An interview with energy expert Chris Nelder on peak oil and cleantech opportunities

While covering cleantech on VentureBeat, we write often about individual technologies, but rarely about the driving forces behind the market. Global warming is an oft-cited reason for developing renewable energy, but there’s also peak oil — the idea that some day we will hit the maximum possible production of oil, and that supplies will thereafter decrease as the world’s reservoirs diminish.

Author Chris Nelder has been writing on the subject for years, and believes that we may have already hit peak oil. The book he co-wrote with Brian Hicks, Profit from the Peak, is ostensibly written for investors, but spends much of its time exhaustively arguing for peak oil, with much of its first half reading like a condensed form of years of studies on industry blog The Oil Drum, the source of much of the in-depth material on the subject.

According to Nelder, we’re on the verge of a years-long upward trend in oil prices, which, without replacement energy sources — especially for transportation fuels — spells serious trouble for the world economy.

Nelder’s next book, also co-authored, is Investing in Renewable Energy: Making Money on Green Chip Stocks. It will be available in October.

VB: What is going on with oil prices right now? Will they fall or rise?
Oil is sensitive to minor fluctuations, and the price is set at the margins. Prices are set by supply and demand. There’s not a lot of growth in supply anticipated — that has been flat since 2005. And I don’t see a global depression yet, which is what it would take for demand to fall below what it is today. So on the whole I expect prices to go up.

VB: Your focus is peak oil production. Is that an issue that people are becoming aware of?
I think traders have started to come around and pay attention, but not the public. Frankly, Wall Street should have been on top of this years ago. The data was out there, plenty of people were talking about it. To this day, I don’t think hardly anyone in the public understands what peak oil is about. If they understood, then there wouldn’t be this chorus of monkeys out there saying we should open up Alaska.

The politicians don’t want to hear it, don’t want it to be on their watch, they want to ignore it until they get out of office. Then it’s someone else’s problem. Their current raft of terrible ideas [ed: Nelder is referring here to proposals to drill in ANWR, lift the gas tax, and drain the strategic reserve] is proof.

VB: What do you think of the national energy plans from Al Gore and T. Boone Pickens?
They sincerely want to solve these problems, but both have made claims that can’t be supported by the data. Gore’s proposal that we can somehow go from producing 1.5 percent of all our electricity with renewables to all of it in 10 years is ludicrous. I can’t imagine anyone showing me an intelligent plan that plots a course from here to there. But I suspect Gore is playing a shoot for the stars of strategy.

I think T. Boone is serious about his goal [ed: more on T. Boone’s plan is in this article, or at his website]. But there are a couple things that were never discussed in his presentations. One, he hasn’t explained how he expects all the natural gas plant capacity will go away, and two, he hasn’t explained where the new natural gas will come from. Natural gas fired cars are certainly real, but we don’t have any manufacturing capacity for them in this country. But from a macro level, he has a good idea.

VB: Are there any renewable technologies you view as ignored?
Nobody is mentioning the number one thing we should be doing, and that’s conservation. It’s like a kiss of death to politicians to say that word, so they don’t use it. But before we talk about switching vehicles to natural gas, or some build-out of capacity, we should be talking about bringing down demand. Part of that can be done in the short term with hybrids and electric vehicles. A lot of it can be done by getting people to move closer to work. You can increase bus ridership, or get people onto bicycles.

A lot of people understand that compact fluorescent light bulbs are a simple change that can really make a difference. But very few people realize that the number one energy consumer in most households is the refrigerator, and if it’s more than 10 years old, it’s consuming far more power than it needs to. Take a look at appliances of all kinds, like washing machines. The US is still stuck with this vertical access agitator that’s incredibly wasteful. Over a decade ago Europe switched to horizontal-access washers that use less power and less water. But there’s no market for it here.

In buildings, there should be a massive campaign in this country to add insulation. A huge amount of electrical and natural gas consumption comes from heating. We have an enormous inventory of buildings with no insulation. They’re leaky, they have bad windows. But we haven’t incentivized in this country.

Efficiency is the low-hanging fruit. Anyone who studies this stuff comes to the same solution. We could cause a huge reduction in demand. It’s just not glamorous.

VB: What’s your best idea for moving off liquid fuels?
Electricity. It’s not biofuels. It’s not hydrogen, that’s a joke — in fact, a hoax. It’s a cynical, cynical hoax. These guys [politicians and auto makers] have known that hydrogen isn’t a good way to move forward for a long, long time. There are plenty of ways to show it’s not going to work. They keep promoting it, because it sounds like a new supply-side solution we can count on to pull our bacon out of the fire.

I think what we should do and what we will do are the same thing, because there aren’t too many options. The successful option going forward is to go huge into electrified rail, both long-distance and inner-city, and to support electric cars. There are a lot of unsuccessful paths we can take foward, by waiting and so forth, and the end game for those looks like everything from, on the good end, a nationwide depression that will develop into a global depression, all the way down to a Four Horsemen of the Apocalypse, Mad Max scenario on the other end.

We have been really slow, and I’m not optimistic that we’re going to jump on the problem and get the leadership to change. But it’s obvious to me what the path forward is.

VB: Are electric trains really viable for the US?
If you look outside the US, there’s everything you can imagine. Look at the TGEV, with its top speed of 280mph; it gets you from one end of France to another and door to door for about as fast as you can fly, for a fraction of the fuel. All over the world, there are inner-city electric trains of every kind. It’s not like we need some technological breakthrough here. We just haven’t chosen to deploy it in this country, because we’re so in love with the car.

Again, that comes back to the American mentality. When you break it down, what we’re facing isn’t simply a liquid fuel or energy crisis. It’s a total cultural transformation. We have to change the way we think and act, our expectations for the future, and our identity as a people — what we think our proper roles, or even our rights are. There are still a lot of people out there who think we have a right to cheap oil, because it has been there all our lives.

VB: What advice would you have for the venture capital crowd?
I have seen a significant influx of capital to the lithium battery and plug-in space. Is it enough? Definitely not. Essentially what we have to do is a complete end-run around the Big Three auto makers. We have to leave them in the dust and build a new automotive industry. We’re not doing that. A lot of VC right now is focused on R&D, not building and manufacturing.

Then there are trains. There are a lot of train companies that have received massive investment. Warren Buffet, Carl Icahn, and others have poured billions of dollars into rail companies. But even that isn’t enough to really solve the problem. If you look back to the early days of this country, to how we got the rails we have, they were initially privately built. As they achieved a critical mass, they became more public entities. Same for the highways — they were out there capturing tolls, and eventually it was rolled into the interstate system.

VB: Any last thoughts?
I would emphasize that the way forward is an electrical infrastructure. There are still a lot of missing features. For plug-in hybrids, we need charging stations. For trains, we need the depots, the tracks, and ways to get people back and forth. There are a whole lot of different pieces to the puzzle that need to be put into place, and all of it requires a lot of capital. People need to stop thinking of the dead-end direction of liquid fuels and think about electric.

And what about food? What about water? What about shelter? Say we don’t get everything done on time, we don’t get a robust transportation infrastructure, now what do we do about LA? San Francisco? Houston? We can’t support these populations without a lot of continually cheap energy. So I think we’ll have the urban migration in reverse. A lot of people will move back to the heartland where they can grow their food and be near it. I think there will be a revolution in agriculture. You want to talk about venture opportunities for the future? Talk about small-scale agriculture. This has been the best year on record for home and garden stores. They can’t keep anything in stock. People know food prices are going to keep going up.

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