Current prices seem to make even the recent calls by climate activists Bill McKibben and James Hansen for 350 ppm, a reduction from today’s 385 ppm, a possibility as long as we can figure out carbon capture and sequestration for new coal plants. They point to the scary fact that the last time concentrations were in the 550 range, sea level was several meters higher than today. So here’s to some swift innovations in efficiency, wind and solar along with policy that maximizes current technologies available to get developed world emissions falling quickly and developing world emissions cresting soon. Germany is a top model for the sustainable energy transition necessary which I will explore in a future post…

In natural gas news, the EIA reported a weak build for US storage this past week to 1,943 billion cubic feet, which is 16.2% below last year’s high level and 2.6% below the 5-year average. But prices still fell slightly on the ease in global oil prices.

Its nice that consumers can get at least a day off from record prices, but such days should not mean that we slow our efforts to transition to an efficient sustainable energy future.

On the demand side, our consumption is rising swiftly. After a 6.5% leap in consumption in 2007 (almost half of global demand growth), the EIA predicts another 2.2% of demand growth in 2008.

On the supply side, there is a decline in production in our top source of imports, Canada. The decline was 2.5% in 2007. Also, the global market for Liquified Natural Gas (LNG) is tighter than last year. We are receiving less than half the LNG imports of last year due to the higher price paid by consumers in the UK and elsewhere. The supply side savior is the increased domestic production which rose 4.3% in 2007 and is predicted to grow more than 5% in 2008.

All these factors together has resulted in a reduction in domestic storage of 15% from last year. There is little fear that we will run out of storage, as last year was a record storage year. But the tight market is a remedy for continued increases in prices.

Today, the price of natural gas hit $12.99 per million Btu (MBtu), 73% higher than last year at this time. It is the highest since December 2005 after Hurricanes Katrina and Rita disrupted domestic natural gas production.The price crested on December 13th, 2005, at $15.78 (less than 25% higher than today’s price). So, a continued rise in the price of its chief competitor fuel, oil, along with a cold winter and potentially a hurricane in the Gulf of Mexico, could send natural gas to a record high within a few months. In fact, early 2009 future prices of natural gas in the UK are above $18 per MBtu, so if we need to attract LNG imports to our shores – we’ll have to reach some level of parity with that much higher price.

Such record high prices would mean much higher heating bills this winter and higher electricity bills this summer and moving forward. An article in today’s USA Today discusses 29% price hikes for electricity across much of the US already. Natural gas is a key price setter for electricity as the top source of marginal electricity during peak loads. So, the message is clear: if we want to keep your electricity and heating bills on par with last year, we will need to focus on the efficiency of our appliances and, yes, wear a sweater.

The price of internationally traded coal has doubled over the last year, as the price per tonne in Europe moves toward $200. Now that several coal producers aim to replace some oil imports with coal-to-liquid fuels, demand could climb even faster. And if oil does move to ~$200 per barrel, further coal demand as a substitute could make prices like $300 thermal and $400 metallurgical per tonne a possibility in 2009. Such a price would make wind energy the least cost option for new electricity throughout much of the world.

The fact that relatively cheaper wind may happen, on top of the potential for additional costs for carbon dioxide output, should lead utilities in windy regions around the US to make much larger investments in wind farms. And with US coal reserves accounting for more than 28% of the global total, coal export growth could help us remedy our trade deficit if we can reduce our domestic consumption. It seems a win-win situation for us to follow the trail blazed by Germany of fossil fuel energy consumption reduction and renewables share increases.

Many of my friends have been worried that higher oil prices would lead to a rush for coal, but record high coal prices seem to show that sound policy can shift the rush to renewables and build a sustainable energy transition for the US and the rest of the world. Let’s make it happen!