Energy’s Biggest Horizon Post Deepwater

In the aftermath of Deepwater Horizon, BP’s stocks have rallied, Halliburton has been named to the Dow Jones Sustainability Index and many people are wondering if the world has slipped into a self-induced amnesia.

But not Mark Mills, founding partner of Digital Power Capital, a private equity firm that invests in energy-oriented technologies. To Mills, a physicist, it seems perfectly normal that BP and Halliburton are poised to make the comeback of the century just three months after the worst oil spill in history was capped.

It’s simple: Every minute of every day, the world spends roughly $4 million on oil. By this Friday, exactly 90 days since the Deepwater Horizon gusher got plugged, $504 billion of oil—or 7.2 billion barrels—¬¬ will have been pumped into hundreds of millions of automobiles, airplanes and ships across the globe.

Mills, a keynote speaker at Wharton Business School’s upcoming energy conference, is no oracle, but he can look into the future and say with confidence that oil isn’t going out of style anytime soon.

“There’s nothing on the horizon that can compete with oil as a transportation fuel,” Mills says. “Even at twice the price, it’s better than the alternatives in terms of energy density, overall efficiency, cost and safety. It doesn’t matter what people would like to believe, there’s nothing in the physics to replace oil.”

It’s a fact that the stuff that sometimes pollutes the worst is often the most efficient at delivering energy, and that’s saying nothing about world demand. For every biofuels breakthrough and every gallon of ethanol produced, millions of new car owners in China and India flip the ignition in their first set of wheels.

The same goes for electricity, which Mills says outpaces demand for all other forms of energy. More than 70% of U.S. energy is used for non-transportation purposes. In other words, gadgets and gizmos and a mind-boggling multitude of other life-enhancing devices may continue to become more efficient, but there will continue to be ever increasing numbers of them.

That means for every solar panel installed and every wind farm erected, millions of new cell phones, thousands of plasma-screen TVs, and perhaps an electric car or two gets plugged in. To Mills, the lesson is not that there’s no hope for energy efficiency or a place for renewable alternatives in the world’s portfolio. It’s that conventional energy—oil, gas and coal— is just as ripe an opportunity for clean-tech investment as wind or wave technology.

According to Mills, huge investments will be made in ensuring efficiency and safety in conventional energies in the years to come. Already, $100 billion is spent globally every year on electric transmission and distribution infrastructure. Twenty percent is in the U.S. alone, and the nation’s grid is about to get a major “smart” upgrade. The next generation of nuclear reactors will be small, compact and incredibly powerful. The coalmines of the future will hopefully be safer and cleaner. The point is, though, that there will still be coalmines.

“From an investment perspective, you need to know where to go hunting,” Mills says. “One of the most energy intensive things on the planet is information technology; the information economy has to operate 24/7.”

It’s not so surprising, then, that when prompted for his most promising investment picks, Mills turns to offshore drilling. Think 3-D imaging to make ocean exploration an exacting science and deep-water wells with safety mechanisms that actually work. The opportunities exist in preventing Deepwater Horizon from happening again, not from looking for a replacement for offshore drilling, Mills says.

“You have to know what you can change and what you can’t change,” Mills says. “A long time ago, people thought we couldn’t fly because we’re heavier than air, but engineers did find a work-around. So should we think engineers can make a solar-powered car? Sure, they can make one, but you wouldn’t want to use it; it’s not practical. In aviation terms, it’s the equivalent of a hot air balloon. Solar has other applications for sure, but the idea that solar replaces oil is, in essence, silly.”

Article by Amy Hsuan. Amy is an MBA at the Wharton School of Business, which is holding its annual energy conference “Bridging the Gap” on Oct. 29. Amy reported on renewable energy for The Oregonian in Portland, Ore. prior to moving to Philadelphia to pursue an MBA.