Drive Towards Greater Efficiencies, New Oil Fields and Alternative Energy Advances Aided by Higher Fuel Prices, Says S&P Report

Future Promises Continued Ability to Meet Rising Global Demand for Energy

NEW YORK, July 5 -- The load on consumers from higher oil prices will be bearable, though not pleasant, especially for farmers, truckers, and other people in energy-intensive industries, says Standard & Poor's in a special energy report published today. However, current conditions could provide the impetus for a measured transition from oil to a variety of substitutes if both policymakers and consumers seize the opportunity. The report is the current cover story in Standard & Poor's CreditWeek, the investment research leader's weekly magazine on credit risk.

"In the U.S., the biggest threat to the broader availability and use of oil substitutes is political. Were the U.S. to abolish the gasoline tax and control oil prices, for example, the effect would be to encourage Americans to keep on wasting energy while doing nothing to expand the supply," says David Wyss, Standard & Poor's chief economist. "Higher prices are the market's signal for people to use less and energy producers to find more, and anything that short-circuits this signal makes the problem more difficult to solve."

Still, despite technological improvements, rising fossil fuel costs, and public support, Standard & Poor's believes alternative and renewable energy will remain a relatively small part of global energy supply over the next 25 years. "Although global efforts to advance the use of alternative and renewable sources of energy are underway by public, private, and government entities, no formal or informal coordination system has been developed, and it's difficult to quantify the specific impacts of the programs," notes Tina Vital, equity analyst, Standard & Poor's Equity Research Services. "However, progress is being made, and BP , for example, projects that its alternative energy business will be profitable as a stand-alone business within 10 years -- which serves as an example that these emerging technologies may represent important new energy businesses in tomorrow's marketplace."

Standard & Poor's CreditWeek report on energy also looks at re-emerging opportunities for nuclear energy, coal gasification, ethanol and tar sands. In Canada, for example, it points out that the oil sands of Alberta could be the key to North America's energy independence. Estimated to contain 174.1 billion barrels of Canada's total proved oil reserves of 178.8 billion barrels -- second only to Saudi Arabia -- the province represents a large and secure crude oil source for North America and other export markets.

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