Sector outlook: Energy

Sectors in-the-know investors will definitely want to keep an eye on

Oil and gas income trusts were hit by low natural gas prices in 2006. Expect consolidation in the sector as they struggle to make distributions. Lower prices are also anticipated for oil. If the price of a barrel of crude dips below $50 in 2007, as some suggest, oilsands projects will feel the pressure.

Could it mean the end of the Calgary boom? Major projects continue to go ahead, suggesting large producers think low prices (should they materialize) will be temporary. But one tussle to keep an eye on will be the review of royalty rates on oilsands operations promised by Alberta's new premier, Ed “Steady Eddie” Stelmach, who won the Conservative leadership on a wave of populist grassroots support.

Populist discontent is also brewing in Ontario, where the government's standing offer to buy wind-generated electricity at 11¢ per kilowatt-hour has spurred construction of wind farms. The project is running into opposition as it appears wind power can introduce unwanted volatility into electrical supply and overload existing infrastructure. (Other critics, opposed to noise pollution, speculate the subsonic vibrations disrupt livestock.) Will Ontario be forced to cap wind power in 2007 as Alberta did in 2006? Perhaps. Watch the solar industry boom in 2007, however, as producers take advantage of the government's decision to offer 42¢ per kWh for electricity generated by the sun.

Governments and oil companies around the world will continue research into methane hydrates, underwater deposits that could be used like natural gas. The U.S. will spend $20 million in 2007 under the Methane Hydrate Research and Development Act. Research into hydrates has also taken place in the Canadian Arctic. The catch is that methane is 10 times more potent as a greenhouse gas than natural gas, raising questions about the viability of hydrates as an energy source.

Is there any hope for a truly clean and plentiful energy source? A distant speck on the horizon: Six nations, as well as the European Union, signed on to spend about $12 billion on an international effort to figure out how to create non-greenhouse-gas energy through fusion. Go, science.