Got this very interesting question yesterday from J. Hsu:
"The word on the street is that high oil prices will push the need for renewable resources -- but at the same time, it makes the development of unconventional resources viable. What strategy will win out?"
J-- Excellent question. Higher prices will indeed encourage both more alternatives, but also more oil--thus raising the possibility of a kind of paralyzing equilibrium that simply maintains the status quo. But in fact, a high-price environment could give alternatives several small but crucial advantages over oil, unconventional or otherwise. First, whatever surge of new oil is brought to the market as a result of these higher prices will be temporary; sooner or later, demand for oil will once again move ahead of supply and prices will rise, making oil unattractive again. Second, and more fundamentally, "unconventional" oil is still plagued by lots of external costs, such as CO2/climate, and, in some cases (such as 'heavy' oil in Venezuela) political instability. To the extent that today's high oil prices encourage alternatives that have fewer environmental and political costs, alternatives will gradually pull ahead.