By MIKE MEYERS
Minneapolis-St. Paul Star Tribune
October 25, 2006
It has in the past. But a number of observers believe the quest for alternatives has more staying power this time.
In the 1970s, two oil "crises" prompted private and public investments to produce oil squeezed from shale, autos propelled by batteries and factory machinery turned by the power of the sun. All encountered technical challenges and another hurdle: Oil prices ebbed and so did any chance of profit from the alternatives with the technologies then available.
"One of the problems of investing in these technologies are big capital investments up front. How will your investment do over time when oil prices are very volatile?" said Albert Walgreen, economist at the U.S. Department of Energy.
The energy agency predicts that the price of oil will average about $50 a barrel during the next quarter-century. If that forecast proves true, alternative energies that would have been wildly profitable with oil at $75 a barrel will instead be only modestly attractive.
"To the extent that oil prices have fallen, it makes alternatives less competitive," said John Felmy, chief economist at the American Petroleum Institute, an oil-industry trade group based in Washington.
Yet alternative energy advocates say several forces are converging to make new energy technologies more attractive, even if the forecasts of $100-a-barrel oil turn out to be far off the mark.
They note that the costs of extracting oil from tar sands or refining ethanol from corn have fallen in recent years, even as oil prices have gone from about $20 a barrel to nearly three times that level now.
"There's significant momentum in the development of current and next-generation alternative fuels," said Dick Hemmingsen, director of the University of Minnesota's Initiative for Renewable Energy and the Environment.
Government and private industry are pouring billions into alternative energy research to curb the creation of greenhouse gases and promote U.S. energy independence, he said - two goals that have grown more prominent in the face of continuing evidence of global warming and continued conflict in the Mideast.
"I don't see that changing or going away," Hemmingsen said. "I think we're still headed on that track."
The oil industry invested $98 billion in alternative energy research from 2000 through 2005, according to the petroleum institute. Government kicked in another $37 billion over the same period.
"In terms of research and development, today's prices are less relevant than the longer-term outlook," Felmy said. If oil settles into a trading range near $50 a barrel in the next couple of decades, he said, alternative energy technologies should continue to offer profits to investors.
Earlier this month, Chevron announced a five-year research agreement with the U.S. energy agency aimed at turning agricultural wastes and forestry wood chips into ethanol and diesel fuels. In late September, HamiltonClark, a Washington-based investment banking firm, signed an agreement to work with energy agency researchers on a project to transform switchgrass into fuel - a project in which private investors will be putting up millions of dollars.
Memories of failed efforts in decades past - including a major drive to extract oil from shale - don't deter this generation of investors, said John McKenna, managing director at HamiltonClark.
"No, I don't believe we'll be in the same predicament as the oil-shale projects were," McKenna said. For one thing, the era of $20-a-barrel oil is unlikely to return, he said.
"Our firm believes that this reduction in oil prices is primarily a short-term factor," he said. "We think prices will continue to rise, probably in the first or second quarter of next year."
Meanwhile, the events in the Middle East represent an energy challenge that's unlikely to fade.
"There's a sense that (even though) oil or natural gas prices are low for the moment, we have a long-term vulnerability to higher prices if events conspire to do something to supply," said Stowe Walker, associate director of emerging generation technology at Cambridge Energy Research Associates, a consulting firm near Boston.
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