As we enter yet another episode of worried or sanctimonious articles about the gas conflict between Russia and Ukraine, it's worth remembering a few simple facts:

1) The conflict started in 1992, not in 2006;

2) Russia cannot win a gas war against Ukraine and knows it;

3) the real underlying stakes are not about Russia or Ukraine.

When you use energy, the rules are very well defined.  The first and second laws of thermodynamics have been well understood for well over a century, and the third for just over a century, but the subject is still viewed by most as being pretty arcane.  This is a pity, both because these laws are of such importance, and because almost everyone has a fair understanding of the first and second laws, even if they think they don't.  Understanding the implications of the laws is another matter.

Tis the season for Top 10 stories, and here are what I think were the Top 10 energy stories of the year.

1. Unprecedented volatility in the energy markets

Oil prices raced to nearly $150 a barrel, and then fell to the $30's by year end. This marks the highest ever prices for oil, followed by the lowest prices in four years. Gasoline, diesel, and natural gas prices demonstrated the same kind of volatility. There are multiple factors behind the volatility. The role of speculation was hotly debated, and the economic collapse - fueled by cash-strapped consumers who had overextended themselves - resulted in a sharp drop in demand. Some even argued that the real reason behind the plunge in prices was closure of the so-called "Enron loophole."

My earlier wind diaries can all be found here: Wind power series

Banks are engaged in a massive deleveraging exercise right now. One part of that has been much described and commented upon: the elimination of bad assets, either by taking the losses or by dumping them on the tax payer. The other part of the process is much more devious, as it means choking off new activity, even when sound, to avoid any new build up of assets. Debts that mature and are paid help shrink the balance sheet; giving new loans goes against that process and is thus avoided as much as possible by banks right now.

New lending activity is therefore much more scrutinized from a risk perspective, sees its conditions made much less favorable than they used to be, and is especially frowned upon for long term commitments, as long term liquidity is scarce and expensive.

In my case, working in a bank that suffers from a huge gap between its predominantly long term assets, and its short term liabilities, was basically bankrupt earlier this autumn, had to be bailed out via nationalisation and has not yet announced its forthcoming strategy (ie I still don't know yet if my ativity will be a "core business" or not), funding has been especially restricted.

The wind sector requires long term funding in order to spread out the initial investment over a long enough period (so that the levelized cost per MWh is low enough) and it was a massive user of debt finance to get investments done. This means that it is an industry particularly vulnerable to the credit crunch. And indeed, expectations are that the fourth quarter will show a severe drop in new activity. Construction will still be at a record high, as projects which got their financing in the past year and a half get built, but new funding is drying up and next year is thus likely see a significant drop in actual building activity as those investors that relied on debt finance have more difficuly finding it and have to delay their plans.

In this context, I must admit that I'm especially pleased to be able to announce that we closed the financing of a new wind project, with a $60 million loan to build, over the next 12 months, a 30MW wind farm in the Caribean island of Aruba (part of the Kingdom of the Netherlands).