High oil prices seen spurring alternative fuel shift

By Chris Baltimore

WASHINGTON (Reuters) - Record U.S. crude oil futures near $124 a barrel have reached a "break point" that will spur a shift away from an oil-centric transportation sector toward alternatives, energy analyst Daniel Yergin said on Wednesday.

Yergin, chairman of Cambridge Energy Research Associates, told Reuters that U.S. crude oil prices -- which hit a record $123.93 a barrel on Wednesday -- will hasten the adoption of cellulosic biofuels made from switchgrass and woodchips, as well as battery-powered cars and fuels derived from coal.

Crude prices have doubled in a year and risen sixfold since 2002 on rising demand from China and other developing countries, adding pressure to consumer economies already hard hit by a housing and credit crunch.

Yergin countered the notion that global demand for gasoline, jet fuel and other transportation fuels is chiseled in stone because drivers have few current alternatives.

"Price really matters," Yergin said. "It doesn't happen overnight but the laws of economics have not been abolished."

A sagging U.S. dollar .DXY that has lost half its value against the euro since 2002 and a 350 percent surge in crude oil contract trading on the New York Mercantile Exchange have been the prime engine behind the oil price rise, Yergin said.

With scant global spare oil production capacity, further dollar weakness could send oil prices to $150 a barrel in coming years, he said.

CERA's prediction came the day after investment bank Goldman Sachs said oil prices could scale $200 a barrel in the next two years as part of an ongoing "super spike" in the market.