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