove up natural gas prices, resulting
in increased production and curtailment of demand. Commenting
on California’s electric power crisis earlier this
year, he pointed out that once higher prices were passed
on to consumers, demand slowed dramatically.

Turning his
attention to the long-term prospects for American energy
markets, Greenspan addressed the technological changes in
the production side of the industry. “The development
of seismic techniques and satellite surveillance that are
facilitating the discovery of promising new oil reservoirs
worldwide have roughly doubled the drilling success rate
for new-field wildcat wells in the United States during
the past decade,” he said.

While the shift
away from the hit-or-miss wildcat oil and gas exploration
of the past would indicate declining costs, Greenspan cautioned
that there remains the challenge of overcoming increasing
costs brought about by more than a century of draining the
more easily accessible sources of crude oil. Also, the potential
for disruptive turmoil exists in many of the areas where
the world’s crude oil reserves lie.

Greenspan touched
on the rising demand for natural gas and predicted that
higher anticipated needs will force tradeoffs between energy
requirements and environmental concerns. As a result, he
sees renewed interest in the expansion of coal, nuclear
power and nonconventional sources of energy. “We cannot
say with certainty how these technological possibilities
will play out in the future,” he said, “but we
can say with some assurance that developments in energy
markets will remain central in determining the longer-run
health of our nation’s economy.”

Greenspan closed
by reminding the audience that national security and environmental
concerns need to be addressed in setting energy policy but
in such a manner so as not to distort or stifle the meaningful
functioning of U.S. markets.

— Nancy
Burch is a free-lance writer and a Rice alumna.