Energy - the next bubble ?

November 18th, 2008 | economy, energy

Many people are underestimating the tidal wave of demand destruction that is looming over our heads.

Deepak Shenoy gets it almost right:

What’s the buzz word this time? Energy. This boom has fuelled an enormous amount of money into energy - from research to discovery to exploration to production. There’s now solar and wind energy coming up. Nuclear’s picked up steam unintended. In India, coal and gas fired plants are coming up - mega and ultra-mega who coined that? power projects. There’s investment in distribution and transmission. And most of this has already gone in, in the hope that power will sell for a lot.

Will it? I honestly doubt that. We in India cannot imagine “too much” power. I think that’s what we in the cities will have - because no body has yet figured out how to make people in the villages pay, and no one is yet thinking of drawing lines to them. Too much power means it will become cheap - and I mean in five to ten years, not tomorrow.

This, I think, is the next boom, come 2014 or so. Businesses built on the back of seemingly unlimited power supply - from refrigeration to recreational vehicles - will start to benefit the most. And the biggest will probably come from an area I cannot yet imagine, but I’m sure it will start becoming visible in the next few years

The Indian Investor’s Blog: Excess Power - the next boom, after five years? >> Investing in Indian Stocks, Futures and Options

The only correction I’d make to Deepak Shenoy’s thesis is - We already live in a world designed for “seemingly unlimited power supply”! There will be excess power in the future - but that will be because there will be very few avenues to deploy the power that is coming online.

And before you start thinking of “China and India”, let me just say this - it doesn’t matter how many emerging market citizens yearn to live western lifestyles - the only thing that matters is whether they can afford to pay market prices for that energy and the products that depend on it. And right now, even at these depressed prices, the answer is - they cannot.

So - suggesting that cheap energy prices will create a new boom industry is like saying that cheap paper will create a new boom industry. Ultimately it is demand that pulls industry, and not the cost of raw materials. Hence any prediction on what the “next boom” will be must define clearly where both the demand, and the ability to pay will come from.

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