The Coming Jump in Energy Technology - More Updates

I have two prior posts on what I believe is a new climate ripe for major advances in energy technology.  Refer to :

Why $70/barrel oil is good for America.

The Coming Jump in Energy Technology Advancement

My prediction is that the burden of high energy prices and reliance on unsavory regimes that we currently face will have some serious scares in the next few years, but will abate and no longer be a major crisis by 2015, due to rapid advances in many new areas of technology. 

I claim that there will be no single technology that saves us, but rather many fields of innovation that slay the monster with a thousand small cuts.

Some more examples of promising advances :

A new method of converting previously unusable husks and stalks to ethanol.   

A business renting out biodiesel cars in Los Angeles sets up shop.

A battery breakthrough.

GE has created a machine that cuts the cost of producing hydrogen fuel by more than half. 

Solar energy costs are dropping quickly.  The reason this is happening now instead of at any time over the last 30 years is because solar cells are made of the same materials that computational chips are made of, and thus inevitably converge into The Impact of Computing. 

A startup attempting to make a 330 MPG hybrid.  Another attempting to reach 250 MPG.  While this may be unrealistic, if they make even moderate progress, their IP would be sold and used elsewhere.

None of these will singlehandedly change the world.  However, each bit of innovation makes the economics of the whole ecosystem a tiny bit better, which cumulatively adds up to a lot.

I have no hesitations in predicting that the average-priced 2015 model family sedan, with a 240 hp engine, will deliver 60 MPG.  On top of this, the fuel itself may have a large ethanol component, and will contain much less gasoline per gallon than today. 

Keywords : Ethanol, oil price, energy innovation, solar power, wind power, energy technology, tar sands, oil shale, hybrid car, hydrogen car

Comments

[jeffolie]

Money, power, politics and plain old inertia are powerful adversaries to significant change in a mere 9 years. I know that it takes a very long time to build an electric power plant.

Much of your articles are wrong, exagerations and unrealistic. The batteries article states that it will take decades. It is more likely that our carmakers will go bankrupt than produce a family sedan, with a 240 hp engine that will deliver 60 MPG.

Do not respond with your favorite old saw about expondential growth. I do not buy it.

[GK]

We'll see. I do believe that a 2015-model car, that sells for under $35,000 in 2015 nominal dollars, will offer 60 MPG yet deliver 240 hp. It will probably be from Honda or Toyota. The bankruptcy of US automakers is inconsequential to this.

Many forces are converging here. Remember - death by a thousand cuts. You are looking only at individual cuts (tech. innovations), which certainly appear insignificant by themselves. But see the sum total of all of them..

Would you have believed in 1994, that something called the 'Internet' would have led to the formation of 3 companies (Google, Yahoo, eBay) that have a combined market cap of $220B by 2006? This too after a steep bust in between?

[jeffolie]

Regarding internet stocks, more competition will cut these giants down to size in the next 10 years. I have seen all manner of boom and busts in segments of the stock market. You would believe the boom and bust in the savings and loan segment. I saw a coworker make and lose $1m in them. In technology, IBM was the dominant computer company (LOL).

[GK]

But then new companies emerge. Are you suggesting that after these are cut down, there will be no more high mkt.cap companies?

I guarantee that there are at least 2-3 companies you have not even heard about today, that by 2015 will be over $100 billion each in mkt cap. We just don't know which ones.

This happened more than once before, and will happen again.

[jeffolie]

I remember many investment fads resulting in big market caps. This will always happen over time. I do not care.

Since the time frame is merely to 2015, I will predict, as always, a deflationary depression starting soon ( meaning a top in the market and economy).

[GK]

Even a depression would not mean that the rate of innovation slows. The 1930s had many technological advances across the world.

Japan continues to innovate in robotics, automobiles, and electronics.

Far too pessimistic, my friend. A worldwide depression AND a worldwide slowdown in innovation, starting soon, is improbable, no matter how bad the housing downturn is.

[jeffolie]

One of my favorite economist, Josef Schumpeter, described recessions as periods of CREATIVE DESTRUCTION. This was part of his explanation for the Great Depression.
As the economy grows, and confidence increases, it becomes easier to splurge on items that we don't necessarily need. We may even take on extra debt to do this. This is also true for business. Some of these excesses are not useful and we are better of without them. Did I really need that new fishing pole? Do you really need ...? Do we need another corner store? Does the nation really need ...? In the early 1990s, it was hotels and office space. In the mid 1970s, it was energy intensive plants and automobiles (In 1997, the average person used about the same volume of gasoline a year as in 1974).

During economic downturns, the excesses are eliminated. Businesses tear down, sell cheap, or otherwise charge off unproductive resources becoming "lean and mean." How long this process takes, is the significant factor in the length of a recession according to Schumpeter. There were many excesses built up from the "Roaring 20's" that had to be eliminated (there was also a natural disaster creating the dust bowl).

Proponents of Schumpeter argue that in today's highly competitive, fast changing environment, business are less likely to create excesses and eliminate them much more quickly when they do. Many firms will contract work rather than build marginally productive facilities. Still, there will be some and the next recession will occur when too many are being destroyed at one time say the Schumpeterians. The excess manufacturing capacity has been created in China and other overseas sites.

What excess is being created now that could lead to the next downturn? I can't help but look at the housing bubble, stock market, gold (at 25 year highs) and commodities.

From the ashes of depressions come great advances because old industries have gone and left an empty field for new industries and technologies to emerge.

[GK]

How do you know that the tech sector is not already in the 'creative destruction' phase? The Nasdaq is still much less than half its peak value, and will take another 10-12 years to hit 5000. Maybe this is the 'destructive' phase already. Outsourcing, telecommuting, blogs, video games, etc. all uprooting previous entrenched technologies and habits.

Just because it is not that bad does not mean we have not already been in the 'destuctive' phase for 5 years..

[jeffolie]

The housing bust is only the start of events that fall like dominos. Very, very pessimistic - true. But, depressions do happen. There have been 4 already here. More than 60 years have passed since the last one.

[jeffolie]

Technology is changing. Ask yourself, has there been a depression yet - no. The economy here and elsewhere will crash and burn allowing new manufacturing methods to emerge. Since not much of the US economy is in manufacturing, it is not hard to see where the hardest hit will be - China. Energy scarcity may emerge as the driving force. Financial malinvestment and corruption may emerge. Who knows?

[GK]

We might already be in a depression for technology. If one compares the Nasdaq of 2000 to the Dow of 1929, the falloff and 15 years it took to regain the peak are analogous to the trough the Nasdaq is in today.

Unemployment in the tech field reached 25% in 2001, just like broader unemployment during the GD.

Maybe this already is a depression for the information sector, even if it does not feel quite so bad.

The housing bust may happen just as tech is ramping up again.

[Fewlesh]

There is a global asset and credit bubble. This mal-investment will be extremely painful for the world to get out of. It took Japan 10 years to inflate out of it? It's funny that they get out of one asset bubble just in time to fall into another one. What bad luck.

I agree with GK, I think innovation excells in recessionary (but not depressionary) periods. I now believe hard recessions are absolutely necessary. Why the hell did the FED decide that they could avoid all recessions. Hubris. Playing God I guess.

Computer Tech is mature in the US, and emerging economies are ramping up to dominate this field. Much like LCD panels, and consumer electroncics (Except apple has come from behind to kick Sony's DRM ass--yihaw)

As I said in the other thread, the US has to pull the next rabbit out of its hat soon. Probability of rabbit-hat pulling in the next year to stave off global recession? I'd say about 10%. Not very good.

[jeffolie]

Many horrible financial events may or may not happen. I guess that the elephant in the room is derivatives. Already Bank of America had to restate it earnings from 2001 to 2004 under rule 133. Other majors will have to follow. Even REITs are having 113 problems.

$570 TRILLION CRASH

That is the amount of unregulated "credit derivatives" that are known (there may be more) as reported by the WSJ. If the housing bubble bust goes badly (hint - it will go very, very badly), the world goes to hell in a hand basket. Source:

http://prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=51737

[GK]

I still say the housing bust will be a moderate-sized recession, not a depression, since :

1) While it will severely hur CA, NV, FL, the remaining 75% of the US population does not live in bubble areas.

2) Young people under 30 who could not buy will now be able to buy at the lowered prices. The bubble actually improves their ability to buy, and hence their consumer confidence.

The two things that worry me are :

1)Terrorism
2)Bird Flu

Not the housing bubble, oil prices, globalization, derivatives, etc.

[jeffolie]

Do you know about the carry trade?

[jeffolie]

Does nothing financial worry you?

[GK]

The housing bust will cause a recession, but that is all. No 10-year WW depression.

I think bird flu could also lead to a financial depression of hundreds of millions die.

But by itself, no, I don't see an impending financial crisis, unless triggered by bird flu or WMD terrorism. By itself, I think the stock market and world GDP are currently right at the long-term trendlines..

[jeffolie]

Fair enough. We will have to simply agree to disagree about financial problems.

About bird flue, I am not as worried as you. There was an almost similar alarm in the 1970s about Newcastle's.

A FALSE ALARM DISEASE

Exotic Newcastle Disease is a very serious, contagious and often fatal viral disease that affects most species of birds. Many birds die without showing any signs of the disease, but some bird species can be infected without any signs and spread the disease to other birds with fatal consequences. END can only be eradicated by rapidly identifying and humanely destroying all infected and exposed birds. Affected facilities require extensive cleaning and disinfection to get rid of the disease and prevent reinfection.The disease does not pose a risk to human health. Poultry and egg products are safe to consume. In rare cases, END has caused conjunctivitis (pink eye) in people, such as laboratory workers, exposed to high levels of the virus.

NO PANDEMIC LIKELY YET

Q: How quickly is the disease spreading?

After bird flu claimed its first human victim - a three-year-old boy in Hong Kong in May 1997 - the disease was not detected again until February 2003, when a father and son were diagnosed with H5N1, again in Hong Kong.

Since then it has spread westwards through Asia, the Middle East, Europe and Africa.

In October 2005 the UK recorded its first case of H5N1 in a quarantined parrot from South America, but because the bird was held in isolation the UK's disease-free status remains unchanged.

Despite mass culls, exclusion zones and other measures put in place to prevent its spread, the H5N1 virus has continued to travel.

In one week in February 2006, Italy, Greece, Bulgaria, Germany, Austria, France, Slovenia, India, Iran and Egypt confirmed their first cases of H5N1 in wild birds.

Q: But it can't yet be passed from person to person?

For the most part, humans have contracted the virus following very close contact with sick birds.

There may have been examples of human-to-human transmission, but so far not in the form which could fuel a pandemic.

A case in Thailand indicated the probable transmission of the virus from a girl who had the disease to her mother, who also died.

The girl's aunt, who was also infected, survived the virus.

UK virology expert Professor John Oxford said these cases indicated the basic virus could be passed between humans, and predicted similar small clusters of cases would be seen again.

It is not the only instance where it has been thought bird flu has been passed between humans.

In 2004, two sisters died in Vietnam after possibly contracting bird flu from their brother who had died from an unidentified respiratory illness.

In a similar case in Hong Kong in 1997, a doctor possibly caught the disease from a patient with the H5N1 virus - but it was never conclusively proved.

TERRIORISM --------------------

Individual and isolated acts of terriorism may cause small isolated wars. I doubt they would cause World War III. Terriorist acts are done by groups unable to gather armies, air forces and navies.

Even if terriorists struck with MWDs, WWIII is not going to happen. Even state sponsored terriorism is unlikely to cause WWIII.
Even a nuclear exchange between Israel and its neighbors would be less than WWIII.

The economic fallout of terriorism would be severe ala 2001 but temporary. When the whole City of New Orleans was wiped out by hurricane Katrina, the economic impact was regional and limited.

The threat of multiple nuclear terriorists detonations (or other MWDs)was be severe economically and politically.

[GK]

The thing about flu was that the Spanish Flu of 1918 killed 50-100 million people, or 3-5% of the world's people.

And that was before people travelled in planes. Today, all the major population centers are connected to each others by thousands of passengers a day on each route.

[jeffolie]

This was also true in the 1970s. The key is that Newcastles was did not transmit human to human and was not very dangerous.

This flue is the same. It has killed less than 200 world wide.

May be the next disease will be pandemic, I doubt this one will be.

[M. Simon]

Uh, solar cell production is currently (ha) limited due to the fact that they use defective wafers to make the cells. If they used virgin chip material the costs would be too high.

T.J. Rogers of Cypress Semiconductors is looking for ways to solve the problem.

[Geoman]

Fascinating to read this in 2021.

1) "Why $70/barrel oil is good for America." Perfectly prescient.

2) "high energy prices and reliance on unsavory regimes..no longer be a major crisis by 2015, due to rapid advances in many new areas of technology." Excellent prediction.

"Innovation that slay the monster with a thousand small cuts." Exactly what happened, but some cuts were definitely deeper than others.

"A new method of converting previously unusable husks and stalks to ethanol." complete dud.

"A business renting out biodiesel cars in Los Angeles sets up shop." another dud.

"A battery breakthrough." not so much a breakthrough, just steady progress...

"GE has created a machine that cuts the cost of producing hydrogen fuel by more than half." another dud.

"Solar energy costs are dropping quickly." yep. part of the solution.

"A startup attempting to make a 330 MPG hybrid. Another attempting to reach 250 MPG. While this may be unrealistic, if they make even moderate progress, their IP would be sold and used elsewhere." Didn't work - but I just test drove a Toyota plug in hybrid that gets 94 mpg. My estimate is I'll buy...two tanks of gas per year. upping the mileage to 200 mpg, just reduces that to one tank....not much more of a gain, and likely not worth the effort.

"...cumulatively adds up to a lot." yep. But a strong improvement in just 3 areas (fracking, solar panels, and EVs), negated the need for any of the other improvements. Absent those deep cuts, other avenues may have played out. As it is they became irrelevant.

"I have no hesitations in predicting that the average-priced 2015 model family sedan, with a 240 hp engine, will deliver 60 MPG." Toyota Camry - $24,830 - $35,000, 200-300 HP, up to 51/53 mpg (city/highway). Close enough.

"On top of this, the fuel itself may have a large ethanol component, and will contain much less gasoline per gallon than today." Ethanol seems to be slowly dying - it just isn't needed.

Well done.

[Kartik Gada]

Geoman,

Thanks for checking back on these old predictions.

Yes, it turned out that fracking, then EVs, then solar made the huge difference (in that chronological order). I did think some form of ethanol would play a role, particularly since its primary raw material was a waste product that had no other use. But as it never became viable below $80/barrel, it missed its window entirely.

But the number of 'oil's long-term trend is down, not up' articles I wrote way back in the day in 2006-08 indicates how certain the revolution appeared to be.

Solar, while still virtually absent in 2006, is now a huge element in 2021, generating over 3% of all world electricity, particularly concentrated in poor countries.