Written By: - Date published: 3:42 pm, July 11th, 2008 - 68 comments
Categories: economy, transport -
Tags: peak oil
A worrying report on the future of petrol prices is out today. It predicts petrol could hit $10 a litre in a decade. Nearly all of that increase will be caused by the supply of oil falling as demand pressure grows.
Rationing will probably be introduced before that point, otherwise only the rich will be able to get fuel for their vehicles and the whole economy will suffer from a working class that can’t afford to get to work but, either way, with petrol at $10 a litre, Transmission Gully and Waterview Tunnel will be, as the Greens’ Russel Norman says, ‘modern day Easter Island statues’.
This report tells us quite clearly that current patterns of travelling by private vehicle will be unaffordable for most within a decade. There is no hope that alternative fuels can be available on the necessary scale in time (currently, hybrids make up only a couple of percent of new car sales and materials for the batteries are in short supply already). Two responses need to be begun now, before it’s too late: a massive investment in public transport and a shift to building new, low-energy housing developments designed to minimise the need to commute and provide alternatives to driving. There is also a need to consider the massive increase in electricity demand that a shift to electric and plug-in hybrid vehicles caused by petrol prices will cause and where the generation capacity is going to come from.
It’s worth noting that this report was based on data through to March, when the price of a barrel of oil was $115US. Last week, it hit $145US.
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Rationing may work domestically (though I doubt it) but what about the international trade? Can anyone really see the US and China giving up a single barrel? Russia will be laughing with all its reserves. Luckily NZ produces about 55% of its oil domestically so we might be not too badly off.
I’m talking domestic rationing. But, yeah, we have to get the stuff here first, at least we have decent and growing local production.
an outline of how rationing would work is in MED’s oil emergency response plan, page 20. http://www.med.govt.nz/upload/60607/780059_2.pdf
So basically we need to implement what’s been Green Party policy for… what… at least the last 9 years?
Why,why did I sell the XY wagon with two 75L cng tanks in the back.
I actually really liked the rest of Normans quote too Steve:
“Our new motorways would be monuments to short sightedness and profligate waste of resources.”
Yes, yes they will be. If we ditch them we could even justifiably cut the RUC and petrol taxes. Rather than just cutting them because people hate paying for things no matter how reasonable the cost.
I find it quite remarkable that people pack such a hissy fit over 1.5 billion to get a complete and modernised national rail network, yet see no problem with spending 1 billion JUST ON TRANSMISSION GULLY.
Modernised National Rail Network, COMPLETE cost – 1.5 Billion
27kms of highway – 1 billion
I know where I’d spend MY money.
Yeah, I figured you meant domestic rationing. I see from that MED plan that it distinguishes between an IEA and a non-IEA emergency. I’m glad they’ve made that distinction because the IEA has been predicting oil supply to continue to climb on a basically straight-line basis for the next 20+ years, while most serious analysts point out that supply plateaued at 85 million barrels a few years ago and has barely increased since, nor is it likely to based on any of the new discoveries that have been announced.
I think the move towards free public transport for 65+ was excellent. A good circuit breaker for Labour would be to add in all children and tertiary students and then roll forward from there, a bit like they did with the GP subsidies.
This is something we just can’t afford to ignore and hope it goes away.
Oh, and lets not forget: SH20 Waterview connection – 2.3 Billion
a 500% increase over ten years – sorry – but i do not see that as credible – the world economy would come to a grinding halt. – Countries would go bankrupt, wars for control of oil would start. Much more likely that other forms of energy would become affordable – and the whole mindset would change.
Intersting debating point as to what would happen should energy increase 500%. My car would cost $800 to fill. (interesting since it is probably worth only $800.)
literally nothing would be affordable. Starvation would become rampent, no one would be able to afford the energy to heat their home (a 500% increase in oil prices would affect every form of energy renewable or not)
maybe NZ could go nuclear?
Steve this post is SENSATIONAL!
Deborah Stone would be proud.
I can see why your lefty bottom feeders are lapping it up without even glancing at the report. I mean how could the integrity of your posts ever be questioned? You always provide the caveats and help illuminate the grey areas. It’s your use of the word “could” I especially like. Such a small word which you make contain so much information. How did you compress it all in there? You are with out a doubt a GENIUS!
Lemsip, great contribution mate.
Steve,
Yesterday you had a post headed “Lots of ideology, not argument”. Am I to assume this post could just as easily been headed “Not ideology, lots of argument”?
lemsip – I assume you’re referring to the range of estimates for the final price. I agree that the $2-$3 range is more likely, but that doesn’t change a bloody thing about the appropriate responses. Unless you think petrol is affordable at its present price?
You’ll also note that that price is contingent upon a “fast technology response”.
This response will act to reduce demand, obviously. So… we should be developing systems to allow us to reduce demand. Like the ones the greens propose in their transport policy, and the ones steve mentions above.
I encourage everyone to at least read the executive summary – it’ll only take you a minute.
Have any of you spent time over at TheOilDrum.com ? If you haven’t, it’s worth a look.
lemsip. If you want to call people bottom feeders, do it on Kiwiblog, you’ll be in good company there.
I actually think the study is conservative. We’re 2 years ahead compared to where prices are expected to be in the ‘worst-case’ peak oil price model that leads to $10 a litre petrol in ten years. Peak oil is happening faster than the worst case scenario..
Monty. Understand, there are no alternative fuels that can be rolled out in sufficent quanities within ten years. It’s just not logistically possible. The factories don’t exist. And (I wonder sometimes whether people actually take anything in from the posts) we’re already having trouble getting the batteries for hybrid cars, we can’t double even hybrid production within a year, let alone increase it 30-40 fold so all new cars could be hybrid (and even if we did that most cars on the road would be all internal combustion for another 5 years).
“a 500% increase over ten years – sorry – but i do not see that as credible – the world economy would come to a grinding halt. – Countries would go bankrupt, wars for control of oil would start. Much more likely that other forms of energy would become affordable – and the whole mindset would change.”
- just because it’s bad doesn’t mean it won’t happen.
Well, Brent International Crude has gone from about $18 per barrel in May 1999 to $120 per barrel in May 2008 and it’s currently about $140.
So let’s see, that’s a pretty big increase right there isn’t it? Most of that spike has been in the last year, May 2007 price was $60 per barrel.
Scribe. I’m not sure what you’re getting at. my post related the findings of a 44 page study by the CSIRO in Australia, which I’ve read and I think the methodlogy is sound, if conservative.
Just because yesterday I was one of many who ripped apart a hack job of a report because its methodology was stupid does not mean I think all studies are stupid.
But I don’t blindly believe any study, I look at how it was conducted first before deciding what i think of its conclusions.
Some weekend reading for folks: Twilight in the Desert by Matt Simmons
Steve,
I would say that each of the reports/studies in the last two days comes from people with certain preconceived ideas and they both seem to produce findings that are what you’d expect from the respective groups.
I’m glad you find this study “sound, if conservative”. I don’t, partly for the reasons I’ve mentioned. Studies that make me sit up and pay attention are the ones that run contrary to the person or group’s own ideology. They are rare, I know.
Welcome to the peak oil party, fellesses and fellows! Grab an empty drum to sit on, there’s plenty.
Yes, major oil groups and the analysts and consultants that rely on their data have been progressively coming out more and more strongly in favour of peak oil.
Even if we find significant extra oil reserves, oil will eventually peak, and it’s a very large job changing the engine in every car over to an alternative fuel, let alone providing that fuel, too. If we go electric, there’s also other problems to solve like how to reconcile charging with long-distance trips. (Motels might essentially become “petrol stations” as well as accommodation)
are you accusing the CSIRO of Australia, Australia’s leading scientists, in a report for a forum sponsered by 18 major companies and organisations including Caltex, the Australian Automobile Association, and Holden of having preconcieved, unjustified, ideas that peak oil is a major problem?
On what grounds?
What ideology are you accusing the CSIRO of having and what faults in their methodology can you identify?
You haven’t even looked at the study, you just don’t want to believe its conclusions.
Monty,
[q]wars for control of oil would start[/q]
Uh deuh,
Iraq, Afghanistan and next Iran?
[admirably short comment, trav. Few words can say so much. SP]
smash ‘em bro!
T-Rex – I think you’re slightly off on the figure of 1.5 billion for a “modernised” rail network. As I see it, a modernised network that can replace car travel requires (relatively) high speed trains such as in Asia and Europe.
Unless we have passenger trains that run a lot faster than now, I can’t see people getting rid of their cars.
Additionally, Auckland and Wellington would most likely need light-rail networks.
When we are all happy on horse and cart will the gummint charge us pooh tax and hoof user charges? Fuel and food cost the earth now days.
$10 per litre. Simple solution is to stop using cars. Why’d you start using them in the first place? Somebody sell it to you as a damn fine idea?
Boss wants you to go to work (although christ knows how industry will run without oil)… tell him he has to get you there.
THEN industry will be hollering for govt subsidised transport. Can’t wait.
There was a time when workers housing concentrated around the factory. I’m not suggesting that was necessary a good thing, but it was industry that foisted the car mentality on us and the idea of commuting. I believe there actually was a guilty verdict on a charge of conspiracy against oil and tyre manufacturers who bought up and shut down public transport in L.A.?
Anyway. With the industrial base so utterly dependent upon oil ( from electricity generation through lubrication of machinery, transport and as a component of the manufactured products), it would seem reasonable to suggest that manufacturing industry is about to find itself up shit creek without a paddle.
Unless manufacturing as a means of procuring profit gives way to speculation. And a lovely scenario where (maybe) 20% of the population are catered to and the other 80% are left to twist in the breeze. Actually, isn’t it that the way it is already? Just that where today those twisting in the breeze live in the ‘South’, tomorrow the ‘South’ will be your doorstep.
And you can open your door to a never ending series of recessions and depressions with all the repressive measures practised in the ‘South’ today being rolled out on you and me tomorrow. Betcha the army and the police will have enough petrol to run their vehicles…and probably be rather excellently paid for keeping the angry directionless rabble at bay.
Option B would be to start getting ready and leave the ship now. Government will always service the needs of big business, so don’t hold your breath waiting for them to side with common sense and the general population any time soon.
What’s that Leonard Cohen song about how everybody knows the ship is sinking and how everybody knows the captain lied? Oh yeah…”Everybody Knows”.
So why is our individual knowledge not leading to the necessary collective action? Is it because we are waiting for someone else to act on our behalf? Like the Government? (See above.)
plenty of stone left after the stone age and plenty of oil will be left after the oil age. unfortunately all the adventitious hot house flowers kept alive by the profligate use of energy will wither and die. thats progress for ya mate.but the working class will still have to protect itself from rentiers, compradores and other selfish greedy persons psychologically disposed to dominate for pleasure using the contemporary economic activity as their instrument.
Steve
This report is based on the fact that demand will keep increasing at its current rate, so that would mean that countries such as China and India would continue to grow at the rate they have for say the past 5 years. There is growing evidence that this will not be the case as both of these economies rely heavily on cheap fuel in order for them to grow. In fact India recently had to bail out a government agency with a few billion dollars to stop it going bankrupt, the agencies job? The subsidization of fuel to Indian citizens. China has also recently had to pass on increases in fuel to its citizens as it can no longer afford to subsidise petrol at its current level.
These moves were met with outrage in both countries as the people of these nations are not paying the market value, and when they do, not if but when, you will see a huge drop in demand. Of course this will only dely the ineviatable, there can be no doubt that the time of cheap fuel is gone but I can not see a price hike of that much in such a short space of time.
By the way, is it true all you guys are working for parliment and blogging on taxpayers time? So out of touch just like your leader. Voted for Labour when they first came in but never again.
Some interesting statistics in the executive summary (which is all I have read so far). If oil supplies decline rapidly, I understand that is the $10 per litre territory, passenger & freight travel may be reduced by up to 40%. That to me means one thing at least, prioritising. Essential services receiving petrol first, focus on movement of food & other core supplied (medical etc). The more profligate, luxury items, could be squeezed out and we would still get buy, I hope. The rampant consumption we currently enjoy would be severely curtailed. Plastic toys from China or fashion clothes items, as examples, would come low down my list compared to food & getting to work, fire & police.
The executive summary speculates perhaps a 3% drop in GDP. I find that scenario remarkably light. I would have thought economic growth would tank a whole lot more than 3%. For a start, many people who make their living on consumption would be out of work. Retail, Malls, so called ‘lifestyle’ occupations, advertising etc etc. hell of a lot of people, hell of a lot of consumption based spending, hell of a lot of jobs. many of the socially non-productive jobs would be at risk.
A major concern for NZ would be tourism. We derive a reasonable GDP% for tourism (9% springs to mind but I could be well off with that figure). Few internationsl tourists visiting us would surely make a bigger dent than 3% of GDP.
$10 a litre of oil is based on several assumptions it seems, there are a number of probable outcomes. That is one. Still,if you do not consider it you are short sighted. Some of the Kiwiblog right will foam at the mouth and wildly label everyone ‘a COMMUNIST kh**t’ or a ‘SOCIALIST K**T’, as they often do, for even suggesting the likes of peak oil. Often when you strike such a nerve amongst the Kiwiblog right, you know there is truth to what you say.
Catabolic Collapse
Yep, seemingly a large portion of the population still expects a savior/leader to pop up and save them.
Just because there is a tendency to point to the consumptions of China and India.
From http://english.aljazeera.net/business/2008/07/200879184520258575.html
China additional oil consumption in 2007 = 377 000 barrels per day
India additional oil consumption in 2007 = 150 000 barrels per day
Japan and Germany decreased oil consumption = 380 000 barrels per day
World daily consumption = 86 000 000 barrels per day
May I remind people that it is estimated the populous nations ,China and India, are predicted to increase in population by 123 Million in the next 18 months.
Show time!
Oil is more expensive than its historic inflation adjusted high but not as over the top as most people would think. Read Paul Krugman here:
http://krugman.blogs.nytimes.com/2008/02/19/feeling-a-bit-peaked/
I’m not entirely sure about the peak oil argument or at least the timing of the peak. There is not actually a shortage of oil in the world right now – particularly with the reduction in demand we are seeing and will see over the next year or two with the slowdown in global growth which is leaking out of the US. The primary reason for the price spike in oil is that commodities have become an investible asset class for most real money managers around the world just in the last 3 to 5 years, and thats been accompanied by an acceptance that commodity investment via indices based on futures bring very satisfactory characteristics to a portfolio. Do some simple seat of the pants math. Take the global pension fund industry – Morgan Stanley recently estimated globally this has USD20 trillion in FUM. Lets make up some numbers and say 10% of these funds put 5% of their assets into commodities. The energy complex typically makes up around 50% of any commodity index – so an asset allocation on that scale would have moved USD2.5 billion into the crude futures. And this isn’t even looking at the weight of money coming from hedge funds, mutual funds, sovereign wealth funds etc.
Personally, I think oil will be back under a $100 within the next 6 months – I have no science for that prediction so little point in arguing with me – due to a combination of high price leading to more exploration and exploitation of otherwise marginal sources of oil (eg oil sands in Canada alone contain more oil than all of OPEC added together. Anywhere north of around $60 per bbl, it is economic to mine these though deeply costly to the environment). And slowing global growth, high prices do that – nothing will put the wind up capital scum investors like me more than the prospect of being long in a falling market.
I vote for the only two sensible and truly green alternatives out there – nuclear power, and space based electro-photovoltaic generation. Wind power, tidal etc all sound really nice but they don’t provide consistent high load base capacity.
Just having read that the comment the 2.5 billion doesn’t make too much sense. What I was trying to say that a very, very conservative estimate of new money into oil over the last 3 years is 2.5 bln. Initial margin on a contract is currently about $10,000, a contract is a thousand barrels so that makes margin around 7% atm. So that 2.5 billion of new cash is more like USD35 billion of oil buying power. Open interest in Nynex futures is probably about (guessing) 1.2 million contracts so (say) 1.2 billion barrels of oil, worth around (say) $170 billion, so any of you that did at least rudimentary economics in form 4 and can remember supply/demand graphs will probably realise that for a good with a long production lead time, price will go up when demand increases.
The other point I didn’t make well is that pension funds are the most conservative of investors. Hedge funds, mutual funds and CTA’s are way more aggressive. What is interesting to look at is the growth in open interest over the last 5 years – when I get back to work I’ll produce that graph. As an aside, same arguments work for grain prices – the law of unintended consequences (biofuels) is the real reason we have rampaging grain prices. Again look at open interest in futures – the open interest for wheat is now greater than the total annual US physical production of wheat. Wheat is up not because it is a biofuel feedstock but because wheat farmers are substituting into corn which is a biofuel feedstock. So greenies feel happy about mandating compulsory ethanol usage, food crops get taken out of production, food prices rise. The real irony is that ethanol produced from corn is only viable because of subsidies, and actually requires more energy input (and carbon footprint) than is actually contained in the ethanol itself. Bad policy is so funny to think about.
I support the environment, I like nuclear power. Then you can have your battery powered car. I’ll still drive my xr6 turbo though.