first quarter of this year reflected higher energy costs, only a small part of which companies apparently were able to pass through into higher prices. rising natural gas prices, resulting from a significant shortfall in gas storage brought about by growing domestic demand and a limited ability to import, have been a particular concern. but since the start of the year, spot prices for natural gas have fallen significantly as the earlier run - up in prices induced a dramatic rise in drilling, a boost to output, and curtailed demand. falling spot prices are being reflected, with a lag, in lower contract gas prices paid by u. s. businesses. electric power costs continued to rise through may, but overall energy prices paid in april and may were down from the levels of the first quarter, suggesting some easing in pressures on profit margins from energy this quarter. we are also experiencing a decline of retail gasoline prices, which also had been rising sharply over the past couple of years. that run - up was of particular concern because in the past steep increases in the price of gasoline have arguably undermined both the real purchasing power and the confidence of consumers. this effect has likely been an avenue through which previous spikes in the price of crude oil have slowed economic activity. the jump in gasoline prices from march through may was wholly the result of a twenty cent per gallon surge in gross refining margins. by contrast, refinery acquisition costs of crude oil changed little over that period. in recent weeks, however, refinery margins have declined noticeably, easing gasoline prices at the pump, especially here in the midwest. the widening of refinery margins this spring, in turn, reflected shortfalls in refinery capacity, which had been exacerbated by a number of breakdowns. after rising to a peak in the early 1980s, the capacity of operable refineries fell substantially by the middle of that decade and held about flat from then through most of the 1990s. upgrades of existing facilities in the 1990s served only to offset a decline of more than 20 percent in the number of refineries. accordingly, a refinery operating rate that languished at around 75 percent in the first half of the 1980s has risen to effectively full - capacity operations currently. the pressure on these facilities impeded the conversion of the substantial buildup of crude oil inventories that occurred since early march into gasoline and, as a consequence, gasoline prices at retail continued to increase through early may. as was the case in 2000, some sharp regional differences in gasoline prices have emerged again this

than might otherwise have been the case ; much of the innovation in oil development outside opec, for example, has been directed at overcoming an increasingly inhospitable and costly exploratory environment, the consequence of more than a century of draining the more immediately accessible sources of crude oil. one measure of the decline in the marginal cost of additions to oil availability in recent years is the downdrift in the prices of the most distant contracts for future delivery of light sweet crude oil. spot prices have soared and plunged, but for the most distant futures contracts – which cover a time frame long enough to seek, discover, drill, and lift oil – prices generally have moved lower over the past decade. the most distant futures prices fell from a bit more than $ 20 per barrel just before the gulf war to $ 17 to $ 18 a barrel a year ago. the current six - year futures contract has risen, on net, over the past year and has been a little above $ 20 per barrel in recent days. arguably, however, this rise is related less to technology and the structure of underlying marginal costs and more to uncertainties about how quickly the new practices will be exploited to expand opec's productive capacity. going forward, there is concern that opec may choose not to expand capacity adequately from their large proven reserves. the long - term marginal cost of extraction presumably anchors the long - term equilibrium price and, thus, is critical to an evaluation of the magnitude and persistence of any current price disturbance. over time, spot prices are inexorably drawn back to the long - term equilibrium price, as the balance between underlying supply and demand is restored. a premium over long - term marginal costs doubtless exists for oil because so much of the world's crude oil reserves are in areas where disruptive turmoil is always a latent threat. the longer - term outlook for natural gas prices is less tied down by history or current practice. unlike oil, the natural gas consumed in the united states, as you know, is almost solely produced in the united states and in canada, from which last year we imported 16 percent of our 23 trillion cubic feet of demand. the story of gas supply in the united states, in contrast to oil, is thus largely a domestic one. compared to oil, the industry is relatively new. natural gas is more difficult to transport in its gaseous form through pipelines and particularly challenging in its cryogenic form when transported as a liquid. it '