It doesn’t seem that long ago that the papers were talking about the chaos that would follow if oil hit $30 per barrel. A few years on and it’s past $120 per barrel and showing no signs of stopping.
As a result, prices are rising - particularly prices of oil based fuels. Many would argue that this is bad news for motorists, indeed there are many that are encouraging us to boycott BP and ESSO or petition the Government in order to get them to lower prices/taxes of fuel.
The problem is that such boycotts are based on a flawed premise:
Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a litre is CHEAP, we need to take aggressive action to teach them that BUYERS control the market place not sellers.
The reality is however that the price of oil is being set by the buyers - in fact the worldwide demand for oil has shot up, as the New York Times explains:
…prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.
They go on to note that demand for oil in China and India is expected to double in the next two decades - not surprising as nearly HALF of the worlds population livings in those two countries. Do you really think BP, ESSO or OPEC are going to notice a few million Brits buying less fuel while over two billion Chinese and Indians start buying more? I don’t.
However, I don’t think the high price of oil is a bad thing. For years we’ve been warned that oil is running out and that burning it is a major contributor to greenhouse gasses - but despite acknowledging the facts we’ve not really changed our habits. Experience tells us that when prices increase the incentives to find alternates also increases and that’s got to be good news for the environment. Even if it’s a pain in the butt for most of us now.
It also makes me think that alternatives to oil are going to be the next big boom - if you missed the Internet boom then here’s your advanced warning alternatives to oil is the biggest business opportunity of the next 10-20 years - I predict that there will be many billionaires made in businesses that provide alternative technology to oil.
Don’t think that it’s limited to creating an alternate to oil either. This will be a disruptive change, and businesses as diverse as video/teleconferencing (removing the need to travel to a meeting), solar energy (no need for oil fired power stations), packaging (good bye plastic bags) will be part of it.
Photo by Shereen M
This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
You’re absolutely right; this is a huge opportunity for both companies and individuals.
The IEA (International Energy Authority) recently estimated that the world needs to invest $45 trillion in energy production between now and 2050 to deal with global warming. That’s over £500 billion per year, which is a lot of opportunity.
You are absolutely right.
Currently, here in Australia, we have a public company buying up every suburban bike shop it can get its hands on.
I am currently working for a Fund management company (Guinness Asset Management) which is involved in alternative energy and global energy. I like your analogy with the Internet, but I think the difference is going to be the timescale. In my humble opinion, fortunes are there to be made, but it will take time and it will be a bumpy ride. I think this is an area only suitable for long term investors who are really aware of the risks.
The increase in demand for energy is real and big. The IEA (International Energy Agency estimates that by 2030 China will need the equivalent of the entire current US energy output - just to meet the increase in demand.
India and other economies are increasing their demand too. And at the same time the supply of oil is finite.
But in terms of the price of oil - it really is not that high! Adjusted for inflation the price of Oil from the peak of the 1970’s would be at c. $120 a barrel. If you make further adjustments in terms of spend of GDP - the price of oil needs to get to around $156 a barrel before it really has peaked. This explains why we have managed to cope relatively well with a doubling of the price in the last six months.
The real challenge facing the world today is food prices - I think there lies an opportunity!
Permjot,
Is 10-20 years not long term?
You’re right it’s not that high when you adjust for inflation and compare to the past - but lets face it people are comparing with 6 months ago, which makes petrol seem to have suddenly risen in price.
More importantly however I can see it rapidly reaching $200 a barrel - and the price of oil is a contributor to the price of food.
As I understand things GM foods could ease the problem with the supply of food - but we’re (the western world) reluctant to push for more use.
I really think you’ve hit the nail on the head here, John. Alternative energy sources are definitely going to be the next big thing. The technologies are already there but were comparatively too expensive to be put into play. Now though alternative sources can become profitable businesses.
Most people underestimate the potential ramifications if oil remains at these high prices. John’s food example is exactly right - fertilizers and pesticides rely on oil, as do the more obvious things like tractors and transportation.
I think there will be a general redeployment of resources as energy becomes more expensive. For example, as ethanol becomes more common, corn prices will rise and food shortages will be exacerbated. Savvy investors need to be aware of the whole picture, not just the oil market itself.
What business can an individual who is interested alternative energy in buildings do? I am trained as an architect and I live in England. I have an entrepreneurial mind and I see lots of potential in developing nations with hot climates.
Mark,
I suspect that there’s a good number of business opportunities out there for someone like you. Why not join the forum (see link above) and we’ll discuss some.