Despite high oil prices, fossil fuels will continue to trump renewable energy sources such as solar and wind power without massive government subsidies, a new investment bank says.
A report by Calgary-based AltaCorp Capital says the “economic realities” of oil and natural gas mean that the world will remain largely dependent on non-renewable energy sources for the foreseeable future.
Author John Mawdsley said he didn’t set out to make a case for oil and gas, but found that hydrocarbon fuels are by far the most cost efficient on an energy equivalent basis compared to solar, biofuels and wind power.
“We didn’t have any particular bias, but we were surprised by some of the things we found,” he said in an interview.
Despite massive government subsidies, so-called “green” energy such as wind, solar, and biomass accounts for about four per cent of global energy consumption. On an barrel of oil equivalent basis, an equal amount of solar power would cost about $450 a barrel even after factoring carbon dioxide costs of about $50 per tonne – which Mawdsley noted is more than double the current price of emission credits in Europe and three times higher than the Alberta government’s $15 per tonne levy on emissions.
In that context, expensive oil sources such as the oilsands remain relatively cheap. “Due to the practical and economic realities, we believe high oil prices are here to stay, which will continue to make Canada’s conventional oil and oilsands companies attractive investments.”
There are also ethical considerations. Even though corn-based ethanol and soya biodiesel are cheaper than nuclear power and coal-fired electrical generation, Mawdsley notes that the amount of land under “fuel cultivation” in the U.S. is enough to feed 150 million people.
Electrical cars might reduce tailpipe emissions, but could be considered “coal-fired” if they increase demand for dirtier burning electricity. “There are trade-offs,” he said.
AltaCorp. is the new investment bank and research house formed by Tristone Capital founder George Gosbee late last year. The firm, which is partially owned by ATB Financial, has a mandate to invest in emerging Alberta companies in the areas of energy, alternative energy and agriculture.
Mawdsley said the comparison highlights the economic disparities between energy sources, but also the opportunities for innovators to reduce the gap on some of the higher cost energy sources.
The report also notes the “tragedy of the hydrocarbons,” where cheap oil and gas discourages a transition to cleaner fuels. “The tragedy lies in the reality that people will continue to use and deplete the non-renewable hydrocarbons even though it is not in the best long-term interest of the individual society, mankind or the planet for this to continue.”
But some observers argue that higher oil prices are already prompting the shift to cheaper alternatives and altering consumption behaviour. Oil hit fresh 30-month highs on Wednesday, rising as high s $109.15 before settling at $108.83, up 49 cents on the day. European-traded Brent continues to remain above $121.
Despite a report from the U.S. government showing a two million barrel stock build in U.S. inventories, the price gains came amid continued conflict in troublespots like Libya and Yemen and higher demand estimates from China.
Speaking at a conference in London, former Saudi Arabian oil minister Sheik Yamani said oil could hit $200 to $300 if unrest spreads to the world’s largest oil producer.
“If something happens in Saudi Arabia it will go to $200 to $300. I don’t expect this for the time being, but who would have expected Tunisia?” Yamani told Reuters on the sidelines of a conference of the Centre for Global Energy Studies (CGES) which he chairs.
“The political events that took place are there and we don’t expect them to finish. I think there are some surprises on the horizon.”
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