As the possibility of high oil prices looms large there is some urgency to look for alternate energy. World crude oil prices have been steadily increasing since 2002. They reached a historic high of $75 per barrel (not in terms of real dollars) in the first quarter of 2006. Within this backdrop of higher oil prices, another race of Alternate Energy Sources (AES) and New Energy Technologies (NET) to win the grand prize of larger share of the world energy market has started. The world energy market had seen such a race soon after the first oil shock of 1973 which was further reinforced by the second oil shock that followed in 1979-80. These oil shocks were caused first by the Yom Kippur war, and then the Iranian revolution and Iran-Iraq war.

However, unlike the first race which was induced by major oil supply disruption, the current one is the consequence of a combination of several smaller events. The first run up in crude oil saw prices zooming from about $11/bbl in 1972 to $80/bbl (in terms of 2004 $) in 1980. Then the prices fell to an average band of $25/bbl by 1986. This lasted till 2002. As prices started coming down, the race for alternate energy sources also slowed down. Oil lost its share while other energy sources gained. But AES did not succeed in securing any significant market share. The question that now arises is, how will the current AES race develop? How will it be influenced by the oil prices in future? Exhibit 1 shows two pricing scenarios.

For a number of reasons, this time the race of AES and NET will gain momentum instead of slowing down as happened during the first race. As the possibility of high oil prices looms large there is some urgency to look for alternate energy. This is also important as environmental concern of greenhouse gases produced by burning increasing amount of fossil fuels is gradually rising. There is a greater likelihood of oil prices remaining high and even crossing the proverbial $100/bbl level rather than falling to lower levels of $30 or $40/bbl as forecast by many energies.

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