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Adapting to the oil endgame

Written By: - Date published: 10:53 am, March 14th, 2008 - 52 comments
Categories: economy, election 2008 - Tags: ,

Today oil broke US$111 a barrel. Two weeks ago the record price was $101. Just six months ago the price broke $80 for the first time. Oil prices are rising at an accelerating pace. That flows into New Zealand fuel prices, predicted to top $2 a litre this year.

220What can the Government do to lessen the effect of international oil prices on New Zealanders?

Calls to reduce petrol tax would increase demand when supply is already tight, leave a billion dollar hole in the roading budget (if that is covered from general taxation that is just a transfer of wealth from those who drive little to those who drive a lot), and, as with all tax cuts, provide only temporary relief leaving the underlying problem unaddressed (cf. the wage gap with Australia). Queensland has been subsidising petrol for the last few years: it hasn’t stopped prices rising and has put the burden on to taxpayers rather than heavy users of petrol.

The Government needs to invest heavily in alternatives to oil-intensive transport. It needs to buy back the rail stock from Toll and invest in much better rail infrastructure to get freight and passengers off the roads and into more fuel efficient trains. It also needs to realise that spending a billion dollars a year on motorways when petrol is getting unaffordable is not a sensible policy. Money should be diverted from these uber-expensive motorway plans into building comprehensive and affordable public transport networks in our major cities. Over the last five years rail passenger numbers in Auckland have tripled. Demand is there, capacity isn’t. Good progress is being made, but the motorway budget still dwarfs the public transport budget. That needs to change.

Labour has shown it is open to public transport but has been too timid as the crisis builds. National, well who knows what National’s transport policy is? But given its head in the ground attitude to sustainability there is little hope they will be willing to take the leadership needed to help New Zealanders avoid the crushing cost of petrol price increases. Only the Greens seem to have the vision to give New Zealanders less oil-intense options. Their challenge is to articulate an inspiring programme for the election, containing enough new spending to really confront the problem.

52 comments on “Adapting to the oil endgame ”

  1. higherstandard 1

    Steve

    I live on Auckland’s North Shore can you tell me where my nearest train is ?

  2. r0b 2

    Speaking as an active member of the Labour Party, I think you are dead right on all points here Steve.

  3. Steve Pierson 3

    higherstandard.

    yes, there is too little commuter rail service, you could take the bus, of course. But, that’s the entire point of the post – more investment needs to be made so that you have choices other than driving to work.

    but in reply to your question. we’re a political blog, not a train timetable service.

  4. higherstandard 4

    Steve

    I think you misinterpreted I agree with you on this issue

    Nth Shore and LTSA and ARC have dropped millions into a bus lane which is carrying very few paasengers not to have put in light rail at the same time or instead of this seems like an opportunity lost

    As an aside from 42 years ago !!

    Forty years ago Auckland missed the chance to build ‘Robbie’s Rapid Rail’. In 1976 the Muldoon government vetoed the Auckland Regional Authority’s plans to build a modern rail network. Aucklanders have been paying for those missed opportunities ever since.

    (In 1976 dollars this would have been well payed for by now)

  5. andy 5

    HS,

    They should have built a train/monorail system with feeder buses instead of that silly bus way!

    Bring on the onehunga spur and a line to the art I say!

  6. andy 6

    DOH: art should read airport, better alternatives than more roads.

    More roads = more congestion…

  7. Steve Pierson 7

    higherstandard. sorry for misreading you. we do fall into these traps of assuming the worst.

    I haven’t seen any figures about the buslane’s usage but I heard it was going well. I’ll have to check it out with my transit source.

  8. Ari 8

    Gosh, that graph looks almost like peak oil projections… I wonder why? 😉

  9. gobsmacked 9

    Don’t expect any principled, long-term policy from National.

    Remember their breathtaking flip-flop just days before the last election:

    “Don Brash, the fiscal Presbyterian who ruled out a cut in GST on petrol on 25 August as prices were rising almost daily at the pump, suddenly metamorphosed into a value-free campaigner with a promise to do just that on 12 September.” (Colin James)

  10. Eddie 10

    Note to Cullen. Thinking of buying back Rail? Now’s good.

  11. Policy Parrot 11

    It seems now that the era of the internal combustion automobile is on approach to its nadir.

    Practical (and economic) alternatives exist to fossil fuels in almost all sectors.

    Now is the time to front up with the one-off cost of changing to renewables.

    This should include subsidies for hybrid/electric private cars so that more are introduced to the market and therefore become afforable to all drivers more quickly.

    Moving transportation to rail wherever possible – this must include government renationalisation of all rail assets. Perhaps further development of new rail links where feasible/likely to be economic when oil at US$200 per barrel.

  12. Tane 12

    Eddie, you’re still alive!

  13. Phil 13

    Your headline is misleading. Oil is not approaching an “endgame” by any stretch of the imagination. What we’re seeing in the price movements now is a combination of demand from new international players like China, and speculative trading – no different to aspects of the housing market ‘getting a mind of its own’.

    I personally don’t see crude oil prices going too much higher in the short term, especially with the N.Hemisphere approaching summer and a probable US recession. There are also old wells being re-opened in Texas, now that the price is sufficiently high enough to generate a profit from them.

  14. r0b 14

    Eddie, you’re still alive!

    Cue motorcycle bursting from the vault, cue saxophone solo…

  15. lprent 15

    “Nth Shore and LTSA and ARC have dropped millions into a bus lane which is carrying very few paasengers not to have put in light rail at the same time or instead of this seems like an opportunity lost”

    I have no idea about how many passengers it is carrying. But there are a lot of buses moving up it in the afternoon peak traffic. I notice it when I’m going home from Albany to town every evening.

    Typically in the 10-15 mins it takes to get to the bridge at about 6pm (I’m going against the traffic), I see at least 10 buses heading to the shore very fast. Meanwhile the other side of the moterway is crawling. It must have cut considerable time off the trip.

    I’ve been considering using it myself, but I’ll have to look at the bus routes from Ponsonby road to Albany and vice versa. No point if I have to drive to town to park, or spend more time on the link than the trip to Albany.

    It isn’t a full solution, but at least it is a start (which as you say, should have been done 30 years agao).

  16. HS – that was thirty years ago, not forty.

  17. Steve Pierson 17

    Phil. a US recession would have negible effect, it’s oil demand is falling anyway, all the growth is in Asia and that shows no signs of abating. http://www.msnbc.msn.com/id/23577888/

    With the point approaching where demand strongly exceeds supply, I”m happy with my title. we’re hoping to have a guest column from a peak oil researcher next week who write on the issue more fully.

  18. Santi 18

    Steve Pierson, not only Professor of English but Prophet of Doom as well.

    Even if the world’s oil reservers fall (nobody know exactly how much is left, despite claims of the peak oil conspirators), human inventiveness will come up with a new development and capitalism will make it happen.

    I look forward to the expert’s column next week.

  19. Steve Pierson 19

    When you say ‘conspirators’ do you think there’s a conspiracy? If so, who is involved? to what ends? and do they have a secret handshake?

    I happen to be a bit of a techo-optimist myself, hence why the post talks about moving to less fuel intense alternatives, rather than abandoning our current socio-industrial paradigm altogether in a luddite fashion.

  20. ghostwhowalks 20

    Well look who is laughing in Norway.
    When oil was discovered in the North Sea, Norway did not just sell exploration licenses for a one off gain( plus some royalties) they continued to own all oil produced as they used Statoil, a government owned company to extract and sell the oil.

    This from 2005 the Aftenposten
    Oil revenues spark surplus
    Norway looks set to log another huge state budget surplus this year amounting to NOK 270 billion (about USD 38 billion). The windfall, fuelled by high oil prices, marks another record and further pumps up the country’s oil fund, which acts like a national savings account

    I imagine that 2008 oil revenues will exceed the cumulative value of the Oil fund in 2005

    THis is an approach Nz should use.

  21. Santi – when it come to energy density fossil fuels are very hard to get past. Biofuels probably can’t be produced in quantities anywhere near those needed to meet current energy demand and hydrogen is a storage system not a fuel system and only delivers 40 – 60% of the energy back that it takes to produce. The truth is the answer is going to have to be reduction in demand.

  22. Steve Pierson 22

    I agree ghostwhowalks, we need to keep better control over our oil reserves.

    That US$38 billion surplus is US$8000 per person in Norway. Imagine that in your kiwisaver.

  23. insider 23

    Two things,

    1) History is littered with the wrong predictions of oil prices and reserves. Just make sure your proclaimed ‘expert’ actually is, and critically review his track record in predictions or the track record of those he quotes.

    2) The Crown gets 20-25% of the value of oil sales by doing absolutely nothing. It just sits and rakes in the money (you might prefer to call it asset stripping). So it is great if you want to take the risk to get 100% of the profit, but 25% for doing and spending nothing is not too bad either. It’s an interesting choice.

  24. Uroskin 24

    Regards Northern Busway patronage:
    ARTA’s Chief Executive, Fergus Gammie, says, “Early busway patronage figures show February 2008 was a record month for the popular Northern Express service, which carried 82,373 passengers, which is 66% ahead of last year and 38% ahead of the 2008 forecast. Albany and Constellation Station feeder services on the North Shore were 40% ahead of 2007 figures, these are very pleasing results”.
    http://www.scoop.co.nz/stories/AK0803/S00144.htm

  25. Certainly reducing petrol taxes isn’t the answer. In the next 5 years we need to be well on our way to adapting to a world with ever increasing oil prices. This means becoming less, not more dependant on it. Any how, we already the 5th lowest fuel tax rate in the OECD (27 countries).

    see the 4th graph on the following link..

    http://www.med.govt.nz/templates/ContentTopicSummary____20094.aspx

  26. Phil:

    “What we’re seeing in the price movements now is a combination of demand from new international players like China, and speculative trading – no different to aspects of the housing market ñ€˜getting a mind of its own’.”

    You forget that there’s almost zero spare capacity left in non-OPEC countries, and a lack of political will in OPEC countries to increase production. That’s what we’re seeing here, and as production flattens off in non-OPEC countries (as the International Energy Agency is predicting), suddenly OPEC (read dictators) is put into a very powerful position. This puts our energy security in a very tenuous situation, and leaves us wide open to economic shocks, resulting from the whims of petty dictators. The less reliant we are on foreign oil, the more energy security, and therefore economic stability on oil. Presently we use much more oil, per unit of GDP than all other OECD countries (excluding the US and Australia). Consequently we are one of the most vulnerable economies in the world as far as oil shocks are concerned.

  27. Sorry about the poor writing by the way – got a bad cold.

  28. r0b 28

    Sorry to hear it nome. Be careful in that sunny Dunedin weather!

  29. Vic 29

    Looking at the whole thread here, something that isn’t necessarily being taken into consideration is the influence of oil on the cost of living and well, nearly everything we do. Almost everything we eat, wear, build and use has involved a contribution of fossil energy, whether its the petrol in the header used to harvest the wheat in your bread, to the petrochemicals in your cheap-ass polyester hoodie transported from China in a container ship. While considerations of increased public transport and the economic impact of scarcity are relevant now, there are times when I wonder if we’ll all end up having to eat each other before science can deliver a viable alternative to oil. And to any free-marketeers out there who have faith that this will happen, all I can say is, it won’t happen till there’s a demand, but who can say if by then it’s just going to be too late – these things take time. Now seems like a reasonable time to invest in some R&D on alternatives for a whole lot of reasons.

  30. djp 30

    that is a meaningless graph considering the US dollar is tanking (the fed seems to print currency 24/7 these days).. you might as well quote the oil price in Zimbabwean dollars (or whatever currency they have)

    I would like to see oil graphed against gold or a mixed basket of (stable) currencys

  31. Cheers r0b. Yep sunny old Dunedin is a beautiful place to live, but sure does have its draw backs.

  32. r0b 33

    Vic, djp, some relevant stuff in these articles, including passing reference to moves to move oil trading away from the dollar:

    http://www.truthout.org/docs_2006/031108I.shtml

    http://www.truthout.org/docs_2006/112007R.shtml

  33. screwed up the captcha – can’t be bothered re-writing the post. Have a look at the PhD theses any how – makes for rather bleak reading.

  34. Steve Pierson 35

    djp. Are you seriosuly arguing the price of oil isn’t rising?

    I did address the falling dollar aspect in a paragraph I cut for space but basically, it’s only a tiny part of the reason for the increase in $US.

    And it would be utterly ridiculous to graph oil vs gold as if gold is a steady measure. ideally you would have a basic of currencies measure – but i was unable to find one becuase oil is still traded nearly exclusively in us dollars.

  35. Thanks for the link rob. In case you miss it DJP – the price of oil is now at at an all time inflation-adjusted high. Equal to when the world was thrown into depression and stagflation.

    http://www.nytimes.com/2008/03/04/business/worldbusiness/04oil.html?_r=1&oref=slogin

    This doesn’t mean that the current price will do the same thing though. i.e. we are richer now, so can afford more expensive oil, and we have more flexible economies which adapt to external shocks better.

    Still though if it gets much higher, (say $20 a barrel) and stays there for a while it’s going to really start to hurt.

  36. The NZ government’s plan to deal with peak oil. What do you all think?

    http://www.stuff.co.nz/4233171a13.html

  37. Insider:

    “Two things,

    1) History is littered with the wrong predictions of oil prices and reserves. Just make sure your proclaimed ñ€˜expert’ actually is, and critically review his track record in predictions or the track record of those he quotes.”

    Ok -let’s have a look at that PhD thesis then hey?

    The frequent mentions and debates over peak oil suggests that it is a fairly new topic. On the contrary, it is pretty old. The topic of a future global peak production of oil was first discussed in 1949 by M. King Hubbert, a geophysicist employed by Shell Oil (Hubbert, 1949). He developed a method, based on a bell curve, that he used to model the annual production and ultimate recovery of oil and gas in the world and the USA. His method is usually referred to as the Hubbert model and the Hubbert curve, respectively. In 1956, Hubbert predicted, using the bell curve and two different estimates
    of ultimate recovery of oil in the USA, that the oil production of the lower 48 states of the USA would have a peak between 1965 and 1972 (Hubbert,1956). This prediction turned out to be true, since oil production in the USA peaked in 1970. Modified versions of his theory have been used by Campbell and LaherrÚre (1998), Ivanhoe (1996) and Deffeyes (2001) to name a few. However, the Hubbert model is heavily debated, see for example Lynch (2003).

    The most mature oil area, i.e. the USA, and the latest big oil region
    discovered, the North Sea, are both in decline and have passed their respective peak. The conclusion is that all oil regions, mature as well as newer ones, will peak and then decline. For both regions, this has taken place despite a strong demand for oil and a high oil price. Thus, high production rates were motivated but apparently not possible.

    So everywhere the hubbert methodology has been applied thus far it has been accurate. What makes you think it won’t be this time?

  38. lprent 39

    February 2008 was a record month for the popular Northern Express service, which carried 82,373 passengers, which is 66% ahead of last year and 38% ahead of the 2008 forecast. Albany and Constellation Station feeder services on the North Shore were 40% ahead of 2007 figures, these are very pleasing results’.

    Excellent. I thought that they looked pretty busy. There is a lot of spare capacity in those bus lanes. Just need to boot cars off a lane on the bridge (or build another crossing). But they also need to build much bigger parking spaces at the terminals.

  39. higherstandard 40

    Iprent

    On the face of it I’d hardly call an average of 2840 passangers a day excellent – if as the release suggests these results are pleasing they must be aiming very low indeed I would think they should be aiming for several times this uptake.

    Agreed there is copious spare capacity in the bus lanes and the parking space issue at the terminals which fill up to capacity very quickly.

  40. Ari 41

    Just a note on peak oil- if you’re unfamiliar with the term, it basically says that demand for oil doesn’t drop anywhere near as easily as demand for other goods as the price goes up, so oil demand doesn’t taper off as supply tapers off- rather demand exceeds supply rather badly, driving prices up ridiculously and leading to over-dependence on oil when it begins to run out, as oil use essentially keeps on growing with minimal regard to its price.

    The issue isn’t even necessarily when oil will peak so much as the fact that we will need to interfere before then to switch over to less oil-intensive transport if we want the switch to be in any way comfortable.

  41. lprent 42

    Sure I’d agree. They are starting from a really low base. After all using public transport to and from the North Shore used to be an exercise in futility. Just like the cars you got stuck in slow crawl traffic, and then get from the terminal to home. But it was the percentage increase that was pleasing.

    The same thing happened when they double tracked the western railway. Started from a low low base, but now has a steady increase in passengers.

    I don’t have the material accessible, but look at mass-transit systems that were setup in other cities around the world in the past. You usually find it takes between 10 and 20 years before they can be considered to be fully functional. A large chunk of that is because you have to slowly fix the feeder systems, park and ride, buses going direct moving to trains and so on. Takes quite while to get all of the infrastructure in place.

    But I just looked at http://www.maxx.co.nz. If I leave at 07:50 from home, I can now get to Albany in 1 hour and 12 minutes, taking 3 buses for $7.50. Last time I looked at the start of last year, I’d have to leave at 0700 to get to work about 0900. In either case that is unacceptable – takes too long.

    But the problem is that the first bus goes from Newton to town and wastes 30 mins doing that. But I’m right next to the motorways. If they did what I do driving, they’d hop directly on the motorway just down the road from here. Assuming that happened, the trip would take about 45 minutes and 2 buses ($5.90), or 1 bus at 30 minutes and a 10 minute walk at the far end ($4.30).

    Remember that the traffic is nowhere as bad in my direction as it is in the other. But if I leave at 8:20, I take about 35 minutes to get to work, and a car is lot more expensive – once you factor all of the costs in.

    It will take time to get the routes adjusted to getting people where they need to go rather than just running in and out of town.

  42. RedLogix 43

    “It will take time to get the routes adjusted to getting people where they need to go rather than just running in and out of town.”

    No public service, neither train nor bus, can expect to emulate the private motor car. The relationships go like this:

    Car: Low density; high diversity.

    Bus/Light Rail: Medium density; medium diversity.

    Train: High density; low diversity.

    As Auckland grew around a “car only” model, people adopted a high diversity travel mode, ie they lived, worked and entertained wherever they pleased. This worked as long as cars remained at a low traffic density, and fuel was cheap. In order to transition to using buses or trains, that work best at higher traffic densities and fuel costs, the inevitable trade off is a lower diversity of efficient routes.

    In other words, it will take time for people to get adjusted using the available effective public transport, rather than just running all over town.

  43. lprent 44

    “As Auckland grew around a “car only’ model, people adopted a high diversity travel mode”

    Buses in Auckland currently use the central city as the transport hub for mainly historical reasons. It is the worst possible place to have it. It has massive congestion problems at peak hours, and for that matter, through most of the day. The bus hub’s are away from the motorway systems which are outside the city centre. Because of that hub to town, any journey has an extra 1/2 hour added to it if you are not going to town.

    There isn’t much in the central city apart from corporate services and retail. The number of people employed there is minor compared to the industrial and export industry areas. Most of the industrial areas are clustered close to the motorway systems. This is both for shipping goods, and also for employees.

    These days the area just outside of central Auckland is high density residential, with an increasing number of people going out from the outer central city to their work. If you look at the newer bus hubs, you’ll find that they are right next to the motorway systems, and are park and ride – except of course for the city. They need to locate the central bus hub outside the central city, on the motorway, and as a park and ride.

  44. RedLogix 45

    lprent,

    I’m not disagreeing with your observations, but my point it that Auckland had been BUILT around motor cars, and it is no longer an easy matter to change this. There is far more to it that just plonking in a whole lot of new public transport infrastructure, because no matter how much of it you provide, if people’s travel/living/working patterns are still locked into “low density/high diversity” private car mode, then it will never feel or work right.

    By contrast if you’ve lived in a city that was historically built around subways and good bus routes, then it “works”. You can live in these places for years and never feel the need to own a car. Public transport works just fine in the right context, but for decades Aucklanders have refused to examine their increasingly locked in commitment to a now dysfunctional car only legacy.

    I grew up in Auckland in the 60’s and 70’s. I will always remain fond of those memories, but my visits to the city nowadays are tinged with sadness and anger at how a lack of civic vision and leadership has given free reign for the motor cars to ravish the land.

  45. ghostwhowalks 46

    80,000 passengers a month for the busway.??

    Well a single tram line in Melbourne ( the busiest) gets 35,000 A DAY

    http://www.theage.com.au/news/national/tram-96-travels-tracks-to-glory/2008/03/07/1204780065938.html

  46. randal 47

    buy a sword and start taking archery lessons…watch out for rugged individuals!

  47. ghostwhowalks 48

    Just expanding on the Queensland fuel ‘subsidy’. It seems it was indroduced as a rebate on Federal Government tax charges.
    http://www.racq.com.au/images/documents/Policy_Qld_Fuel_subsidy.pdf

    But the subsidy of around 8.3 cents a litre may have meant the oil companies have been charging higher wholesale prices

  48. randal 49

    just an aside but all this whining about a cent here and a cent there and bagging the oil companies takes no notice of how much they have to spend to get the stuff out of the ground and then what the idiotconsumers do with it when they have got it is basically a pain in the bum. some people should just go for A WALK! For the rest it is just a drug…wake up.

  49. lprent 50

    I grew up in Auckland in the 60’s and 70’s. I will always remain fond of those memories, but my visits to the city nowadays are tinged with sadness and anger at how a lack of civic vision and leadership has given free reign for the motor cars to ravish the land.

    I know exactly how you feel. Those short-sighted git’s who turned down Dove-Meyers proposals in the 60’s….. If they’d put it in and let it grow with the city, it would have been so much easier.

    I have lived in various cities with good public transport – makes life a lot simplier. It is going to be an uphill battle to get the public transport running effectively in Auckland.

    For the first time since the 50’s or 60’s it is actually being worked on. But it will probably take 20 years to get working well. At present they’re working on getting the bulk-feeder routes operational again. The stuff I’m looking at won’t be feasible for at least 5 years – sigh.

  50. “Over the last five years rail passenger numbers in Auckland have tripled. Demand is there, capacity isn’t.”

    The demand wouldn’t be there if rail passengers had to pay the full cost of running the trains of course, but then you can ignore all other factors of production if all you are worried about is oil.

    Worshipping the rail fetish – even though unlike road transport, it needs heavy subsidies to survive. Even with record oil price, the must touted fuel efficiency of rail doesn’t offset the cost of triple handling, the cost of maintaining underutilised duplicate infrastructure and inflexible assets.

    Ignoring also that coastal shipping is typically much more fuel efficient than rail, and can carry trucks from one destination to another – but when you catch the rail fetish, who cares about facts!

    Also ignoring that rail in Auckland can, at best, service less than 10% of commuter trips, as only 7% of commuters terminate trips in the CBD, and the remaining 3% corresponds to those who live and work within reasonable access of rail.

    The idea that expensive petrol will kill off private motoring is laughable – it will shift fuels.

  51. RedLogix 52

    LibertyScott,

    We have crossed swords before on this.

    You repeatedly get it wrong and I’ve proven it before. Try and tell jam packed commuters on the Wgtn commuter rail network that it doesn’t work and that they should be using their cars. Yeah but if they did that you would be hitting them for “congestion charges” or road tolls, to ensure they were not taking advantage of any subsidy of the motorways they would have to be using. You cannot have it both ways.

    Roads only survive because the taxpayer pays for them to be built. Buses only survive because the ratepayers subsidise them. Train only survive, because the govt owns and maintains the rails.

    Get the picture? ALL forms of transport only work because the public sector provides for the essential infrastructure. It has ALWAYS been like this since Roman times and always will be. Your libertarian ideal that somehow it can be done privately is a fantasical nonsense.

    “Also ignoring that rail in Auckland can, at best, service less than 10% of commuter trips,as only 7% of commuters terminate trips in the CBD, ”

    And that is simply because Auckland has never had a decent rail system, the city has been BUILT without a proper CBD. Instead it is a patchwork collection of small towns exclusively designed around car use.

    Small towns only need cars because the traffic density is low. As most normal cities grow they become more dense. City leaders with some basic vision and understanding, realise that in order for the small town to become a small city they need to provide public transport modes (buses and trains) that will work effectively in the denser environment. In the late 1950’s Auckland, in love with it’s newly affordable motor cars, made the conscious decision to build lots of new motorways and to kill off it’s existing trams, trolleys and trains by not spending any money on them.

    It was a monumental failure. As a result Auckland has simply sprawled outward, popping up small town centers like Manakau, Newmarket, Albany, etc, while the CBD was allowed to atrophy. As a result commuter trips terminate all over the place… because they had NO CHOICE.

    All my adult life I’ve listened to Aucklander’s making weasel excuses as to why public transport wouldn’t work in Auckland, and at the same time you also get to listen to the same people whining about the traffic grid lock. Sometimes in the same sentence. And they don’t even realise how stupid they sound.

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