ALTERNATIVE FORMS OF ENERGY: TIME WILL TELL

Alternative Forms of Energy:
Time Will Tell
By Pete Lester, Sr.
December 15, 2007

There is an old adage in real estate: “You never pay too much for it… you just buy it too early.”

I am beginning to think the same is true of Alternative Forms of Energy.

For the last four years, I have had a friendly informal wager with several friends as to who could pick the best stock. It is an annual event, and the winner does not have to pay for, what has become, a very nice dinner.

Several years ago, with gas prices soaring in the wake of our invasion of Iraq, I picked a stock of a little company (Altair Nano Technologies – and by the way – this is not a stock tip or recommendation) that seemingly had a clean, reasonable solution – electric powered cars/sport utility trucks that could travel over 100 miles on one charge, and travel at speeds in excess of 90 miles per hour. It sounds good. Right?

Well, that was the only year I have lost the “contest.”

When it comes to other forms of Energy (Hydrogen or electric powered cars, wind and solar energy), there are several forces at work.

• Man has unlimited wants
• Petroleum-based energy is becoming a more scarce resource
• Until the cost of other forms of energy becomes more competitive, petroleum will remain the preferred source of fuel
• Once the price of oil reaches a certain level, the demand for these other forms of fuel and engines/appliances that run on them will encourage production and the cost of those items, as they are mass produced, should come down.

Another force at work here is the creativity and ingenuity of man. While it is true, man is capable of horrible things, we must also acknowledge one of our greatest strengths: the ability to adapt.

There are those who predict the demise of western civilization as we know it – because we are too dependent on oil (Peak Oil Theorists). And while I can imagine various scenarios that could be painful and very disruptive over an extended period, I can also conceive mankind overcoming these hardships with new solutions and advancements.

Having said this, we have already seen the alternative fuel community retreat on one form of fuel – Ethanol. With this form of energy, what we have found is: the gains we achieve in reducing our consumption of oil, are offset by the rising cost of beef, corn and other items. Proponents are quick to point out that Ethanol can be produced from sources other than corn, but at this point, the marketplace does not seem readily prepared to accept those other sources.

As the cost of gas becomes more and more painful to consumers, and the prospect of oil shortages becomes more certain, we will expend more time, energy and ingenuity to find solutions to this problem. Additionally, investment dollars will more readily flow towards these alternative solutions because a greater and more certain return (reward) will be closer at hand.

However, as my stock pick painfully displayed – it was/is a great idea… it was just a little too early.

One last side note. In 2002, I had an opportunity to do some consulting work for Santa Fe International (now, Global Santa Fe). In a meeting with executives, they lamented the fact that various companies could get $1 for a pint of filtered tap water, but every time the cost of gas went up, people screamed about the hardships it caused, and the profits they earned seemed to come under greater scrutiny; yet the cost of extraction, refinement, and transportation was more expensive than the bottled water.

QUESTIONS for STUDENTS of ECONOMICS:

1) Why do you think it is people complain more about the increases in the cost of gas than they do about the cost of bottled water?
2) Think about the car you drive and your driving patterns. What currently prevents you from driving a car powered by an alternative fuel source?
3) When the cost of gas goes up, how does it change your consumer patterns (where you purchase gas, where you drive, your total disposable income to do other things, etc.)?