Monday, January 26, 2009

Lower Oil Prices = Increased Renewable Energy Investment?

I came across this article (see pages 4-6, feel free to see the others, but I thought these were the prettiest and most informative) via one of my Twitter pals (apparently if you're not Twittering, you're not cool) and thought the discussion on the incremental cost for new oil supply had some severe implications for the renewable energy industry. While the current severe recession and the subsequent drop in demand have led to a precipitous drop in the price of oil, the cost of tapping into non-producing sources of oil (e.g. oil sands, oil shale, etc.) has risen dramatically over the past five years. What this means (at least in my humble, yet genius, opinion), is that projects that would have moved forward just six months ago no longer have the price support to continue. The energy and labor intensity of these extraction projects means that they are no longer viable. Further, with these new incremental supply projects off the table, the potential world wide supply of oil is now lower (at least in the short term). The recession theoretically cannot last forever (at least my new consulting business is hoping that is the case). Once the recession has peaked (or should I say valleyed), demand and production should reboot leading to increased demand for oil (and more money for my favorite 3-6 hour show). The price of oil will eventually rise to the threshold that will make higher cost oil extraction projects viable, but by the time this oil reaches market, we may be in for some bad times in regards to energy prices.

Not to worry my friends, all is not lost (c'mon cheer up, USA! USA!USA!, there, feel better?). The current low price of oil is an OPPORTUNITY for my (and hopefully your) new world savior, renewable energy. There are those that are trumpeting the lower prices as an obstacle to the growing renewable energy movement. I agree, but only to a point. Those who are short-sighted and do not see the freight train coming through their coke-bottle sized glasses are withdrawing or decreasing investment in renewable fuels. It is well reported that hedge and venture capital funds have decreased their investments into the "green" industry sector. This is somewhat due to the lack of credit and funds, but is also partially due to a short term outlook. Some of these individuals are taking the last of their joyrides in their Hummers, but are refusing to see the green sunrise of the future (how's that for some cheesy imagery). Oil is limited, not only by the amount in the ground, but by the market forces that allow it to emerge from it. While some renewable energy is currently bounded by scale, new investments can eventually make scarcity scarce. These investments in renewable energy are being made not because of what is (the market price of oil), but what will be (limited dependence on oil). There is no better time than now (just like the Toyota commercials say) to invest in biofuels and renewable energy sources, because once the demand for energy rebounds, someone needs to be there, and why not our little green friend (no, not Gazoo), renewable energy. As scale becomes reality, and cost of production is driven down, renewable energy sources will not only be viable at a lower oil price, but may make the price of oil less of a factor in the overall U.S. economy. Is this reaching a bit? Maybe, but the opportunity is there. Let's hope that we have the will (and our government does to) for this new way. Now if we just had a president who wanted to create infrastructure...

One other thought...if you have not heard or read enough on the recession, here is another article to get you all riled up. I thought it summarized the causes of our current crisis quite nicely, while at the same time, tempered the feelings of socialization, I mean nationalization, that seem to be sweeping into Washington. Be careful what you wish for kids, you just might get it.

1 comment:

jquaglia said...

A nice summary of the market forced behind green-o-vation (not to be confused with bowl-o-rama). Sure energy prices will increase, but I am curious to see how much. And I'm interested to see whether our society is disciplined enough to adopt green energy in some of our weakest times. Will it take a new wave of economic expansion (unrelated to renewable energy, eg another tech boom) for renewable energy to become the norm? We'll see.