It's all about energy, these days.
Investors, consumers, business and government are all looking for answers.
Energy has become the common denominator, the great equalizer, for the global economy. Ultimately, it may be the great unifier. After all, imagine a world — free or otherwise — without energy ... affordable energy.
This special report, "Powering The Planet", aims to inform and educate about the future of energy. Now and over the coming months, you'll find useful guides on energy sources and investments, a resource center with related links on a host of subjects, as well as an diverse library of videos from CNBC. Users will also be able to access a special collection of pod cast videos for downloading. And speaking of taking it with you, take our customized widget, please.
Five years ago, $100-a-barrel crude oil seemed unimaginable. Not today, not tomorrow and probably never again.
Goldman Sachs, which stunned the world in 2005 by predicting crude could spike to $105 a barrel, recently said $200 oil is conceivable in a final "super-spike" as producers fail to accommodate demand from China and other emerging economies.
The traditional supply-and-demand equation is being taxed like never before, and there’s growing concern about finding new reserves.
The peak oil theory, now more than 50-years old, seems more prescient than ever. Are we approaching that point in time when the maximum rate of global production is reached and then enters terminal decline?
Matthew Simmons, chairman of Simmons & Co. and author of "Twilight In The Desert: The Coming Saudi Oil Shock And The World Economy" (2005)" says that day has come, positing that Saudi Arabia — the world's largest producer and exporter — is over-estimating its proven reserves.
"These oil fields are getting old," Simmons told CNBC. "There are some overly optimistic proponents."
Others say the peak is years if not decades away.
In the US, the supply-and-demand dynamic is ever more complicated. The potential for new domestic production is limited, if non-existent; potentially rich areas off shore and in the Arctic National Wildlife Refuge (ANWR) in Alaska, for instance, are off limits to exploration and drilling, largely because of environmental concerns. The current energy spike has renewed fiery debate on the pros and cons. President Bush, citing the spike in gasoline prices, has called upon Congress to drop the quarter-century ban on offshore drilling.
At the moment, there is no quick fix. A new offshore oil field takes years from exploration to development, James Slutz, acting principal deputy assistant secretary at U.S. Department of Energy, told CNBC: "We need to really be looking long term at opening new areas up for exploration as well as enabling the industry to access the resources."
The energy infrastructure is both problem and solution. New refineries, pipelines, natural gas facilities and transmission lines are not being built, even as demand rises.
The US now consumes 21 million barrels of oil a day — more than half of that imported and a quarter of the global total of 85 million barrels. Even if we cut consumption, others would have what we don't want or need. China, for one, is up to 8 million barrels a day. There is no rainy day fund for crude oil.
For many, gasoline prices are the daily reminder that something has changed — irrevocably. Unlike 2005—when prices spiked to $3 a gallon after hurricanes Katrina and Rita disrupted Gulf of Mexico production, then drifted back down to about $2 a gallon—the move up to $3 a gallon was soon followed by $4 a gallon. Average US prices have gone up 144 percent in the past five years, according to the US Energy Information Administration. (States with the highest gasoline prices.)
It is a thirsty, mobile global economy. There are now 887 million vehicles in the world, versus 553 million vehicles 15 years ago, according to London-based Global Insight. The firm is forecasting 1 billion vehicles by 2012 and 3 billion by 2035, based on existing population and economic growth rates. In China alone, thousands of new cars hit the streets each week.
Changing Habits, Driving Change
Behavior is changing, but for how long?
In May, the Department of Transportation reported that Americans drove 11 billion less miles this March than a year ago, the largest annual decline on record.
In a recent survey, 44 percent of the professionals interviewed said higher gas prices have affected their commute, according to staffing services firm Robert Half International. More people are carpooling, telecommuting, driving more fuel-efficient vehicles. People are giving up on mini vans and SUVs. Pick-up sales are down, and drivers are taking a serious look at hybrids. The auto industry, of course, is hurting and responding.
So is the airline industry, which is slashing jobs and flights. As American Airlines' boss recently put it: "The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel," AMR Chairman and CEO Gerard Arpey said, “Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve."
Finding Fault, Exploring Alternatives
For the Greeks, the word for energy was energeia, meaning activity. That has some meaning today.
Indeed, there is great activity surrounding energy, from investment and development to regulation and legislation.
In Washington, there's a rush to judgment and action.
There's talk of a windfall profits tax. The Senate recently debated landmark legislation of climate change. The president signed legislation mandating a suspension of deliveries to the Strategic Petroleum Reserve.
Congress has held public hearings looking for answers on the the dynamics of the industry and the marketplace, calling on the heads of the nation's top oil companies as well as such great investors and financiers of our times as George Soros. The spike in prices has raised questions about market manipulation.
At the same time, the federal government has ponied up billions of dollars in tax credits to encourage alternative, renewable energy, complimenting private sector investment into areas such as solar, wind, geothermal, biofuels, clean coal-- even nuclear. (See our primers on these energy sources in the "Need To Know" section.)
The Energy Policy Act of 2005, for instance, extended tax credits to the geothermal energy industry and officially branded it a renewable energy.
"There's been a great bubbling of innovation," is how energy expert, Cambridge Energy Research Associates founder and CNBC analyst Daniel Yergin puts it. "The energy industry is pretty high tech."
The Energy Dept., for instance, estimates that wind power could generate 20 percent of our electricity needs by 2020 (vs. 1 percent today), with the right investment and infrastructure build out.
Prospects And Comebacks
The solar industry is flourishing like never before. Major chipmakersare turning their considerable resources to flat- panel technology, driving down costs to make solar energy more competitive. More than 12,700 power-producing sites connected to the US grid in 2007.
Another industry is looking for a comeback — nuclear power. While the industry flourished in countries like France, it's been out of favor in the US for three decades, following safety concerns and financing problems. Its cost-effectiveness, however, has proven irresistible in the current climate. The federal government is supplying financial assistance and dozens of applications for new plants have been filed.
There are also high hopes for clean coal technology to exploit the nation's vast coal reserves, now the primary source for creating electricity. Such technology — meant to reduce carbon emissions and global warming — has thus far proven expensive and somewhat elusive, but utility companies around the country are working with the government and industry to achieve a breakthrough.
Yes, innovation can also be inexpensive and uncomplicated, but it can have unintended, unwelcome and controversial consequences.
Take ethanol, for example. Years of federal subsidies created a boom for the biofuel, which is used for transport, most often as a supplement for gasoline. US farmers devoted more land to corn. Corn prices rose, helping to drive up food prices for staples such as breakfast cereal. Now, record corn prices may be crimping the ethanol market.
Though corn-based ethanol has been a successful experiment in renewable energy — Brazil's three-decade long experiment with sugar cane has been even more successful — the fuel-vs.-food debate means the biofuel industry's future lies in non-edible substances that don't require land used for agriculture. Switchgrass is one experiment underway — in the Oklahoma Panhandle, aka the Oil Patch.
Food for thought. Actually, make that fuel for thought.