The oil price spike of 2008 was quickly forgotten in the haze of economic recession, but Libya's revolution could put innovation back on track.
In July 2008 oil prices reached $147 a barrel and suddenly energy prices were on everyone's agenda. Soon, oil prices fell as the economy faltered and people moved on to the more immediate concerns of keeping their jobs and businesses alive. Now, as events in Libya provide a specific scenario for a supply disruption, predictions of oil at $200 a barrel are beginning to proliferate. Investment bank Nomura projects the price of oil could hit $220 a barrel. We're about to return to 2008 prices.
How quickly we forgot the hardships of high oil prices. Back in July 2008, American Airlines reported that the cost of jet fuel per passenger to fly from Los Angeles to New York was $500, even as the airline was selling tickets for $390 to fill its seats. At the peak oil price in 2008, Dow Chemical explained that its petroleum costs would be $32 billion, up from $8 billion in 2002. Sales of hybrid cars expanded, and Toyota announced they had sold the one millionth Prius in May 2008.
Stated simply, our economy runs on oil. Yes, it runs on coal, natural gas, nuclear power and a bit of hydro and renewables as well, but none of these have feedstocks that are as volatile as oil. So what happens when one essential component in our economy goes terribly out of whack?
First, we're experiencing a predictable denial that oil dependency is a structural problem. Saudi Arabia has stepped in and committed to share some of its excess capacity to manage the foreseeable disruption from Libya's eastern oil fields, now under revolutionary control. The Saudis have increased production by 9%, to roughly nine million barrels a day. Even if prices go down, they won't stay low for long.
Second, we're bargaining for the last few years of oil price stability. The strong U.S. response to the events in Libya represents the geopolitical value of the light, sweet crude that it produces. While Tunisia's and Egypt's revolutions were quicker, and by some reports, less bloody, the clear difference here is that Libya has oil while Egypt and Tunisia do not. We see this bargaining represented in dozens of destructive new oil projects like the Tar Sands development in Alberta, Canada.
Third, we're starting to change. Unlike 2008, when it seemed like we were starting our innovation engine from a cold start, we now have a robust field of clean energy technologies that are slowly coming online, from thinfilm solar to fuel cells to cellulosic ethanol. We have a U.S. president who has committed to "Win the Future" by investing in innovation. We have a buying public that remembers $4 a gallon gasoline. We have a U.S. car industry that followed the guidance of its federal government overlords to adopt higher corporate average fuel economy standards.
There's some good news here. This is still the moment to create our energy future. In the last three years, as oil prices have softened, we've seen stumbles as companies like Applied Materials pulled back from the clean energy space because of operational and market conditions. But consider the car sector where products like the Nissan Leaf, Chevy Volt, Tesla Sedan and Better Place charging networks are moving into launch mode. In 2008 we had a moribund IPO market. But thanks to the social media flurry, 2012 will be a rich year for equity capitalizations, giving energy entrepreneurs the capital they need to build infrastructure. Even with the draconian austerity measures that are coming into effect across the country, this is a second opportunity for energy innovation.