Sunday, 18 January 2015

Oil price fall not so good

What is good news for the consumer is bad news for the environment. The fall in the price of oil is probably bad news for the market in renewable energy.  Higher crude prices make biofuels more viable, then the converse is true, lower crude prices make biofuels less viable. Most biofuels are produced from crops that can also be used for food production. Biofuels are not without environmental impact. As demand grows so more land is likely to be devoted to production with impact on forests and biodiversity.  But at leat it is renewable.

The market in biofuels increased in recent years primarily to meet demand from the transport sector, especially road vehicles, which use biofuels either in pure form or as blend into conventional fossil fuels.  With rising crude prices the biofuels industry became more or less self sustainable and less reliant on subsidies to promote green energy production.  The falling price of crude may put that in jeopardy.  This may in turn have debilitating impact in developing economies where production of biofuels is the greatest. Nevertheless, Brazil and the US still account for the majority of global bioethanool production. 

The growth of alternative energy sources to replace fossil fuels may be halted by price constraints. Alternative sources still account for a very limited share of primary energy demand.  They have not been regarded as a replacement for fossil fuels but more as a supplement.  There was a time when it was estimated that the source of fossil fuels would run dry. It is after all finite. It is estimated that 970 billion barrels of oil have been consumed so far, while around 1 669 billion barrels at the end of 2012 are still to be extracted, which should take not more than 35 years at the current rate of production. 

That is a sobering thought.  We have 35 years to develop alternatives. Time is precious.  Falling crude prices may give us false optimism, a 'feel good' factor as we fill our tanks.  But it is a false prospectus.  


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