CERAWeek: More big ideas from CERA chiefs

Jim Burkhard (CERA oil market analyst) on why there haven’t been more natural gas mergers and acquisitions given the price drop and economic slowdown: The expectation about the future has been turned upside down so quickly that companies are still coming to terms with it. For some companies the credit crisis has complicated any initial efforts to make acquisitions.
Will governments really be able to afford all the efficiency measures and renewable energy projects they’ve been committing to?: “What our CERA research shows is people have underestimated the cost of renewable, efficiency and decarbonization of power sources,” said Larry Makovich, CERA’s electric power guru.
How about lower energy costs showing up in project costs?: Candida Scott, CERA’s chief of project cost indexes, said for the short-term the oil price outlook is relatively flat, which will help bring energy project construction costs down about 10 percent this year. If the other costs for labor and other parts are included, there may be a 15 percent total project cost cut by the third quarter.
More impacts on the electric power business: Power demand went negative six months prior to the declaration of a recession, Makovich said. In China demand dropped steeply where 75 percent of the demand is industrial. But lower fuel prices have been slow to come through, until now.
“So now, one year into the recession that we’re starting to see some meaningful relief on the fuel side,” Makovich said.
With the recession, for a business like power that requires a lot of capital, the way risk has been re-priced will probably “be with the power companies for some years to come.” He expects a 10 percent to 20 percent pull-back in capital spending this year from last, which will be a problem when the economy returns and with it power demand.
Makovich said power companies have also been telling him not to forget the impact of unpaid power bills due to the recession. The U.S. power business will write-off 2 percent to 3 percent of its sales due to unpaid bills due to downturn, he estimates.

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