Scrambling for Answers to Oil Shock Decisions Today Will Play Out in 10 Years In Depth: Global Energy

By Richard Valdmanis

The surge in the price of crude oil has now reached the point where it is threatening global growth, adding urgency to the search to find new technology to either keep conventional oil flowing or supply less costly and less polluting energy alternatives.

How companies and governments navigate the treacherous energy landscape – which some analysts liken to the oil shocks of the 1970s and early 1980s – will shape the future of the global economy and could potentially tilt the delicate geopolitical balance, experts said.

“What happens 10 years down the road will be determined by the decisions made on energy today,” said David Kirsch, an analyst at PFC Energy in Washington. “Countries need to get serious about the underlying problem of demand for oil.”

Oil prices have doubled in a year to around $130 a barrel as rapid increases in consumption in China and other developing countries add to fears about the outlook for supply. Some analysts have said crude could top $200 a barrel by 2010 as the market remains tight.

While the boom has helped major oil producing countries, particularly Russia and parts of the Middle East, there are signs that the major consumers – the economies of the United States and parts of Europe and Asia – are starting to crack under the strain. High prices are hitting motorists at the pumps, hobbling energy- intensive industries like airlines, freight and fishing and feeding broader inflation – alongside higher food prices – sparking protests and even riots around the world.

“The oil price is unsustainable,” said James Hamilton, a professor of economics at the University of California at San Diego. “I think we’ve reached the point now where we’re starting to see significant responses from consumers.”

What will be the response from importers? Whereas in the 1970s, governments looked mainly to conservation to offset the damage of high prices, the trend now appears to be looking to increased investment in alternative energies and better oil field technology to reach more resources.

“Our time is very definitely coming,” said Jeremy Leggett, chairman of the British solar power company Solarcentury and a former environmental campaigner. “The world is going to be beating a path to our doors.”

In a sign of the shifting mentality, the Texas oilman T.Boone Pickens, who made billions betting on higher oil prices, has gone green with a plan to spend $10 billion to build the biggest wind farm in the world.

The energy analyst and oil historian Daniel Yergin said last month that record-high U.S. crude oil prices had reached a “break point” that would spur a shift away from transportation running on oil toward alternatives.

Alternative fuels have already made big inroads into energy markets, with ethanol making up about 7 percent of the U.S. supply of motor fuel thanks to government mandates and subsidies. Americans have also put the brakes on their voracious road travel and are starting to buy more fuel-efficient cars and fewer sport utility vehicles.

But the move is not all green.

Rising prices and the scarcity of conventional supplies have spurred an inflow of cash into development of nonconventional petroleum sources – like the Alberta oil sands in Canada, gas shale in Colorado and technology to turn coal into motor fuel. All of those sources pose risks to the environment.

In the meantime, continued price rises are darkening the clouds on the global economic horizon. Energy experts said a continued rise could worsen the slowdown in Europe and the United States, which has already been hit by a housing slump and a credit crisis.

The spike in crude prices may also be bad news for the developing Asian countries that helped fuel the global upturn.

“We’ll see growth slow globally,” said Jay Bryson, a global economist at Wachovia Bank. “But the big losers are the oil importers of the world, including Korea, Japan, China and a lot of other Asian economies.”

China has enjoyed double-digit economic growth despite the jump in the cost of oil and other commodities, but that will be hard to sustain as prices keep climbing, especially if Beijing cuts the fuel subsidies that are shielding consumers.

Already, Indonesia, Taiwan, Sri Lanka and Bangladesh have either raised or pledged to increase regulated fuel prices, forced into the unpopular steps by the unsustainable cost of subsidies.

By contrast, Russia and the big oil exporters of the Middle East have the most to gain, analysts said.

“Obviously, the winners in this game are those who export oil,” said George Friedman, the founder of the geopolitical consulting group Stratfor. “The victory is not only economic, but political as well. The ability to control where exports go and where they don’t go transforms into political power.”

Originally published by Reuters.

(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.