We don’t know when or if the oil price will recover.

Some highly respected analysts think it will stay in a range of roughly $30 to $60. The high end being the point where currently capped-off supplies come back online. If so, then we are now at the low end and could see a big bounce.

But in projecting future oil prices, I think we are underestimating another inevitable threat to oil.

Renewable energy technologies have made huge strides in recent years. Costs have dropped and are still falling, even without the motivation of high fossil fuel prices.

This is happening partly because governments want everyone to reduce carbon emissions. It won’t be good for oil prices if they get their way.

For example, consider this headline from the normally staid Smithsonian magazine.

Author Sarah Zielinski discusses the major problem with solar and wind-generated electricity: relying on it puts you at the mercy of weather and daylight.

However, scientists Zielinski interviewed say the real problem is distribution. The wind is always blowing somewhere. We can’t harness it all because we lack the ability to move electricity efficiently across long distances.

According to scientists’ computer models, the US could reduce its carbon emissions up to 78% below 1990 levels by switching to mostly wind and solar energy and modernizing the electric grid’s architecture.

We would still need natural gas and hydroelectric and nuclear power for times when the weather was uncooperative, but the need for them would be sharply lower.

This particular study might or might not be flawed; but the point is that oil, gas, and coal face serious competition from other energy sources. Meeting electricity demand with renewable sources might be closer than we think.

Renewable Energy Will Beat Fossil Fuels in 10–15 Years

Morocco has just commissioned a monster solar farm.

Quick math: The full Morocco project will cost $9 billion and will generate 580 megawatts. The Solar Energy Industries Association (SEIA) says one megawatt can power 164 homes on average.

So 164 homes x 580 MW = 95,120 homes. Divide by $9 billion, and the cost per home is $94,617. Amortized over 20 years, the cost is $394 per home, per month. A tad high, but you also have no carbon emissions and no exposure to oil prices.

Now throw in inflation over the 20 years, and $394 a month for the final 10 of those years will probably not be nearly as high a real cost as it is today. I’ve thought for some time that solar will beat fossil fuels strictly on cost at some point.

Current research data says that even without subsidies, solar could be cost effective in many locations in 10 to 15 years. This article suggests we are getting much closer. That’s bad news for conventional energy companies and OPEC.

Electric car technology is advancing quickly, too. Tesla, among other companies, has shown that the technology works; their constraint now is building efficient batteries fast enough. Fuel cell and other technologies are on the near horizon, too.

Oil Will Cost Nothing in 40–50 Years

None of this means the world will stop needing oil and natural gas any time soon. Nevertheless, it tells me that potential oil supply could outweigh oil demand for a long time. If so, all that oil in the ground will be slow to regain those trillions in lost value — if it regains it at all.

I’m in a hedge fund conference in the Cayman Islands today. I was talking with some rather large (think tens of billions) managers last night.

When you look at the really long term, as in 40–50 years, these guys think the price of oil goes to almost nothing as we will have so many substitutes for fossil fuels, and we’ll find lots of oil that can be brought up for not all that much money.

How can that happen? If I buy producing wells out of bankruptcy at $.10 on the dollar, then my cost of production just dropped by 90%. I know, I know… it can’t happen, right? Think Global Crossing.

They laid thousands of miles of fiber optic under the oceans at immense cost, which auctioned off for pennies on the dollar. We should all be grateful to those unlucky investors because they are why you and I can now enjoy cheap Internet and telecommunication prices.

Why should oil be any different?

I’ve said for a long time that the entire “Peak Oil” thesis was wrong. I believe that more now than ever. Far from running out of oil, the world has way too much of it.

We will be dealing with the consequences for years to come.

Subscribe to Thoughts from the Frontline

Sign up for my free publication Thoughts from the Frontline where I uncover the truth behind and beyond the financial headlines.