The new normal: energy report predicts volatility, elevated commodity prices here to stay

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By Shannon Baker-Branstetter on Thursday, October 3rd, 2013

Nominal energy prices have increased 260 percent since 2000, according to a new report issued by the consulting firm McKinsey & Company.  The firm warns that many commodities have a new price floor, while economic pressures are increasing the volatility of the resource market.

The report serves as an important reminder that alternative energy sources are necessary not “only” to slow climate change and protect public health and the environment.  Alternatives are also necessary for our future economic well being.

“Resource prices remain high by historical standards—even at a time when the world economy has not fully emerged from its post-recession period of slow growth,” wrote the McKinsey Global Institute in its September 2013 report, “Resource revolution: Tracking global commodity markets.”

What are the factors driving the volatility? New sources of fossil fuels are harder to access, and projects have higher costs.  In fact, according to the firm, the marginal cost of producing a barrel of oil has gone up 250 percent in last decade.

The report also cited the hidden costs to the environment of continued production of traditional energy sources.  In one example, the report said the price of coal underestimates by 175 percent the subsequent environmental impact on nature and health of refinement.

The report comes at a time when industry is pushing to expand fracking operations, which manage to harm the environment while also demonstrating the trend of fossil fuel energy sources becoming increasingly difficult to access.

The McKinsey report does not dwell on alternative sources of energy, but there’s no doubt they provide a valuable solution.  As supply in the energy market increasingly relies on expensive geologic expeditions to uncover new sources of fuel, alternative sources could bring stability.

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