Renewable Energy and the price of oil

How much easily recovered oil is really left? At what high-end prices are practices like directional drilling and 4D exploration financially feasible? At which low-end prices does renewable energy cease to become a financially feasible option?
It appears from the many news reports, opinion pieces, and general facts that easily recovered oil reserves are running out. There are new discoveries of relatively easy recovered oil, but the frequency of these ‘finds’ are few and far between. At 140 per barrel, projects like OCS deep sea drilling and Canadian oil sands are viable. The spike last summer where the price of a barrel of oil reached 140 dollars was, in essence, an indication of the volatility inherent in oil markets; couple that together with lower global reserves and international affairs with Russia, Iran, Venezuela, and Saudi Arabia…and you have the perfect ingredients for a rough investment ride.

Renewable Energy in the form of smart grids, batteries and energy storage, biofuels, EVs, geothermal, solar, wind, pollution control, waste, and water, all seem to be a natural substitution to the high-end instability of oil markets; but there seems to be a low-end price of oil that represents the point at which renewable energy markets reach a bottom. That point was in early 2009.
They didn’t vanish; renewable energy companies withstood the 30 dollar per barrel storm coupled together with economic recession force winds and emerged with a bright future. Recent oil prices passed the 70 dollar per barrel barrier recently, and the weekly count of the number of rigs actively exploring for oil and natural gas rose for only the second time this year. Obviously, the price of oil is tied to an economic recovery, but the instability that was put into the oil markets in the past six months is and will always be a defining characteristic of oil from here forward. Oil plunged from 140 to 30; there could be a day in summer 2010 and beyond where oil reaches 200 dollars per barrel. Renewable energy markets, to the contrary, will only increase their share of the energy markets as time goes on.
At the high-end of the spikes in oil, renewable energy investments more than pay for themselves; at the low-end, renewable energy goes through a consolidation period. The most extreme example of this consolidation period in the renewable energy markets pertains to biofuels. Even though the U.S. government has recently affirmed its 36 billion gallons of domestically generated ethanol by 2022, investors are still distrustful of biofuels because of the whole food vs. fuel and lifetime cost debates, as well as the industry’s subsequent fall from grace. While biofuels were suffering through a full-frontal media attack, the price of oil dropped to 30 dollars per barrel. The biofuel industry didn’t disappear, though, companies consolidated or were absorbed into the larger oil industry. Oil over 100 per barrel makes EVs and flex-fuel vehicles (running on less gas or on ethanol blends) an attractive offer, so we can expect expansion as oil continues to climb.
The timeframe referenced by most Peak Oil advocates is somewhere between now and 2016; already, more than half of all significant oil producing states are past their peak of production. A panic ripple entered the oil markets making dramatic swings entirely possible on a yearly basis; this instability in the oil markets, in turn, injects some instability into the renewable energy markets; not as much, however, as the economic recession did, preventing everyone from being able to strategically invest in the future. As the economy recovers, renewable energy markets are bound to grow, even alongside oil’s volatile ride.
Many companies are beginning to see the long-term stability of investing in renewables. In the solar industry, the slow-down in the economy created a glut of PV panels as orders slowed and manufacturing facilities tried to keep pace cutting back; still, utility companies and solar manufacturers continued to increase their amounts of electricity from renewables on a yearly basis. In June, the U.S. passed Germany as the number one wind developer. The smart grid initiative got more than enough funding to weather the duration of the recession. The nearly complete bankruptcy of the U.S. auto industry created a climate of innovation that is making companies like GM and Chrysler begin their development of EVs and other hybrids.
Oil has begun climbing, giving some people signals that a second dip in the recessionary curve is imminent; but the push for clean energy is gaining traction in the world of public opinion, governmental policy, and business executive decisions. It is apparent that the future will be powered by a growing field of renewables. For the time being, the larger oil markets will continue to drive renewables in the energy sector, but as companies increase their revenues on the back side of this recession, more capital will be available for clean energy projects of virtually every sort. The 150 Dollar Panic made us all aware of exactly what we were betting our future on.
From almost every angle, it seems as though the transition of business, government, and to the renewable energy side of the equation is just beginning. Perhaps, we could all use a little more stability over the long-term in our energy markets.



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