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High oil price demands good policies

IT would be a fallacy to imagine that the prospect of a US$100 price tag for a barrel of oil will lead to a push for renewable fuels any time soon. Simply put, there is nothing definitive yet on the horizon offering a reliable, continuous and cheap alternative in the face of mounting energy demand.

Oil prices have remained resilient in their upward trajectory. Producers remain steadfast about the adequacy of supply in the system even as large consumers clamour for more.

Traders focus on the thin inventories to push the price up. When oil was at half the current price level, it was seen as compelling enough for the big competitive initiatives. Yet there is no excited talk of renewable sources of energy or even theories that high prices would yield new oil supplies, driving prices down. Instead we have ever higher-priced oil.

Yes, consumers are in a fix, for which they should share the blame. Have they been willing to make the necessary sacrifices and use pressure to accelerate the shift? In countries that matter to oil consumption, people have not been pushy enough.

Politicians may make noises but will act only if they are convinced that a change – putting at risk trillions of dollars of infrastructure investment and millions of jobs – is politically worth their effort.

Then subsidies and legislation will follow for a meaningful change of direction. Until then, some countries will do their bit but no cohesive global policy or focus on the next big thing will emerge. Big energy companies spend scant sums on research and development on renewable fuels. Independent R&D betting on the new future have surged but their budgets are small beer.

Unless the existing big players like car, energy and power companies as well as governments line up behind a change and consumers show a determination to support the drive, we will continue to grope for good answers for years, if not decades. Not convinced? ExxonMobil has forecast energy demand will grow 1.3 per cent a year, a tad lower than at the current rate, requiring a third more energy by 2030.

It says hydrocarbons would still meet 80 per cent of demand then, though renewable energy supply will grow at a faster clip of 9 per cent a year from now.

Rich nations’ energy adviser, the International Energy Agency, is also equally bleak. Unless governments embark on low-carbon policies, it sees the unprecedented rise in energy demand accelerating climate change, threatening global energy security and possibly creating a supply crunch. By 2030, the world will have to find an additional 30 million barrels per day, equivalent to Opec’s current total daily production.

Such an enormous challenge demands good policies and determined execution. Global R&D cooperation and conservation, not bitter recrimination by rich polluters, should be the way forward.


Source: Business Times 15 Nov 07

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