With the recent low hydrocarbon costs, alternative energy projects have taken a hit. After all, alternative energy is uneconomical: consequently, until unless established energy costs arise to what it costs to bring forth power from wind, sun, tide or river, the last mentioned will forever be a tomorrow-technology.

Nowadays low energy prices are consequently a fundamental dilemma for governments bidding to bring down carbon footprints, and in the case of Washington, United States of America addiction on oil imported from uncongenial sellers. This goal, reincarnated by every United States. administration for 30 years, has been systematically undercut by market forces too powerful to resist. No government can indefinitely break loose with unnaturally forcing up the price of a key industrial input, thereby decreasing its economic competitiveness. Oil, it will be recalled, was selling for a record $147 a barrel, and natural gas had spiked to $13.

Real change seemed impending, and in one of the year’s curiosities, Texas oilman T. Boone Pickens became an effective, if unlikely, advocate…

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The union cabinet has accorded its approval to ONGC Videsh Ltd, the overseas investment arm of ONGC, India’s largest oil explorer, to go ahead with World’s largest refining companies the acquisition of UK-listed Imperial Energy.

The cabinet committee on economic affairs met recently this week to approve the deal. There is no official word on the government’s decision as yet. People who are in the know of the deal said that the cabinet clearance was taken so that OVL could meet the Tuesday midnight deadline set by UK authorities.

This would pave the way for OVL to make the open offer to the UK listed shareholders. The agreed $2.1 billion deal will be one of the bigger deals by ONGC in recent times. Imperial Energy has oilfields in Russia. OVL had sought to delay making the open offer but the request was rejected by the Takeover panel on Monday.

Analysts say the deal works out to around $2 to $2.5 a barrel for OVL given Imperial’s declared reserves of 900 million barrels and will help improve India’s energy security. India meets almost 70% of its oil demand through imports.

ONGC is being advised by Deutsche Bank. Merrill Lynch is advising Imperial.

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Oil prices extended its recent losses on Friday, notching its biggest weekly loss since the 1991 Persian Gulf War, as rising fuel inventories in the US heightened concerns over slumping energy demand. The January futures contract fell below US$34 per barrel, as fears about a deepening global recession offset the proposed production cuts by OPEC.

US light crude for January delivery, which expired on Friday, settled down US$2.35, or 6.5%, at US$33.87 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 10, 2004 when it ended at the same level.

The more active February contract settled up 69 cents at US$42.36 a barrel.London Brent crude gained 64 cents, settling at US$44.00.

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For the third time in several months, Organization of Petroleum-Exporting Countries ability to halt plummeting crude costs amongst a global economical meltdown will be examined during a meeting Saturday.

Nevertheless, the consequence of the meeting, called to appraise the affect of earlier output cuts, likely hinges on a key issue with which the Organization of Petroleum Exporting Countries has had a checkered past: unity.

“There is total confusion” among OPEC’s 13 members, said Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. in New York. “These people … really have no business model. They basically thrive when oil prices go up, and now they are crying uncle when prices go down.”

And costs have fallen heavily. Call for crude has vaporized amid a global financial avalanche that jeopardizes to cut deeply into the budgets of OPEC member states…

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Eastern European leaders met in the Azerbaijani capital Baku on Friday for a summit aspired at boosting energy supply routes from the Caspian region to Europe that bypass Russia.

Leaders of the Baltic nations, Azerbaijan, Georgia, Poland, and Ukraine were joined by Turkish President Abdullah Gul for the first time to talk about joint energy projects, including proposed oil and gas pipelines.

Turkey has become a major participant in the Middle East and Caucasus energy trade and has campaigned for a bigger diplomatic role in the volatile Caucasus region, scene of an armed conflict between Russia and Georgia in August.

A United States delegation led by Energy Secretary Samuel Bodman also attended. On Thursday, he said Washington desired to boost diversity of supply and said that there were troubles with a Russian plan for a new gas pipeline to Europe.

Bodman said that Russia’s South Stream project to build a gas line under the Black Sea to Bulgaria and on to southern and central Europe “is a very complicated project and requires more financing.

“We support projects which are being implemented by suppliers, transit countries and energy consumers that will contribute to global energy security,” Bodman told reporters in Baku.

Washington has powerfully endorsed routes for delivering Caspian oil and gas to Europe that bypass Russia including the European Union’s flagship Nabucco gas pipeline and a projected gas pipeline under the Caspian from Central Asia.

Russia has long asserted it is the dominating power in the Caucasus and campaigned a brief war with Azerbaijan’s neighbor Georgia in August, raising concerns about the security of supplies through the Caucasus.

The summit follows the introduction by the European Commission on Thursday of a new plan to boost energy supply security and cut back EU dependency on Russia.

The European Union’s executive body said it wanted to fortify crisis mechanisms and advance oil and gas stocks to respond to any disruption in supply.

The plan accentuated evolving a “southern gas corridor” to transport supplies from the Caspian Sea and Middle East regions, bypassing Russia, as well as an energy ring linking Europe and southern Mediterranean countries.
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Oil markets are confronting a great decline - for a number of reasons - and carry on to stream further down. At present, costs are already in the vicinity of $50 a barrel. Rather than seeking a cap, crude oil markets now appear looking for a floor - somewhere - at decent levels. What a transition indeed. And indeed this transformation is not without ramifications, of considerable magnitude, one can easily deduce.

Crude markets have entered a phase where, due to low prices, the incentive to invest in the industry is getting less and less.

And if the course continues, as some are contending today, another round of price spiral may not be faraway. The emerging scenario may not only be disastrous for the industry, but indeed for the general worldwide energy balance too - a real cause of interest indeed. We need to wake up to the consequences now - and not later.

Global crude prices have fallen by two thirds over the past four months and it appears set to fall further - unless drastic steps are in place. Interestingly it took 40 months for oil prices to rise from $50 a barrel to almost $150 a barrel and just four months for them to crash to the current lows.

The London-based Center for Global Energy Studies (CGES) now believes that the global oil demand would contract in 2008 for the first time in a quarter of a century.

The tapering off fortunes of oil may indeed have brought smiles in some major global capitals. Many must be heaving a sigh of relief at the turn of events.

Yet, these are not the best of times for the industry. Energy is indeed a high-priced affair. In order to keep wheeling this crude-driven civilization of ours, investments in the industry is a must. And with falling prices, this investment is now in doubt. Would there be enough investments to keep meeting the growing global requirements, is a billion dollar question.

Early cautionary shots are already there - investments in the industry are getting shy. With the global energy demands continuing to grow - albeit at a slower pace than before - the issue of meeting the future global needs is a real one. From where the incremental supplies would come, in case investments in the sector continue to be bogged down - due to the lack of incentives?

Platts, the energy information supplier, had also projected last year that companies that produce, refine and transport oil and natural gas will need as much as $21.4 trillion in capital expenditures through 2030 to meet the world’s growing energy demands.

In its recently released World Energy Outlook, the OECD energy watchdog IEA underlines that more than a trillion dollars in annual investments is needed to find new fossil fuels over the next two decades to avoid the impending energy crisis that could easily choke the global economy.

At a time when leading oil companies are backing away investments in view of one of the most severe economic downswings in a generation, and lack of incentive to invest in the sector, the IEA stressed that it’s vital for continued investment in new projects. The total potential tab through 2030 as per the IEA is to the order of $26.3 trillion - colossal by any means.

“There remains a real risk that underinvestment will cause an oil supply crunch” by 2015 as the decline in yield from mature oilfields speeds up, the Paris-based adviser to 28 oil-consuming nations said in its annual report. “The current financial crisis is not expected to affect long-term investment, but could lead to delays in bringing current projects to completion.”

OPEC has also warned that crucial downstream investment - in refining and distribution - will be curtailed if the oil price is not maintained at a reasonable level.

The crisis is beginning to unfold. The dominating doubt is already prompting companies to withhold billions of dollars of investment in new oilfield and refining projects. Royal Dutch Shell PLC, Europe’s largest oil company, said last month it was pushing back a decision on expanding an oil sands project in Canada. North American refining giant Valero Energy Corp. has also announced curtailing capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. said it has delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

“It is clear that collapsing oil prices are not only detrimental to the economies of oil-producing states, but also to future upstream investments to sustain future oil demand consumption,” Vienna-based consultant JBC Energy said in a recent market report.

Demand for oil and crude prices may be falling with the economic slowdown, but that could well lead to a supply-side crunch in the next year or so, and that will push oil prices higher again.

And that is the big challenge. The industry needs to be prepared for tomorrow, even in these uncertain times. If we do not act now, another round of price spiral may not be far off.

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