Green's Moment of Truth?

Today's breathtaking surge of oil prices through $120 a barrel and on toward $121 underscores a possible shift in the U.S. -- Americans may be finally recovering from their seduction with the road.

An insightful piece by my Business Week colleague Christopher Palmeri details how America's demand for oil appears to be dropping. They are traveling less, and when they do, doing so in smaller vehicles -- they are buying more compact cars, and fewer SUVs.

Caution is in order, since the country is in recession, and these statistics are for a single quarter. Yet the tightness in global oil supplies isn't likely to lift -- Russian production is stuck at about 10 million barrels a day and dropping, and the Saudis are probably at or near their own production peak, according to a piece today by my former Wall Street Journal colleague Neil King. The only big unknown is whether Iraq and Iran come on the market with large new supplies. But even if they do, what are we talking about -- another collective 4 million barrels a day? Five million barrels tops? That's not much of a global cushion, and not sufficient to relieve the tightness as Asian demand continues to grow. Arjun Murti over at Goldman Sachs says that oil may soar to $150 to $200 a barrel in the next couple of years, according to a piece by Bloomberg's Nesa Subrahmaniyan.

Goldman has been prescient on oil prices. And the stars do seem lined up for high commodity prices of all types. But if demand truly is dropping in the biggest gas-guzzling country on the planet, there is reason to give some credence to the opposite outcome -- that the price will stabilize, and even drop. Not too much. Perhaps a bargain $100 a barrel? A firesale $90?

Yet that could be sufficient to trigger an era of proving time for the conviction of investors and innovators in renewable fuels. In an excellent contrarian piece, my Business Week colleague John Carey says that corn ethanol has wrongly suffered a black eye over its impact on the food supply. Corn ethanol isn't as much a villain as it's made out to be.

But that's irrelevant to the current environment. What's driven billions of dollars into venture capital has been the runup in oil prices. As long as prices keep rising, that money will probably keep flowing (although probably not into corn ethanol). But if the price surge slows, or reverses, look for an impact in the constellation of renewable companies.

Which venture capitalists have the conviction and stomach to put more into technologies many of whose genuine value won't be known for years and years? And which technology will they decide has the right stuff to succeed in the long term? The air is likely to go out of some of the fledgling companies' perceived value.

Turkmen Subjected to More Sanity: My friend David Stern, the New York Times writer in Central Asia, writes that Turkmenistan leader Gurbanguly Berdymukhamedov is dismantling yet another vestige of the deceased buffoon he succeeded. After having reinstated full schooling for children, and reopened local circuses, libraries and even the ballet, Berdymukhamedov is removing the Arch of Neutrality, a revolving statue of his predecessor, Saparmurat Niyazov, from the center of the capital of Ashkabad. Perhaps next he will start issuing visas to foreigners.

Photo: ndanger
Rights: Creative Commons