The skyrocketing global energy prices so far have not had the feared negative impacts on the overall U. S. economy and in some sectors, such as alternative energy development, may be a plus, according to a composite report from a panel of nine analysts at Standard and Poor’s Ratings Services, speaking on a conference call Monday. An S&P economist attributed the lack of major negative impact so far to the fact that energy’s portion of the nation’s gross national product (GNP) is about half what it was a generation ago.

S&P’s “silver lining” may be what the high traditional energy prices are doing for the economic viability of alternative energy, such as wind, solar, biomass and hydroelectric power, according to S&P’s analyst Terry Pratt. “The climate is the best it has every been for these [renewable] energy sources,” Pratt said (see Power Market Today, Oct. 17).

“What we have seen so far has been an economy that has absorbed energy prices much better than we would have expected, and much better than it would have appeared to do in the past (in ’74-’75, or ’79-’80, or even during the Gulf War in 1990),” said David Wyss, S&P chief economist. “I think the reasons for this are several, including, first, that energy is just a much smaller part of the overall economy. (In 1981, energy accounted for 14% of U. S. GNP; today it is 7%).”

And maybe more importantly, the current “energy price shock,” Wyss said, has been primarily driven by the demand side, which tends to be “more self-correcting” than if it were tied to supply shortfall as in the past price spikes.

In regard to natural gas, the continued residual impact of the Gulf storms will have impacts that S&P said it will continue to watch closely: (1) tight supply/demand balance will cause normally minor disruptions to drive up wholesale prices, (2) the over-reliance on Gulf-based gas facilities will continue to subject prices to spikes, (3) lower drilling prospects and higher drilling costs will sustain high gas prices, and (4) and the energy intensive industries — steel, chemicals, utilities –will be increasingly at risk.

In addition, financing for new oil/gas will be held up or pursued at much higher-than-normal costs, particularly for securitization types of financing.

“If you’re looking for a silver lining in this current U. S. energy market, alternative energy might be the place to look in the near-term,” according to S&P analyst Terry Pratt.”Investment drivers include substantial government subsidies for production, a growing rise in regulatory mandates for renewables, and technology gains that help these alternative energy sources improve their competitiveness.”

Nevertheless, Pratt and an equity analyst for S&P, Tina Vital, emphasized that the current favorable situation could change very rapidly without continued government subsidies and that the major alternative energy sources will not be cost-competitive with traditional fossil fuels “anytime soon.” Therefore, realistically, S&P sees only “moderate growth” in renewable energy over the next 20 years.

“Depending on the location and the technology, the lowest-cost alternatives appear to be hydroelectric, geothermal, biomass and wind,” said Vital. “The challenge for alternative energy companies is how to turn energy and environmental problems into profitable business ventures, and we believe a supportive policy environment will be required to move forward with these alternative sources.”

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.