Dipping oil prices shift focus from alterantive energy sources

Well finally we have some good news on the oil front. Rather than a one day drop, quickly followed by crude prices resuming their upward march, we saw, prior to Russia-Georgia's saga, a steady downturn over the last week, coupled with a strengthening dollar.

What probably isn't good news is why the price of crude was dropping. Demand went down, thanks to both high prices at the pump and a steady economic slowdown. While no one is going to complain about shelling out less at the pump, a cooling US economy is not good news.

The oil companies, and the Organisation of the Petroleum Exporting Countries (Opec), have long been aware of this. Sure, they are rolling in the money right now. But that isn't going to last if demand continues to stay low. So why should anyone else care if there is less oil revenue flowing in?

Simple. Less money means less money for exploration, upgrading existing infrastructure, increasing refining capacity and researching alternative energy sources.

We're looking at a vicious cycle here.

I agree with Opec, for the most part, that recent price spikes are linked to the declining dollar and resulting speculative investment. But at some point we are going to be looking down the empty barrel of peak oil.

If money isn't being invested in finding new sources of black gold - think of what is under the Arctic ice alone - and in developing new ways to get to what is left, we're going to be hurting even more in a few years.

And while there is enough oil being pumped out of the ground to fulfil demand right now, the problem has long been refining capacity. After all, you can't pump crude into that Hummer.

Although it is hard to get the focus off of oil, natural gas is in the same place. As oil prices fall, it is entirely likely that natural gas will follow in its footsteps.

That comes as the importance of gas pipelines, creation of liquid natural gas and the regasification process all become more important to a world increasingly dependent on the resource for heating, cooking and energy production.

If energy prices plummet in response to a cooling US, and possibly world, economy where are places like Alaska going to come up with the huge amounts of funding necessary to build a new pipeline to tap previously unused natural gas under the North Slope?

New oil refineries are needed in the Gulf, and those aren't going to get built if Gulf Cooperation Council countries are unable to depend on the revenue they were expecting with $150 per barrel oil.

Don't even get me started on the amount of investment it would take to get Iraq's oil industry off the ground again.

There are 112 billion barrels of proven oil reserves under the bloodied sands of Iraq, second only to Saudi Arabia's reserves, and it is useless to the world in general until someone rebuilds the drilling, transportation infrastructure and refining capacity there.

No company is going to do this out of pure generosity.

If the US continues to feel the pinch of the housing credit crunch, still-high gasoline prices and sagging consumer confidence, experience shows that such a malaise may well spread to other countries who export to North America.

What concerns me the most, however, is that much of the recent drive to invest in alternative energies - whether that is ethanol or biogas - has been in large part spurred on by the high price of oil. Without that fear of ever-costly fuel looming, some of that investment drive is lost.

The writer is a freelance journalist based in Alaska, USA.