The cost of oil has plunged to a fraction of the $150 per barrel high of this summer, and the nation is sighing with relief. Since 96 percent of our current transportation system runs on oil, and since nearly every product we buy has to be transported from factory to store to home or office, the recent price break on a barrel of crude seems it might bring lower prices for almost everything we buy.
But we shouldn't be fooled by this temporary dip, despite our desire for any kind of a silver lining to the recession gloom. No matter the recent bargains to be had at our pumps, sooner or later – and both history and science say it will be sooner – we'll pay a dear price for this antiquated addiction. After all, if cocaine were cheaper, would it be any less harmful?
Today we're in the grip of a powerful recession, where global demand for resources naturally experiences a sharp decline. But the world will inevitably emerge from it and continue its economic growth, and with it will return the demand for oil. In a world where knowledge flows freely and barriers have been flattened, massive development in non-OPEC countries is inevitable and should be welcomed enthusiastically. And unless you believe that countries like China, India, Malaysia and Brazil will stop their progress in development; unless you believe that the world will revert to agrarian societies once more, you have to accept that the drop in oil only gives short-term relief to a very chronic situation.
Those of us in the investment community are acutely aware that if we don't use this time to address fundamental energy problems and invest in transformative companies that transcend the existing energy paradigm, we're going to come out of this recession without any fundamental progress and stand even deeper in this well we've dug for ourselves.
Energy watchdogs see this too. A report released from the International Energy Association suggests that the supply and demand curves for petroleum will trace radically different a rcs over the next 20-some years. According to the study, oil production will continue to outstrip discoveries and the base cost for producing oil will continue its increase. While oil demand will rise 25 percent by 2030, oil fields will decline production by nine percent. This discord will affect global prices: the IEA believes a barrel of oil will rise to $200 by 2030. Meanwhile, the environment will continue to suffer, as carbon dioxide around the world increases some 45 percent.
The report says that "it is becoming increasingly apparent that the era of cheap oil is over," and I agree. The only truly cheap way to solve our energy problem is to turn off the lights – to stop using it. But in a world that's developing, we need more energy – not less. And more energy will require significant investments regardless of whether we embrace conventional fossil fuels or renewable resources. They are all costly – the question is, which investment is going to best position us for a strong energy future, and what kind of additional energy sources should we bring on line? Will we choose to invest in the dirty, scarce, and foreign-controlled, or the clean, renewable and domestic? Are we going to attack this looming energy crisis with 19th century solutions or 21st century ones?
Some may point to midway alternatives like offshore drilling and nuclear power. I believe they are no alternative at all. Nuclear power brings massive capital costs into the billions of dollars, takes a decade or more to go on line and brings along significant safety and storage issues. Offshore drilling on the Continental Shelf is also a 10-year project with little reward. By the time that oil makes it to the pump and is consumed for a price equivalent to what the United States paid for oil during the past 24 months, we could build and install enough renewable energy capabilities to provide free, clean energy forever. And all of it would be based here in the United States and provide jobs for millions of Americans in the process.
I choose to remain fixed on the long-term challenge – and investment opportunity – in securing domestic energy reserves from clean and renewable resources. Instead of funding old solutions, we need to apply cutting-edge technology and classic Silicon Valley-style innovation to build a new, independent and energy-rich industry in America.
For this reason, VantagePoint Venture Partners chose early on to aggressively pursue and speed the commercialization of cleantech investments that stand to make the biggest impact in solving the energy challenge. When we started our cleantech practice in 2002, as the first major fund in the sector, I believed that to be true. I remain convinced that this is one of the greatest investment opportunities of the century. Today, we are as engaged and involved in cleantech as anyone on the planet, with a world-renowned team of experts and more than $1 billion to deploy. And from our perspective, we intend to invest even more.
In the big picture, our investments have been dwarfed by the investments and incentives that have gone to traditional energy sources. While petroleum companies may sink $390 billion per year into upstream oil investments, Ernst & Young counts only $3.3 billion in venture investments in cleantech over the first three quarters of 2008 – less than the cost of one nuclear power plant.
And yet, while traditional energy escalates in price, advanced technology solutions will provide power at rates that can decline in pace with Moore's Law. A brief look at our cleantech portfolio shows many examples of this already unfolding. BrightSource Energy today can provide cost-effective utility-scale solar electricity without government incentives. The thin-film solar technology of Miasolé will effectively be able to halve the cost of today's solar electricity in as little as 18 months. And we will soon be able to store and use that energy as needed thanks to ingenious, non-toxic flow batteries from Premium Power. Similarly, white LEDs from companies like Bridgelux provide lighting solutions superior to CFLs for energy use and the environment, while transforming the $150 billion lighting market. As the global transportation industry goes through a shift to adopt electric drive trains, we have companies like Better Place and Tesla Motors pioneering that transformation.
These kinds of transformative clean technologies stand to make a great impact on our energy problem – and can evolve their markets and revive our economy in a meaningful and significant way – if they find the right support. Although we may be extremely efficient at deploying capital, we will still need assistance in finishing the job, and must focus on bringing government, energy corporations, and other investors to the table to help shape this economic transformation. We must continue the surge on aggressively forwarding the solutions that best fit our energy future.
Most of all, we can't be deceived by cheap oil. Over the next year, we may continue to see oil prices dip downward – but this is simply a function of a downturn in demand caused by a fierce global recession. When the recession lifts – and it inevitably will – we will see oil prices soar to levels far beyond this summer's short-lived scare. If we do not take the right action quickly, we will have lost years in the race to find a lasting solution.
Through our long experience, we know that when oil prices decline, the temptation is great to resume "business as usual." That's what happened the last time around, after the oil crisis of the 1970s. Although they clearly recognized the urgency of the problems facing the nation, the political and business leaders at the time allowed themselves to be fooled by a decline in oil prices. They put off dealing with the problems, and now those problems are ours, and they are worse.
We can't leave these problems for another generation. We have to be bold leaders. We can't get fooled again.
This opinion piece is from an independent writer and is not connected with Greentech Media News. The views expressed here are those of the author and are not endorsed by Greentech Media.