The famed investor says the fracking revolution, fuel efficiency standards, and slowing demand have only bought us time in the search for a true technological breakthrough
Peter Thiel, whom we profiled in September in the cover story “Peter Thiel Disagrees With You,” is the founder of two billion-dollar companies (PayPal EBAY 0.91% and Palantir), a venture capitalist (his flagship Founders Fund now manages $2 billion in assets), a hedge fund manager, the first outside investor in Facebook FB -0.36% , and the author of the recently released book about launching startups, Zero to One.
When his hedge fund, Clarium Capital, launched in 2002, Thiel followed a peak-oil thesis, which paid off splendidly as oil prices rose from about $40 to $140. But prices fell off a cliff in 2008, the fund got clobbered, and institutional investors fled. He licked his wounds and soldiered on. We decided to ask him how he’s faring and what he’s thinking now that crude oil prices have fallen from about about $105 in June into the low-$80 range today.
Fortune: How has Clarium Capital fared during this period? Did you expect this, or are you taking a hit?
Thiel: Generally, we’ve not been long oil the last few years. I think this is a point, though, where I would start to be somewhat bullish on oil equities. I don’t think the price can go down much more.
With prices in the $80 range, has the peak-oil thesis been thoroughly discredited? Aren’t we facing a glut?
From the vantage point of 2002, it is the case that oil prices are still quite high. In 2002, the long-term oil prices were expected to be around $25-30 a barrel, reflecting the expectation that prices would revert to the pre-9/11 crisis levels. We’re now at $80 a barrel. So it certainly is higher than people would have thought at the time. If you had said back then, “Well, there’s going to be a huge fracking revolution,” that’s been offset by all these increases in global demand, especially from China.
More narrowly, from 2011 to 2014, after oil spiked to around $110 during the Arab Spring and then held around there, the move back to the $80-85 range is a very welcome relief. It’s being driven in part by supply increases in the U.S. and then there’s also this relentless decline in demand. In part, because the economic recovery is slow. But then the good part is that there is this steady tightening of CAFE standards in the U.S. [The federally enacted Corporate Average Fuel Economy regulations currently require manufacturers to achieve an average fuel efficiency of 54.5 miles per gallon for cars and light trucks by 2025.]
Are we benefitting from that already?
I don’t have the exact numbers but U.S. oil consumption has come down a lot since 2005-2006. [It dropped from about $21 million barrels a day in 2005 to $19 million in 2013.] That’s a combination of the recession—fewer people are working, people are driving less—but also we’ve shifted back to smaller cars. Hummers are out of fashion. I think the CAFE standards are one of the very understated things going on relentlessly beneath the surface and will keep going for 15 more years. Cars here are still much bigger than in Europe or Japan or rest of the developed world.
You always think of conservation as not the greatest form of innovation—ideally, you’d like completely new sources of energy—but there’s actually a lot we can do on the conservation side.
So you have the CAFE standards, the ongoing fracking revolution, and that’s buying us a fair amount of time. On the other hand, I’d be surprised if oil can get much lower than $80 a barrel because the cost of fracking is pretty high.
Fracking technology always gets cast as this technological improvement. I think it’s in some sense inferior to past oil extraction technologies, because it’s dirtier and more expensive. It’s sort of a stopgap. I always want to push back on its being framed as this technological panacea.
I think we’re still in the sort of in-between zone, where the fundamental technological problem [of finding new, sustainable energy sources] has not been solved, but we have more time than we would have thought.
Plantagenet on Fri, 24th Oct 2014 1:37 pm
Thiel is exactly right that tracking is not a true solution—all it can do is buy us some additional time to get ready for peak oil, which is likely to occur before 2020. The unfortunate thing is that the current Obama administration has shown they would rather take the easy road and boast about imaginary energy independence and a 100-year-supply of Natural Gas then get down and do the hard work of taking the US down the road of transition to a post-carbon future.
Davy on Fri, 24th Oct 2014 2:20 pm
Planter, I hate to talk politics but who is on the horizon that would be good for the country per your world view. I am sick of Obumble. I don’t despise him like you do, which is excessive, but you do have a point with his needed departure.
Northwest Resident on Fri, 24th Oct 2014 2:56 pm
Good luck finding another president who will somehow manage to make things better. It used to matter who the president was. Not so much these days. The whole world is spinning out of control, way beyond the ability of some social working lawyer or some corporate raiding magic pants wearing greedmiester to control, even more beyond the capabilities of some moose hunting hussy from Alaska or some jet crashing crazy guy from Arizona to control. Presidents are controlled, they do not control — not on the big issues — not today. Don’t place your hopes in presidents to lead us out of this mess or to make any significant difference whatsoever, and you won’t be disappointed.
Davy on Fri, 24th Oct 2014 3:02 pm
NR, I was baiting the planter and you disturbed my trap. But I agree with your interpretations of the POTUS.
Northwest Resident on Fri, 24th Oct 2014 3:05 pm
Oops! My bad. Should’ve known… Please, continue.
paulo1 on Fri, 24th Oct 2014 3:28 pm
re Plant’s statement:… “boast about imaginary energy independence and a 100-year-supply of Natural Gas then get down and do the hard work of taking the US down the road of transition to a post-carbon future.”
Except for PO aware and PO accepting folks, everyone does that!! It is a hard thing to accept that your paradigm is faulty to the core. I don’t even talk about ‘it’ with my friends anymore. I seldom did, but now don’t even bother. I think PO is simply too hard for some people to imagine.
I have read many accounts of Jews simply not accepting what would befall them after the rail cars arrived in Poland. I think it is similar about a carbon decline. Mind you, most people have no idea how pervasive carbon is in their lives.
When a 2-4% petroleum decline sets into place in earnest, (Plant mentions by 2020, others say 2017, still others say collapse), it simply will be too ugly to imagine.
My next prep is building a small cabin for people to stay in that might need refuge for awhile. Ostensibly, it will be for visitors and it will be on cedar logs so I can skid it to where it needs to go depending on purpose. If it is only for vacationing relatives, wonderful!! If the need is because someone lost their job and has no where to stay, then it will be ready.
Paulo
Apneaman on Fri, 24th Oct 2014 4:15 pm
Good eye Paulo.
In the last months of WWII, as the German cities were continually bombed to rubble and the allied noose was squeezed tighter and tighter, there was much assured talk of a super weapon being rolled out any day and a German victory near at hand. Tragically, history is rife with examples of mass delusion and denial.
Plantagenet on Fri, 24th Oct 2014 5:56 pm
Its very nice that we all are working on our own personal preps, but its not unreasonable for entire regions, states or even entire countries to make preps for peak oil. We’ve had some good years to get ready since the peak in conventional oil production in 2008 but the window of stability is short—-we’ll probably hit global peak oil—including fracking—is a few more years or so. We’ve had a few extra years to get ready, so don’t waste it—unlike Obama and our feckless leaders in DC are doing.
Apneaman on Fri, 24th Oct 2014 8:29 pm
DC doesn’t run the country; Wall street does and they only care about profit NOW. The countries long term future is not their concern. This pattern of finalization dominating the economy has been done before. History rhymes.
“The push to get the most profit from the least investment in assets doesn’t simply hinder innovation. Throughout the economy, it draws investment away from creative new ventures–quality engineering for example–and into the whirlpool of financial engineering. As he puts it, our economy is becoming just as financialized as 14th century Spain, 18th century Netherlands, and Great Britain during the past two centuries. “The financial tail is wagging the economic dog. When private sector credit reaches 80% to 100% of GDP, it inhibits growth and increases volatility. In the U.S., in 2012, private-sector credit was 183.8% of GDP.”
http://www.huffingtonpost.com/peter-a-georgescu/real-values-vs-shareholde_b_5995322.html
Kenz300 on Fri, 24th Oct 2014 8:51 pm
It is time to end the oil monopoly on transportation fuels.
New Biofuels Facility Converts Plant Waste To Ethanol, Is 90 Percent Cleaner Than Gasoline
http://www.huffingtonpost.com/2014/10/17/biofuels-plant-waste-ethanol_n_6001670.html
Nony on Fri, 24th Oct 2014 11:14 pm
He looks and talks like a douche. Typical dotcom huckster.
Aire on Sat, 25th Oct 2014 7:31 am
I’m guessing the people who have the majority of the wealth know about all these dangers and wish to only bide some time. In a sense, they are preparing because they probably predict a giant crash for mankind. This in turn will secure their chances – a way less populated planet, the remaining will likely be subordinate to those who have true wealth. These remaining masses are likely to be willing to trust in those providing relief during the chaotic crash. There is NO WAY to stop the impending disaster coming — Obama can’t stop it or even any kind of government. In theory, it’s possible to take a road to transition but we all know that is a dream. Humankind almost always take the collision course and then those with the resources get power hungry and the cycle repeats until a point we are extinct.
Davy on Sat, 25th Oct 2014 7:42 am
Aire, maybe some of them. I know some of them and few have embraced the specter of collapse like it needs to be. The 1%er idea of collapse is warped by their addiction and conditioning to riches. The average 1%er will be in for a rude awakening. To really prepare you must descend several levels and begin the hard process of a rebirth to the lifestyles and attitudes of pre 19th century. These wealthy think the masses will be cannon fodder but many of them have a worse fate. Sure some will have properly prepared with armies of security personnel and able administrators. Many will have their castles of protection. Yet, many will think their abstract digital wealth will buy safety as the ship sinks. Think back to the Titanic. Rich and poor died equally in that disaster. Money was no use. It came down to agile thinking and lady luck if you ended up on a lifeboat.
Kenz300 on Sat, 25th Oct 2014 11:12 am
RepubliCONS are owned by the fossil fuel industry and the top 1%………..
They are doing all they can to block any transition to safer, cleaner and cheaper alternative energy sources.
RepubliCONS also want to privatize Medicare….privatize Social Security, reduce access to contraceptives and give themselves a huge tax cut and then complain about the deficit so they can hollow out the middle class even more………..