| The world will never be quite the same. High | | | | Around the world, the "digital oilfield of |
| oil prices are not only changing the | | | | the future" is becoming the digital oilfield |
| political and economic landscapes but they | | | | of the present. The large-scale conversion of |
| could also change energy itself, because they | | | | natural gas into high-quality diesellike fuel |
| are stimulating the most widespread drive for | | | | is getting closer. |
| technological innovation this sector has ever | | | | |
| seen. | | | | Renewables have captured the public's |
| | | | imagination and are coming into their own. |
| The political shifts are striking, wherever | | | | Wind power is the one that is closest to |
| you look. Russia was so flat on its back at | | | | becoming conventional. This is not just the |
| the end of the 1990s that Western banks and | | | | result of market forces. The development of |
| companies competed to see who could close its | | | | renewable resources is being driven by |
| Moscow offices faster. Today, even though | | | | mandates and subsidies of the European Union |
| Vladimir Putin says he does not like the | | | | and of the federal and state governments in |
| term, Russia certainly appears to be an | | | | the United States, and by similar programs in |
| energy superpower, using oil and gas to | | | | countries like India and China. But it is |
| restore its position in the world. | | | | working. |
| | | | |
| Balances of political power are shifting in | | | | In fact, renewables are growing so fast that |
| other ways. In 2006, after his nonstate lunch | | | | they are straining capacity in people and |
| with President Bush in Washington, China's | | | | materials. Right now there is a shortage of |
| President Hu Jintao took off directly for | | | | turbines and blades for windmills. Renewables |
| state visits to Saudi Arabia and Nigeria. | | | | are a sizable business these days; the |
| | | | worldwide investment in wind and solar sales |
| Meanwhile, that other balance, in supply and | | | | for 2006 is estimated at $40 billion. |
| demand, has been extremely tight. Even | | | | |
| without actual disruptions, possible threats | | | | But sometimes the enthusiasm for wind and |
| to supply from the war in Lebanon and from | | | | solar discounts the huge scale of the energy |
| rising tensions over Iran's nuclear program | | | | system and the lead times needed to develop |
| were enough last summer to push oil prices | | | | any form of energy, as well as the fact that |
| above $78 a barrel, accompanied by forecasts | | | | these sources have to eventually establish |
| of $100 a barrel. | | | | themselves as economically competitive |
| | | | without government help. Even with all the |
| But then a slowing U.S. economy and growing | | | | advances, they are still a very small part of |
| inventories, and the prospect of rising | | | | the overall energy mix. But they will |
| non-OPEC production, sent prices down. That | | | | continue to grow. |
| was enough to alarm OPEC into cutting | | | | |
| production in order to stem the downward | | | | What is also rising is the funding and fervor |
| trend and keep prices above $50 to $55 a | | | | that are going into innovation. A decade ago, |
| barrel. That's not exactly a low price; it's | | | | I chaired a task force on energy research and |
| still double the OPEC price band of just a | | | | development for the U.S. Department of |
| few years ago. | | | | Energy. It was a quiet period in energy, |
| | | | supplies were ample and interest was subdued. |
| The flow of funds illuminates how much has | | | | |
| changed. OPEC's revenue has tripled over the | | | | That would not be the case today. Prices, |
| past four years, from $199 billion in 2002 to | | | | anxiety about supply and the quest to reduce |
| about $600 billion in 2006. The Mideast's | | | | carbon emissions because of climate-change |
| trade surplus is 50 percent greater than that | | | | concerns have turned energy into a major |
| of emerging Asia. | | | | focus for technology investment. Governments |
| | | | and businesses continue to be big players. |
| While oil states are recycling a good deal of | | | | But they now have company: venture |
| this resurgent wealth back into the United | | | | capitalists. |
| States and Europe as they did in the 1970s | | | | |
| this time much more is going into investments | | | | The embodiment of the old model was the |
| in Asia and local and regional financial | | | | centralized Synthetic Fuels Corp., a U.S. |
| markets and development. What used to be said | | | | government company that was chartered in 1980 |
| of Shanghai that it employed up to a quarter | | | | with $17 billion to promote such options as |
| of all the world's building cranes is now | | | | shale oil and the conversion of coal into |
| being said of Dubai. | | | | liquid fuels. It was very much in the spirit |
| | | | of the oft-invoked "three M's" Manhattan |
| Petrodollars are also fueling political | | | | Project, Marshall Plan and Man in Space. But |
| assertiveness in countries such as Iran | | | | when prices went south in the 1980s it was |
| (where oil revenue rose from $19 billion in | | | | wound down, and by 1986 it had disappeared. |
| 2002 to $60 billion in 2006) and Venezuela | | | | |
| (from $21 billion to almost $50 billion over | | | | Governments and companies are stepping up |
| the same period). | | | | their investment in energy R&D, and will |
| | | | remain critical to the development of new |
| But there are two big economic questions. | | | | technologies. Research-and-development |
| What do high prices mean for the economy? And | | | | spending by the U.S. Department of Energy is |
| what do they mean for the future of world | | | | $1.8 billion and is slated to grow 25 percent |
| energy? | | | | in 2007. |
| | | | |
| The risks from high oil prices are clear and | | | | Now the people who brought you Silicon Valley |
| manifold: loss of purchasing power on the | | | | are also stepping into energy. |
| part of consumers who drive the world | | | | Venture-capital investment in energy reached |
| economy; a blow both to business and to | | | | $1.7 billion in the first three quarters of |
| stock-market confidence and thus to | | | | 2006, almost five times what it was in the |
| investment; and a painful shock to the | | | | same period in 2004, according to the |
| balance of payments of non-oil-developing | | | | Cleantech Venture Network. "When we started |
| countries. | | | | investing in this area, it was like investing |
| | | | in the Internet in the early 1990s before |
| Most fundamental of all is the possibility | | | | anyone had ever heard of the Internet," says |
| that high oil prices will start to drive up | | | | Ira Ehrenpreis of Technology Partners, an |
| inflation, forcing central bankers to jam on | | | | early clean-tech investor. "Now there has |
| the interest-rate brakes. But at what level | | | | been an awakening in the VC community that |
| of price? | | | | clean tech offers as large an opportunity as |
| | | | information technology and life sciences, |
| A few months ago one of the key OPEC decision | | | | both of which were revolutionized by venture |
| makers, harking back to that not-so-long-ago | | | | capital." |
| $22 to $28 band, observed, "We thought that | | | | |
| the world economy would collapse at $40 a | | | | This means growing amounts of money going |
| barrel." But economic growth sailed right on | | | | into energy businesses, operating under the |
| through $40, then $50, then $60 a barrel. | | | | discipline of venture capital. Some of the |
| | | | results are already there. One of the biggest |
| Part of the reason is that the major | | | | recent tech IPOs, Suntech, made its founder, |
| economies are much less oil-intensive than | | | | Zhengrong Shi, the richest man in China. |
| they were in the 1970s. What this means is | | | | |
| that less oil is required for every unit of | | | | Of course, many of the new initiatives will |
| GDP. For instance, the U.S. economy has grown | | | | not succeed. With this rapid growth comes a |
| by more than 150 percent since the 1970s, but | | | | degree of hype that has some echoes of the |
| oil consumption by only about 25 percent. | | | | Internet frenzy. |
| | | | |
| The other major explanation is that this | | | | But that cycle of boom and bust left a set of |
| time, prices have been rising in response to | | | | technologies that are transforming business |
| a "demand shock" (epitomized by 10 percent | | | | and society. And one clear difference is that |
| economic growth in China) and not a "supply | | | | in the Internet boom the business plans |
| shock" (a disruption such as the 1973 embargo | | | | focused on eyeballs and didn't worry so much |
| or the 1979 revolution in Iran). This is | | | | about how to make money. Here the market |
| largely true, although not completely. For | | | | opportunity is clearer. |
| there has been an "aggregate disruption" a | | | | |
| supply cut when you add up the loss of supply | | | | This diverse but intense focus on energy |
| from Nigeria because of an insurgency in its | | | | technology will likely have wide effects. |
| delta region, the reduced levels of | | | | There will be new ways to find or develop |
| production in Iraq and Venezuela and the (now | | | | conventional energy. The competitive position |
| mostly healed) loss of supply from the 2005 | | | | of alternatives will be enhanced. The boom in |
| hurricanes in the Gulf of Mexico. | | | | conventional, corn-based ethanol, with its |
| | | | overwhelming political support, will |
| Yet there was some point at which prices | | | | nevertheless run into limits of land and |
| would begin to bite. That appears to have | | | | food-versus-fuel competition. The current |
| been in the $60 to $70 range. And those | | | | holy grail in liquid fuels is the search for |
| effects can be seen, along with the housing | | | | economically competitive cellulosic ethanol, |
| decline, in the slowing U.S. economy, with | | | | made from crop waste or specially designed |
| implications for all countries that export to | | | | energy crops. |
| it. | | | | |
| | | | Overall, some of the most intriguing |
| But the most lasting impact of the shift in | | | | possibilities will come from applying biology |
| the energy market may well be measured in | | | | and genetic engineering to energy problems. |
| energy itself. There is a bubbling and | | | | |
| brewing of technological innovation along the | | | | Much else is now on the energy-technology |
| entire energy spectrum from conventional | | | | agenda from fuel cells and solar energy to |
| supplies and renewables and alternatives, to | | | | advances, on the demand side, in how we use |
| efficiency and demand management. | | | | energy and the ways in which our cars are |
| | | | powered. Technological advances, along with |
| Oil and gas companies continue to innovate. | | | | regulations, enabled the United States and |
| Last September, Chevron announced a find in | | | | Japan to double their energy efficiency in |
| the Gulf of Mexico oilfield at 6,890 feet, | | | | the 1970s. That could happen again. When it |
| and an additional 19,685 feet under the | | | | is all added up, there has never been so much |
| seabed an extraordinary technological | | | | activity in new energy technologies. If it |
| achievement. | | | | stays at this pace, expect dramatic results. |
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