Thursday, January 1, 2009

Glimpses through the Energy Crystal Ball : 2009


New Year's Eve Ball, 1978. Photo credit: The New York Times.
Happy New Year to our readers. Continuing the blogging traditions of forecasting major breakthroughs in a given field :-), I present my opinion of what the energy industry might expect in 2009.
  • Oil prices & clean tech-investments: The downward trend in the crude oil prices will likely continue atleast until Summer'09. A lot depends on the market perceptions of US and world economies. The current conflict in the Middle East has put a slight upward pressure on the oil prices, but this will likely be temporary. Short-term clean tech-investments will depend to a major extent on the availability of credit and the risk perceptions associated with various technologies. Investments in oil sands production have come to a standstill because of the lower demand and poor credit access.

  • Carbon trading and renewable energy credits: Because it might be easier to get Congressional approval on a renewable portfolio standard (RPS), expect RPS standards at the state/Federal levels to be implemented before a cap-and-trade regime. However, various regional GHG programs will begin to play a greater role in influencing the debate on a Federal cap-and-trade regime. I think that rewarding early action to reduce GHG emissions/increased renewable-based power generation should be a key component of the RPS/carbon trading approach.

  • Clean coal technologies: The high capital costs associated with clean coal technologies (IGCC, CTL, etc.) coupled with the low cost of crude oil (and natural gas) have limited investments in clean coal technologies. One notable example is the cancellation of SES-Consol Energy synthetic gasoline project in West Virginia. However, CTL projects elsewhere in the world seem to be going forward. Because these multi-billion dollar facilities take many years to build, it is essential to take a long-term view for these projects. On the other hand, financing will still be partly influenced by short-term market trends, and well-established companies with proven technologies will stand a better chance at getting financed.
    Recently, Laurus Energy, the sole North American licensee for Ergo Exergy's εUCGTM underground coal gasification technology received financing from a Silicon Valley-based VC firm. This indicates that projects which aim to lower capital costs of conventional coal technologies could also likely succeed in getting financed.

  • Carbon capture and storage (CCS): Various players in the oil and gas industry and the power industry are following developments in the CCS field, and strategically positioning themselves. Exelon, for example, has a mid-term low carbon roadmap which incorporates elements of efficiency, along with low-carbon electricity production options such as natural gas, nuclear and renewables. Papers describing current industrial efforts in CCS from the recent Greenhouse Gas Technologies-9 conference can be found here. A comparative assessment of the World Resources Institute (WRI)'s CCS guidelines and emerging U.S./European geologic CO2 sequestration regulations is here (subscription might be required).

  • Biofuels: My take on the short/medium-term implications of President-elect Obama's biofuel policy appeared as a guest post on The Big Biofuels Blog.

Conclusion: It would have been highly unlikely for someone to predict 40$/barrel crude prices at the beginning of previous year. The current economic slowdown will play a greater role in influencing both the consumption of energy and investments energy technologies. On the other hand, President-elect Obama plans to jumpstart the economy with a 850 billion $ infrastructure spending plan. The stakeholders must ensure that the current economic scenario is not another opportunity lost in addressing the problems of human development and sustainability.

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