Although great for consumers, cheaper oil could have grave consequences for global efforts to promote alternative energy sources.
Along with China’s economic slowdown, the current oil price was one of the biggest issues on the agenda at the Asian Financial Forum. During a panel discussion on the global economy, Fung Group chairman Victor K Fung asked: “Is the old price going to be a big blow to the development of alternative energy?”
Stuart Gulliver, group chief executive, HSBC Holdings — who predicts that the oil price will stay between $25 and $40 for a least another year — agreed that cheap oil would generate price competition against alternative energy sources, potentially to the point of making them economically unviable in the short term. But he added that there were more significant factors at play:
Longer term, I don’t think it will impact the introduction of alternative green technology because there is a broader issue here of climate change which will overwhelm whatever is happening in short-term price dynamics.
His point was echoed by Peter Brabeck-Letmathe, chairman of Nestlé, who added that the shift from fossil fuels to alternative energy will be more politically motivated than economically driven, citing Germany as an example where governments are heavily subsidising renewables to aid their adoption.
But beyond that, oil remains volatile and that uncertainty is expensive. Renewables by contrast are becoming cheaper, which is a trend that is unlikely to change.
Photo: Pete Markham