Uncertainty in the energy sector will prevail until a real replacement for oil emerges
By G PANICKER
RELATIVELY low oil prices provide some cheer even in this rotten global economy. But like the Prague Spring all those years ago, this 'energy spring' will be transient. The massive pump-priming by governments will produce results in a year, perhaps two years, and energy worries will return once economic growth is restored.
We have had our energy lesson in a generation. We were told the chase for returns by pension funds and investment banks drove prices to dizzying heights. As consumers, we remained worried bystanders as prices swiftly crashed through each resistance level.
Now energy prices are down from about US$150 a barrel eight months ago. But the arguments for the price surge remain valid. A lot of people, including those from the Organization of the Petroleum Exporting Countries (Opec), blamed speculators for the spiral. But careful analyses conclusively point in another direction: demand and supply.
Such scenarios make US President Barack Obama's vision of a change from fossil fuels compelling. Green energy will foster a new world one day, where consumers potentially become producers of their fuel. Sunshine and wind are, after all, almost ubiquitous.
But renewable energy use on a global scale has a long way to go. The US Department of Energy still expects fossil fuels to account for 80 per cent of energy needs in 2030, though annual growth in oil and gas production will lag the pace of renewable oil.
Since this forecast was made last year, vast amounts of money for new energy research - US$150 billion in 10 years in the United States alone - have been committed for a technological breakthrough to whittle down fossil fuel shares. That push also reflects concerns about climate change. It is hoped that the nations will produce a charter for action, if not this year, very soon, to control harmful emissions.
It doesn't require much public persuasion when the stark changes in climate are felt worldwide. But the mainstay fuel for transportation primarily lies in Opec countries and Russia as other supplies dwindle. It presupposes continued investment - almost half a trillion dollars to 2030.
But these oil producers face a predicament. These countries are asked to risk billions of dollars on a fuel that the wealthy nations are working to get away from.
Unlike the rich industrialised countries, most Opec members are dependent on that single commodity. And they face population pressures. Already the sharp decline in oil's fortune has slashed their revenues.
They may find comfort in the forecasts for the continued dominance of oil and gas but they are nervous. The International Energy Agency, the adviser to rich countries, expects Opec to contribute 12 million barrels per day from new fields by 2030. But Saudi Oil Minister Ali al-Naimi has sounded a warning: 'We must also be mindful that efforts to rapidly promote alternatives could have a chilling effect on investment in the oil sector.'
Already, three dozen projects have been mothballed in Opec countries. The Cambridge Energy Research Associates warns that reduced investments could deprive the world of eight million barrels of oil a day within five years.
Elsewhere, the story is very much similar. Some expensive proposals such as the Canadian oil sands project have fallen victim to low oil prices. Meanwhile, Royal Dutch Shell says it will rather focus on oil and gas and biofuel but will skip new investment in wind, solar and hydrogen energy.
Adding to the mixed energy signals is the fact that the transport sector seems to be on the cusp of a revolution. It consumes almost 75 per cent of oil pumped. A significant technological breakthrough in fuel or batteries could hasten the shift away from oil.
As part of the US car industry rescue, struggling car companies have to make vehicles more fuel efficient. Every major car producer, as well as the upstarts, plan to produce electric cars by 2011. Mr Obama is aiming at a million plug-in hybrids by 2018 on US roads.
Yet, sales of petrol versions in countries such as India and China will swell global car population. But many of them, like the cheapest car in the world launched by India's Tatas this month, will be fuel-sipping (24km a litre). Some will not need any petrol at all. China is spending US$1.5 billion annually for three years to lift production to 10 million cars a year and at least of 5 per cent of them will be electric vehicles.
As these countries tailor their economic ambitions to the demands of climate change, it would mean more green cars and green power. Thus change will be driven by the competing fuels. Will it be smooth? We have already seen how tectonic shifts alter life, as Internet revolutionised commerce in recent times.
So far the road to the alternative future has run into potholes. The ethanol debacle should be instructive. It sparked a global outcry over using food crops for fuel and is no longer so acceptable. Today, controversy swirls over exploiting tar sands.
US Energy Secretary Steven Chu is, of course, promising transformational research. It would have to mean we need technologies that will create fuel as cheap or cheaper than oil. We are not there yet.
Until a real replacement emerges, uncertainty will prevail. Will we end up in a bind, where oil is short and its replacement not yet ready for prime time, all leading to high prices?