• 05Jun

    Alternative energy challenges and oil price

    by

    Hank Jensen

    As oil hovers approximately $80 per barrel range and the frail global economy endeavors to rebound from the recent recession, the need to invest in alternative energy and identify viable alternatives to oil as a fuel supply becomes even more vital. Why? Historically, when the cost of oil is greater than a certain percentage of GDP, an economic downturn ensures. In todays economy that figure is about $80 per barrel. If economists are correct, that would mean the global economy may be teetering on the brink of another down leg, if not a financial collapses should oil increase in price significantly higher than $80 per barrel.

    If we are in a decline, why is oil trading at about $80 per barrel anyway? Is the world running out? No, the world is not running out of oil, however there are other challenges such as the cost to bring oil to market.

    For oil producers to generate a reasonable return on their oil production, the price of oil needs to be about $60 to $70 a barrel. If it drops below some $60, drilling and research experience a dramatic drop with an equivalent fall off in output, putting future demand at risk.

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    Many analysts believe that offshore oil from countries like Brazil that have noteworthy untapped reserves is the solution. What is not understood is that the break even amount to get the oil from these sources that are up to 36,000 feet deep is about $80 per barrel. And then we ask have to ask ourselves: Is deep sea oil even practical after the BP oil spill catastrophe?

    Lets review the initial stage of the existing recession which started about the 1st quarter of that year. Note that at that time, oil went over $100 per barrel and stayed there for about the next 6 months. During the initial months the economic effect was apparent to most people. The government denied we were in a recession, but the general public was conscious enough to acknowledge that the economy was in suffering.

    Then, the recession that was not a recession, was ultimately declared to be one a few weeks after the bankruptcy of Lehman Brothers in September of 2008. From there the economic downturn morphed into the most severe economic downturn since the Great Depression. Now the recession that wasnt a recession is going through a recovery that is not really a recovery as evidenced by high unemployment and real estate foreclosure rates.

    So what would it take to cause an increase in oil to over the $100 range placing the economy at risk? How about a geopolitical event in the Middle East? Or a terrorist attack on a major oil producers facilities? How about an attack on commercial vessels in the Straits of Hormuz where 40% of the global oil is shipped each day? If you believe that one of those events is far fetched, simply turn on the TV or radio and listen to the current events in the Middle East. It seems we are on the brink of a major geopolitical event.

    A geopolitical event or terrorist attack notwithstanding, additional oil demand from the growth of Asian countries could easily drive oil prices to over $100 per barrel within the next year or two. The higher oil prices go, the more critical a sound alternative energy plan on a domestic and global dimension will be necessary.

    Anyone can surf the web and find out about advances in offshore wind power, solar power and hydrogen fuel cell technology. The recent advancements in electric / hybrid autos are welcome as well. While noteworthy advancement is taking place in these areas, it is not anywhere near satisfactory to ease concerns of the current rate of increasing energy costs.

    The final analysis is this: If an alternative fuel source, at least on a back up basis, is not developed ASAP, then the increase in oil prices which is surely coming could take this recovery which isnt a recovery and turn it into a depression that IS a depression. Which will come first?

    Solutions to today energy needs can be found at Alternative Energy Talk. Everything from hydrogen power company’s, onsite energy systems and hydrogen fuel cell technology.

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