Ochenski 

Up in smoke: Volatile markets affect energy development

The recent upheaval in financial markets is already affecting the energy boom sweeping Montana and most Western states. What we don’t know is exactly how and where all the impacts will occur and how long they’ll last. But one thing seems certain: Falling oil and natural gas prices, difficult or unavailable credit, the enormous federal debt and the economic feasibility of energy projects across the spectrum will likely change Montana’s energy future for years to come.

Take the Highwood Generation Project near Great Falls, which is slated to be a conventional coal-fired plant with an estimated construction cost of $800 million. Earlier this year the federal Rural Utility Service (RUS) denied Highwood’s request for hundreds of millions in loans when the agency decided it would no longer fund coal-fired power plants due to the uncertainty over future restrictions on the emission of greenhouse gases such as carbon dioxide and what they might do to projected plant costs. Highwood’s developers optimistically broke ground on the project this week by moving dirt and beginning road construction. But with a mere $10–15 million of the funding necessary for the plant’s actual construction on hand—and no certain prospects for the rest of the $785 million nailed down—Highwood’s future remains very much in question.

But traditional coal-fired power plants aren’t the only ones out looking for construction dollars. The meltdown of global financial markets has added to the challenges facing developers of both conventional and alternative energy projects in several distinct ways. Obviously, the lack of available credit can immediately stop virtually any large-scale project—but even those projects lucky enough to be considered for financing are facing much tighter scrutiny for economic feasibility and lowered credit limits.

On the environmental upside, the financial crash has sharply reduced consumption as prices for oil, gasoline and diesel skyrocketed to record levels. The reduction in demand translated into a radically reduced price for oil, which has fallen to about $70 a barrel this week, less than half of the $150 it cost only a month or two ago. Natural gas, too, has fallen to $6.32 a dekatherm this week, less than half of July’s price at $13.58, and vastly below the highs projected by the Public Service Commission last summer as new demand simply evaporates in the lassitude of recession.

Likewise, the precipitous fall in oil prices has made marginally viable projects, such as the coal-to-liquids plants so heavily promoted by Gov. Brian Schweitzer, much less attractive. The projected cost for the coal-to-liquids plant an Australian firm plans to build in conjunction with the Crow Tribe and its coal deposits is a staggering $7 billion. Finding $7 billion from either private or government sources is a daunting challenge these days, especially for a technology that many say won’t be ready on an industrial scale for another decade. Add to that the enormous costs of actually mining and transporting the coal, capturing and sequestering the carbon dioxide, and soon the price of a barrel of coal-to-liquids “oil” is far beyond the market price for conventional fuels. When you consider that a gallon of coal-derived fuel creates at least twice the amount of carbon dioxide to produce as conventional fuels and emits the same amount of CO2 when burned, the feasibility of Schweitzer realizing his coal-to-liquid dreams seems unlikely, if not totally unrealistic.

The same downturn in oil prices is unfortunately hammering the renewable and alternative energy market as well. As the price tumbles for conventional fuels and energy sources, the market feasibility for profit from alternative fuels gets tighter and tighter. And like their counterparts in the traditional energy business, alternative energy developers need available credit to fund their projects, be they wind turbines or solar panels.

This week’s New York Times found that “shares of alternative energy companies have fallen even more sharply than the rest of the stock market in recent months” and renewable and alternative energy supporters fear funding is drying up. Already several biofuel and large solar projects have been canceled, an electric car company has closed offices and laid off staff, and two large wind projects are on hold due to lack of funding. As Kevin Book, a senior vice president at FBR Capital Markets, told the Times: “Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive.”

Closer to home, plans by Fuhrlander AG, a German company that plans to build a $25 million wind turbine production facility in Butte, were delayed in August, but company officials say they were merely waiting to see if the critical Renewable Energy bill would pass Congress. That bill became law recently, and the $17 billion in tax credits will help make the plant “economically feasible,” according to project officials.

But that, too, raises questions about how long Congress can or will continue to subsidize any forms of energy production, let alone the tens of billions it already hands out to the coal and nuclear industries. With the recent $750 billion in Wall Street bailouts and the additional $100 billion in pork spending larded into the bill by Congress, the national debt for this year is estimated to be a trillion dollars or more. With the White House and Congress contemplating another “stimulus” measure, most folks are wondering how the federal government borrowing money to give to citizens does anything but get us deeper in debt.

And of course the predictions now are for a long-term recession that will do anything but stimulate new business and energy demand. Quite the opposite is much more likely to occur, with existing businesses, citizens and, we can only hope, even government continuing to downsize, conserve and reduce their energy needs.

How it will all shake out is anyone’s guess, but one thing seems certain—the global financial crisis, the enormous federal debt and changing energy consumption habits will be big players in Montana’s energy arena for the foreseeable future.

Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at opinion@missoulanews.com.
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