"Solar Ceiling" : Why Oil Prices Must Drop

My thoughts on Oil Prices... (but I'd be shocked if I were the first to think of it): CONCLUSION: Oil must massively drop in price in the coming year (from $145/equivalent to 91euros per barrel on July 11, 2008). 1) Energy is energy. As long as it reliably comes out of the wall to power our TVs or reliably propels our transportation even the most ardent anti-hippie won't complain. 2) The argument for fossil fuels has always been price. From what I read a good rule of thumb is that fossil fuels can cost around 4 cents per kilowatt-hour (at best) and modern solar (in sunny areas) costs around 12 cents per kilowatt-hour (in worse conditions it can be as expensive as 30+ cents / kW-h though). So currently modern Solar (at best) is three times more expensive than fossil fuels. 3) Therefore, I conclude, that oil "can't" go above $450 per barrel (3 times the current oil price). If it did then solar would be comparably priced and all the incontrovertible arguments against fossil fuels (Middle East instability, Pollution, Global Climate Change) would necessitate virtually everyone to switch. Ceteris Paribus, who prefers oil? This is the de facto ceiling on oil prices. 4) So now that we know oil's ceiling price. Let's look at what factors could "lower the ceiling" (i.e. drop the price of solar). - "Economies of Scale": If modern solar is currently 12 cents per kilowatt-hour, how much of a price drop would there be if suddenly production increased 10 times, 20 times? Remember that solar power accounts for less than 1% of global energy. There is so much room for growth that I think economies of scale should significantly drop the price of solar. - "Technological Advancement": Technology always improves. Is it really conceivable that solar won't get twice as efficient? Three times? I read that the cost of solar will be 3.5 cents per kilowatt hour in the near future. http://peswiki.com/index.php/Directory:Cents_Per_Kilowatt-Hour 5) Now let's look at what is driving up the price of oil (rising floor): - China has 1/4 the energy needs of the USA per capita. As their standard of living increases there is a predictable tsunami of energy demand coming on the horizon. - India has a comparable situation. - Almost the rest of the world is not terribly far behind. But those factors have been known for a long time and the actual consumption trends have generally followed the consensus predictions. So why has the price shot up so far and so fast? - the Iraq war was supposed to increase oil supply but the opposite happened. Investors dealt with the dashed expectations predictably by driving up prices. - Bush & Cheney's "saber-rattling" about a possible war with Iran increased the "risk premium" because investors feared that such a war would further jeopardize production which would further depress supply which would increase prices. - the dollar has dropped in value (but that is really a separate currency problem and relates to nearly all goods outside the US increasing in price). 6) Now I will conclude with my falsifiable theory why the floor will fall (i.e. many reasons why oil prices must eventually fall from $145 / equivalent to 91euros per barrel on July 11, 2008): a) Obama will win the election and, at a minimum, stop the saber-rattling with Iran (at least less than the Bush/Cheney regime). Therefore the risk-premium of a possible war will drastically be reduced. b) Obama will begin to withdraw from Iraq (albeit slower than we liberals would like) and so the "insurgents" will have less incentive to hurt oil production as a way to get back at Americans. Iraqis, now less worried that oil profits would be going to Americans, will massively increase production of oil in order to get out of debt (get their economy going). The Iraqi factions will also each want to get the oil money as fast as possible (to try to screw the other guys). They will also ignore OPEC because their country is in such bad shape. This increased supply of oil will further lower prices. There may even be a bit of "panic selling" as the other OPEC nations will want to cash in on high prices before prices plummet. c) Obama & the democrats will stop subsidizing the oil industry and focus resources on alternative energies (lowering the ceiling further). Even McCain wants to work on this! d) As it becomes more apparent to investors that Obama will indeed win the election and do as we predict, they will factor in the above arguments and thus be less likely to bid-up oil prices. e) Oil Sands / Tar sands become economically viable at $80 per barrel but they take years to get up and running. Even though oil prices have skyrocketed the oil companies were previously reluctant to make the investments in extracting oil by those methods for fear that the price of oil would fall (and thus make such techniques & efforts poor investments). Only recently are companies beginning to make legitimate attempts (that will come online in the coming years). f) T. Boone Pickens (the hardcore oil man & legendary investor) is not only working on alternative energies but he is ALSO PROMOTING THE HECK OUT OF IT!!! (This past Sunday, July 13,2008 - he had pro-alternative energy advertisements on Meet The Press AND This Week w/George S.) Consequently, even the oil men and investor community will soon begin to get more familiar with the factors I have outlined above (e.g. the "solar ceiling"). Wouldn't any speculator, aware that oil "can't" go above $450, think that as prices rise their potential profit would shrink? CONCLUSION: While oil prices may potentially continue to go up in the very short term (until November) as the Bush/Cheney regime continues to scare up prices by exacerbating the risk-premium, the price of oil "must" come down in the coming years due to the lowering of the "solar ceiling" (and "wind ceiling" et al.) and the predictable coming absence of the factors for the previously rising floor. But I could be wrong. We'll see.