Higher oil price gives renewables a boost

The Sunday Times
June 7, 2009
Danny Fortson

AFTER a year of swings, the oil price is moving toward a stable middle ground that will benefit not just the oil industry but the struggling renewables sector as well, experts say.
Brent crude closed at $67.82 a barrel last week - nearly double the $35 it plumbed in February but still less than half the record $146 a barrel it touched last summer.
Barclays Capital predicts it is now heading toward the $75 to $85 “Goldilocks” range - not so high that governments aggressively seek alternatives but enough for oil-producing nations to make a comfortable return on more exotic endeavours such as deep-sea drilling and tar sands.
After a year of extremes the market will welcome some stability. There are several reasons for the recovery. One is that fears about the recession deepening have subsided. Few are willing to call the bottom, but there is a growing consensus that the prospects for the world’s biggest customers, America and China, are not as dire as predicted.

Amrita Sen, an analyst at Barclays Capital, said: “There are signs that the worst is probably behind us so the market is less focused on demand as a factor. Now it has begun looking at supply, and it doesn’t look great on the nonOpec front.”
Part of the reason the oil price reached $147 last year was the worry that oil producers would not be able to meet rising demand. But when the world economy slumped, so did the oil price. Opec, the cartel of oil-producing nations led by Saudi Arabia, reacted by slashing production by about 3.5m barrels a day, equal to about 4% of the total global consumption of 85m barrels.
Between them Saudi Arabia, Kuwait and the United Arab Emirates control about 85% of the world’s spare capacity - fields that are lying dormant but can be turned on if need be. To a large degree, they control where the price goes from here.
“Saudi Arabia has maintained throughout that $70-$80 a barrel is a sustainable level for them,” said Sen.
At that level many of the oil prospects that were becoming unviable when the price sank now look better. Andy Cox, energy partner at KPMG, said: “The oil companies are breathing a sigh of relief.”
The rise is also helpful for the renewables sector, where clean-energy projects already dependent on subsidies looked even more questionable next to a low oil price.
Cox said: “When the price collapsed real questions were asked about the economics for renewable versus conventional power.” The rising carbon price gives a further boost.