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After oil, Norway should turn to gas

Oil market in fear of double-dip recession
London (UPI) May 25, 2010 - World oil markets, until recently buoyed by Asian spending, are living in fear of a double-dip recession, London think tank Center for Global Energy Studies said. The think tank, inspired behind-the-scenes by founder Sheik Zaki Yamani, Saudi Arabia's former petroleum minister, said optimism over Asian spending hadn't lasted as long as initially anticipated and oil exporters' attention had turned again to troubled Western economies, where oil demand was failing to pick up because of poor economic recovery since the 2008 downturn and subsequent events. "A month ago the oil market was in bullish mood, focused on economic recovery and rising Asian oil demand," CGES said in its Monthly Oil Report compendium of analysis and forecasts.

On the New York Mercantile Exchange, June delivery crude oil prices tumbled overnight, falling to less than $68 per barrel -- off 21 percent from its high of the year -- with the bellwether commodity undermined by a weak euro, which fell to $1.2225 from Monday's $1.238. "In the space of just four weeks, sentiment has reversed and the market now seems fixated on the risks of a double-dip recession," CGES said in the report, released before Tuesday's oil market trend. A double-dip recession is defined by economists as a scenario in which the gross domestic product growth slides back to negative after a quarter or two of positive growth, leading to another recession. Chief causes for a double-dip recession -- poor demand for goods and services, layoffs and spending cutbacks -- are all in evidence worldwide, analysts said. Citing the latest price falls, the center said, "Both the global economy and the long-term health of the market for oil would benefit from a period of more modest oil prices."

CGES noted: "Although China continues to lead Asian countries along a path of strong growth, questions are beginning to be raised as to whether this is sustainable in the absence of a recovery in the region's main export markets in Europe and North America. "Consumers on both sides of the Atlantic remain cautious. Disappointing employment figures from the U.S. and fears of sweeping public-sector job losses in Europe have boosted savings rates and hit retail sales." At present, China's economic growth, and with it the country's demand for commodities, including oil, is being driven by government stimulus, CGES said. While the Chinese government can certainly afford to continue pumping money into the economy, some high-profile hedge funds are beginning to position themselves to profit from a slump in Chinese growth. "A slowdown in the rate of Chinese economic growth would remove at a stroke the single largest support of oil demand," said the center.
by Staff Writers
Stavanger, Norway (AFP) May 25, 2010
As Norway prepares for the day its massive oil reserves run out, industry players say natural gas is the best replacement, freely available and more efficient than renewables and less controversial than nuclear.

"It's a battle between idealists and realists and it will not be an easy discussion. But gas will be part of the solution," said Brian Bjordal, who heads up Norwegian gas transport company Gassco.

Rune Bjoernson, who leads the natural gas unit at Norwegian energy group Statoil, agrees.

Natural gas is "competitive on price, predictable when it comes to costs, ... it has a very low carbon footprint (and) reserves are huge," he told AFP.

Statoil, 67 percent held by the Norwegian state, is one of the world's largest oil and gas producers and the world's second largest natural gas exporter behind Russian giant Gazprom.

"We have enough reserves to cover 250 years of global consumption," Bjoernson boasted.

Industry players are not the only ones hailing the future of natural gas.

"There is lots and lots of natural gas in the world and going forward it is going to be relatively cheap to produce," said Oestein Noreng, a professor of petroleum economics and management at the BI Norwegian School of Management.

"Natural gas is also much cleaner than oil and coal. I think it has a bright future," he told AFP.

According to the International Energy Agency (IEA), global energy demand will be 40 percent higher in 2030 than in 2007, while electricity demand will grow 76 percent, with natural gas up 42 percent.

While Norway wins praise for its environmental awareness on energy, many question the focus on renewables, nuclear energy and carbon capture solutions (CCS).

"Nobody will solve the (energy) problem with wind, CCS or renewables," argued Bjordal.

The main problems for wind, solar and other renewables in replacing oil is that they involve massive investment and it is unclear if in practice they will ever be capable of supplying reliable energy on a large scale.

"The problem with wind and solar power is that it is so expensive," Noreng said, adding: "It's not practical."

Philip Lambert, a British energy expert working as a consultant for the Norwegian government, agreed.

"Wind or renewables, I say 'Okay,' but where are they in material volumes, how much CO2 are they really saving and what do they cost?" he asked.

At the same time, it is turning out to be much more expensive than expected to roll out CSS, which consists of capturing carbon dioxide (CO2) as it is released into the atmosphere, then compressing and pumping it back into the ground, usually in depleted oil and gas fields.

"The costs of doing something with CO2 has proven to be much higher than expected a few years ago," Bjordal said.

Nuclear energy, promoted by some as a clean, reliable alternative to fossil fuels, meanwhile also involves sky-high costs, long development timelines and is extremely controversial due to perceived safety risks.

While Norway has yet to permit nuclear reactors on its soil, there are numerous examples of out-of-control costs, construction delays and security breaches at reactors in neighbouring Finland and Sweden.

In Finland, the building of its fifth nuclear power reactor has been plagued by numerous delays and it is now expected to go online at least five years behind schedule.

If governments are serious about finding a realistic solution to the energy problem, natural "gas is the obvious fuel choice," Statoil's Bjoernson said.

Not including CO2 emission charges, natural gas comes at half the cost of coal and nuclear energy, and only a third of the cost of wind power.

"If one takes into account CO2-linked costs, the (cost) difference with coal widens but it shrinks compared to nuclear and wind," he said.



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