Instead of Clean Technologies- let’s talk oil. Why? Because oil competes with clean technologies, affects government and consumer choices and in large part determines the success or lack thereof of much of what we discuss here. Consumers are much more willing to pay premiums for electric vehicles, biofuels or renewable energy if it does not have the burdensome variable cost of crude oil attached.
Many well qualified geologists and experts are claiming that the Earth has already given us her easy to find oil and that we have peaked. See this video for a good summary. Probably the most famous detailed review of our Earth’s supplies can be found in Matt Simmons’ book “Twilight in the Desert” or also in Jared Diamond’s “Collapse.” Peak oil is a controversial idea to many that draws passionate disagreements from those in the oil industry. Let’s take a more reserved approach to this giant question with facts we can understand much easier than how much oil exists miles beneath the surface: Oil Demand.
Fact #1: If oil demand outpaces oil supply, more people bid for the less per capita supplies. Oil prices increase.
Fact #2: We all know the global population is increasing but that’s not the issue. What matters more is that the per capita oil consumption is increasing. Developing countries, are- developing.
Fact #3: If oil supply is to continue to increase, it’s got a lot of work to do to replace maturing oil fields. If it can increase, good luck keeping pace with demand. The IEA has been warning about sluggish supply growth, and if Saudi Arabia has so much oil in reserves- why are they spending billions to drill off shore now?
Fact #4: Oil prices have remained constant, at relatively higher prices during one of the world’s worst recessions in memory. Imagine what price it would be if oil demand had not actually dipped two years in a row! Where do prices go when the economy recovers, never mind the other above issues? Demand down 4% in 2009 and 5.4% in 2008. We have no substantial reason to believe that demand won’t recover when the economy does.
Rebuttals: What about horizontal drilling, new discoveries and those Canadian Oil Sands? Those are accounted for in the both the IEA and all three studies linked to in the first paragraph of this blog. Secondly- if the Canadian Oil Sands are depended upon as a significant source of future, global oil supplies- then we’re still in very bullish oil pricing territory given the very high variable cost to procure a barrel’s worth of oil from Alberta. And that ignores the logistical and environmental issues of the oil sands. See the Cambridge Energy Research Associates supply curve posted below. The easy oil has already been found. The expensive oil is now depended upon to take up the slack of a flat supply curve.
Conclusions: Oil prices are bound to increase significantly. The price of oil largely affects the economics (consumer choices and firm profitability) of many CleanTech related firms in areas of electric transportation, electricity generation and energy storage.
Think of oil consumption occurring by two different groups of people- those from developed countries (4.7 bbl/day) and those from developing. As countries develop, so do their consumption rates. Welcome China, India and Brazil to the developed world (slowly!). Again, while very few people have the information, expertise and experience to speculate on global oil supplies, it is much easier to grasp the demand side and consequently oil pricing and its impacts.
I strongly suggest the above two books by Matt Simmons and Jared Diamond for anyone with a relevant career in Clean Technologies or even just Energy.