Part of the problem with being an analyst is that we are expected to think as if we were living five years in the future.
While the market is undergoing a recovery at the moment, I was recently part of a massive panel of ex-Intel executives who were anticipating another collapse, this time energy-driven. It appears we have dropped into the five-year window of anticipating that.
Only China, at the moment, appears to be putting in place the resources to offset this collapse, and even it is not making the progress needed to fully offset it. However, what China is putting into place will make the problem even worse for us, and it is time to start thinking about this.
Oil: At the Heart of the Problem
In the United States, oil is used widely for transportation, heat and for electrical utilities. This is particularly true of those generating plants that handle peak loads, according to the utility executives at the Intel Alumni meeting. The vast majority of these relatively dirty plants require oil.
As the nation recovers, our need for energy will increase along with the return to work and expansion and creation of new businesses. According to the experts on the panel, the market downturn has depleted most of the money needed to research, build, and drive alternative-energy solutions into the market. This means we are tied to oil for at least the next five to 10 years.
China, meanwhile, isn't yet as addicted to oil as we are because it uses coal instead to produce much of its electricity. But it is dramatically increasing its need for oil. China also will face an energy problem because its massive growth is taxing its energy resources. In anticipation of future oil shortages, though, China has been providing low-interest loans to oil-producing countries in exchange for favorable treatment. In effect, it is buying up much of the world's future oil capacity.
The latest credible projections I've seen suggest that this will come together somewhere in the 2013 to 2015 time frame, with the price of oil exceeding $150 a barrel and gas, at least in the United States, costing more than $7 a gallon and increasing dramatically from there.
Alternatives Can't Ramp
China apparently is building out the most impressive solar-cell infrastructure on the planet and, unless something is done, will own the majority of the solar-cell manufacturing capacity when the price of oil spikes, according to the panel experts. The Chinese government is having its own problems in rolling out alternative energy, but, in the face of a crisis like this, is structured to move rapidly and could dedicate this capacity to its own massive energy problems. The result could be a shortage of panels available in the United States and Europe.
Building the necessary solar farms could not be done quickly enough once the shortage hits. In the United States, the environmental impact reports needed to approve such things would take years, and that process likely would need to begin this year to be ready by the time we need to rapidly build this capacity. Even if that were done, which seems unlikely, the panels wouldn't be available when we need them because China would own the majority of them. The experts did suggest that, if we could get the panels, the United States could use the massive amount of government-owned land and infrastructure around Hoover Dam to create a massive nation-saving solar farm. But they all thought that given the way Congress isn't working, its members are unlikely to agree to spend this kind of money in any one state, even if the future of the United States depends on it.
Other than the not-too-subtle advice to buy oil futures, if you depend on oil-based power generation (and if you are on the grid, you likely depend on it), you may want to start planning what you will do if oil reaches more than $150 a barrel and energy brownouts and blackouts become increasingly common.
If your backup generators are oil-fired, you might want to start thinking about alternative forms of generation. There are also some large-scale energy-storage technologies that might work for larger plants so power could be purchased when it is cheap and plentiful and used when it is in short supply. Most of these really require very large scale though and, in some cases, special plant locations. For instance, utilities have been experimenting with pressurizing old oil wells during the night, then generating from that pressure during the day or pumping water to high altitudes and then generating as it flows down. But so far, neither plan scales large enough yet to avoid this disaster.
Liquid sodium looked promising as a technology, but the service life of the solution just hasn't met expectations, according to the panel experts. On generation, the most common alternatives are wind and solar. The problem with wind is that it is generally the most windy at night when plants and buildings don't need it, bringing up the energy-storage problem again. Solar tends to peak around the time that energy use does (air conditioning being one of the biggest users). Another alternative is to shift working hours where possible outside of peak energy-use times (noon to 5 p.m. are likely to carry the highest energy costs and highest chances for brownouts and blackouts). Granted, focusing on buying green products and supporting smart-grid initiatives could help in the meantime, but when the crash comes, they likely will not be enough.
Wrapping Up: Plan for Crisis and Hope You Don't Need the Plan
The economic collapse from the housing market was a long time in coming, yet few had plans to deal with it when it came. Take this as a lesson. Governments are particularly bad at dealing with things strategically and tend to think the future is someone else's responsibility. You don't have that luxury.
It's prudent to think through the pain we have just experienced and use some of those lessons to better prepare your own company for the next collapse. Make sure you have a plan to deal with the expected energy crisis. If it happens, you can be a hero and not just another victim.
As a side note, Andy Grove and a large number of other CEOs, current and former Intel employees are trying to get the U.S. administration to focus on this problem. They're not getting much attention, much like those blowing the whistle before the current economic problems hit us between the eyes. I don't think we can avoid this, so best to be prepared for it this time.