Interest in alternative fuel offers a silver lining

As the doors open on a new year, here is hoping that oil prices will finally stabilise, investors will take a breather and stop overreacting to news minute-by-minute, and everyone will get on the biofuel bandwagon.

Ah, but back to the real world.

So here is a look at what we may - although I hope not - be in for during the next 12 months.

Sadly, I see oil prices headed upwards once again as international unrest, constricting supply and a possible economic warming in the United States all coincide.

Leading the news this week are cautionary news stories reporting that conflicts in the Middle East and Russia may boost the price of both crude and natural gas.

In fact, I'd probably be safe predicting that Russia and its neighbours are going to squabble over natural gas delivery, since it seems to be on the verge of an annual winter tradition in the area.

Reports to the contrary, there is little the roasting hot conflict in the Gaza Strip can actually do to hamper oil and gas delivery, but it can spook investors.

And the long-standing Iraqi conflict has suppressed oil supplies from the resource-rich nation for so long it won't figure into price predictions until the industry there stabilises enough to actually pump substantial quantities of crude.

Instead, look to Africa and Nigeria for production concerns during 2009.

Nigeria has a long-running history of attacks on oil infrastructure, boasts the continent's largest hydrocarbon reserves - more than 30 billion barrels of crude and 187 trillion cubic feet of natural gas - and is the fifth-largest source of oil imports for the United States.

Just in recent news, gunmen just hijacked an oil company boat in the nation's major shipping lane, thieves sparked a fire at a dormant well and expectations are that rebel attacks will increase following the arrest of one of their leaders.

So, there is enough negativity in the news to spook already skittish investors into fearing a dip in supply.

But as the Organisation of Petroleum Exporting Countries (Opec) waits for the effect of its second production cut in two months to take effect, there should be little question that geopolitics aside, supply is going down.

Although reports seem to indicate that the more optimistic Opec members are finally balancing their budgets on realistic prices, no one can really tolerate prices below $50 per barrel, so they'll have to make cuts to make that cutoff.

The problem is once those cuts are in place, we'll have to wait for Opec to meet to raise production if oil prices spike too high.

But after the last bubble, that reaction is likely to be too late to prevent a nasty roller coaster effect.

It is the making of another perfect price storm.

If the last few years are any barometer, investors will overreact and drive up the price, demand will jump as North America climbs out of recession - spawning demand spikes in Asia and India - and Opec will be too slow to boost production.

At least there is a little good news on the horizon, as interest in biofuels and alternative energy has remained stronger than I expected in the face of cheap oil.

Air New Zealand's two hour flight with a mix of traditional jet fuel and vegetable oil was a shining moment, and US President-Elect Barack Obama has promised his administration is going to dump money into energy alternatives.

That investment could make the difference for everything from renewable sources of jet fuel to biogas extracted from algae.

The writer is a freelance journalist based in Alaska, USA