Facing up to peak oil

Written By: - Date published: 1:25 pm, June 16th, 2008 - 38 comments
Categories: economy, labour, national, tax, workers' rights - Tags: ,

The Government’s independent report on petrol prices is bit of a sop to be the public, really. The world oil price is driving petrol prices; any efficiencies that could be gained in New Zealand would be small and would not change the upward trend. Nor is a Fuel Watch website like Australia’s going to do anything to bring prices down. Calls by the AA and other organisations for petrol companies to hold off a few days on increases are also pretty useless the price is going up anyway, why get wound up over whether it happens on Monday or Wednesday? Like governments worldwide, Labour and National have rightly rejected removing fuel tax.

Tinkering on the margins of the price of petrol doesn’t matter. It’s going up and nothing New Zealand does will stop that. We need to acknowledge that the supply of oil is peaking and serious effort needs to go into adapting our economy a world without cheap oil.

So, it was interesting to hear both Helen Clark and John Key mention peak oil in the last few days. This morning on Breakfast, Clark said prices aren’t coming down. ‘..at some point you reach peak oil supply but we are changing our behaviour in this country, people are buying small cars, they’re looking for the fuel efficiency label and taking public transport’. In an interview with Mikey Havoc, Key said ‘I’m not in the camp that we’re at peak oil’ and proposed turning our coal reserves into diesel.

Neither is presenting a strategy to get us through peak oil with minimal pain, but at least Clark acknowledges it is real. National has shown that on this major issue, like so many others, they have no answers to offer and their head firmly in the sand.

I’m looking forward to Labour and the Greens presenting a suite of election policies that keep wages growing, so workers don’t lose out on the increased cost of fuel, and major investment in public transport so kiwis can cut their petrol use.

38 comments on “Facing up to peak oil ”

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  1. jafapete 1
    16 June 2008 at 1:30 pm

    Oh well, at least the enquiry will settle the issue about whether the oil companies are ratcheting up pump prices at the first opportunity and then procrastinating when oil prices fall.

    Anyway, excellent post. Spot on.

  2. Steve Pierson 2
    16 June 2008 at 1:37 pm

    Studies have been done in the US. Their conclusions tend to be that petrol companies do move up quickly and down slowly but they move up less than the cost of oil. So, a spike in crude is reflected as a longer but lower bump in petrol prices.

    But the whole premise of the ‘quick up, slow down’ notion is that prices are coming down, don’t see that happening.

  3. illuminatedtiger 3
    16 June 2008 at 1:45 pm

    She also mentioned it at a Labour Party fundraiser in Christchurch on Saturday. I’ll try to post a video on NewZBlog tonight if I can.

  4. T-rex 4
    16 June 2008 at 1:46 pm

    Did Key really say that???

    God he’s a silly bunt. You’d think after his original stance on global warming (and recent flipflop) he’d have learnt to actually look into issues before forming a stupid opinion baesd on what he’d like, but no, same old.

    That said, I’ve no problem with his suggestion on diesel from coal if it’d be cost effective in the short term, just so long as it’s part of a transition rather than a further delaying tactic. And I doubt that’s the case, as with the ETS National is all about delaying.

  5. Lew 5
    16 June 2008 at 1:53 pm

    Fischer-Tropsch fuel conversion from coal is possible (not in theory, in practice it’s used today in South Africa and was used with great success in Nazi Germany); the main reason it hasn’t been considered is that it’s energy-intensive and not economically viable until oil prices reach a certain point. Also I seem to recall that it only produces diesel and a short-chain hydrocarbon, not much use for petrol engines.

    Given NZ’s coal reserves it is a potential source of fuel – even with the high catalytic threshold, it’d be a means of converting electricity into a fuel for vehicles, though I wonder if it’s not just more sensible to go straight to electric vehicles.

    But given the high price of oil, the major problem isn’t economics, it’s pollution. There’s a lot of the coal which isn’t any use, and that by-product has to go someplace. Where do we dump it all?

    The other problem is that the current processes are fairly crude, and the R&D sunk cost of establishing plants for conversion in NZ will be massive. Is holding onto fossil fuels worth it?

    L

  6. George Darroch 6
    16 June 2008 at 1:55 pm

    The Labour Party is ignoring the issue. Just listen to any of Cullen’s answers in the house on the question. They’re certainly not taking any moves to steer the country away from the effects, and they’ve ignored it for years.

  7. roger nome 7
    16 June 2008 at 1:57 pm

    John Key’s dismissive attitude toward the issue of peak oil is worrying, though predictable. I wonder what information he bases his sanguine outlook on?

    Being a market fundamentalist he probably looks at it being an “investment” problem, rather than a geological fact.

    People who think more investment and higher prices will spur investment and technological development, thus precluding a near-term peak should think about why oil recovery rates have been stagnant at 30-37% of oil-in-place for quite some time.

    Saudi Aramco may have some high recovery factor fields such as Abqaiq and Shaybah, but an average recovery factor range from 30-37% is assumed for the total OIIP in Saudi Arabia’s fields. The trend of the recovery factor for Saudi Aramco indicates that there has been no effect on the recovery factor by recent technological advances in producing wells.

    http://www.theoildrum.com/node/4153

    If the perennial denialists of the National Party win the next election, if Key’s speeches are anything to go by, they will deliver an increase in spending on roads, and likely a decrease in spending on sustainable transport infrastructure. Exactly the opposite of what this country needs going into peak oil.

  8. Stephen 8
    16 June 2008 at 1:59 pm

    Could someone please tell Helen that ‘building more motorways is probably not going to help things now is it’.

  9. Phil 9
    16 June 2008 at 1:59 pm

    “he’d have learnt to actually look into issues before forming a stupid opinion”

    OPEC have looked into the issue long and hard, and they don’t think we’re anywhere near peak oil either.

    Captcha; “Orinoka where”
    He’s probably in Wimbeldon Comman?

  10. djp 10
    16 June 2008 at 2:00 pm

    The people in the know seem to be saying that the current oil price is not being driven by a fundamental lack of supply but by futures speculators (similar to tech stocks in the late 90’s and property a couple of years ago).

    The thing about speculative bubbles is that you know that it *will* come crashing down like a house of cards but you never know when.

  11. Daveo 11
    16 June 2008 at 2:04 pm

    djp. That’s not what the oil specialist from Goldman Sachs was saying on Agenda yesterday.

  12. jafapete 12
    16 June 2008 at 2:10 pm

    Stephen: June 16, 2008 at 1:59 pm: “Could someone please tell Helen that ‘building more motorways is probably not going to help things now is it’.”

    I did have to laugh at the response from the kiwiblog right when Tane W asked on KB: “”So, anyone still keen to build new motorways?’ Came the response, “Yep and a nuclear powerstation to charge my hybrid with.’

    He’ll know better than to pose rhetorical questions to the KR in future.

    Edit, djp: That’s not what the International Energy Agency are saying. Are they “in the know”?

  13. insider 13
    16 June 2008 at 2:12 pm

    well roger he is probably right to be suspicious given the poor record of peakies going back 150 years.

    It’s a bit like Shrek’s donkey: “Are we there yet? Are we there yet?”.

    creey captcha “undrilled market”

  14. djp 14
    16 June 2008 at 2:13 pm

    Daveo,

    Well, different people say different things.

    Crude oil went from about $50 a barrel in Jan 2007 to $100 a barrel in Dec 2007. That is a 100% increase over 12 months.

    For the price increase to be based on market fundamentals it would have to be driven either huge consumption increases or huge supply decreases (or a combination) in one year. It just hasn’t happened (unless I missed the news).

  15. Draco TB 15
    16 June 2008 at 2:19 pm

    OPEC have looked into the issue long and hard, and they don’t think we’re anywhere near peak oil either.

    You mean people, like Saudi Arabia where their oil reserves have remained constant or grown since the 1990s even though they’ve been pumping hundreds of millions of barrels per year, are saying that there’s no Peak Oil?

    For the price increase to be based on market fundamentals it would have to be driven either huge consumption increases or huge supply decreases (or a combination) in one year. It just hasn’t happened (unless I missed the news).

    Well, there’s certainly been an increase in demand – notably from India and China but the oil producers haven’t been increasing supply.

  16. T-rex 16
    16 June 2008 at 2:21 pm

    “OPEC have looked into the issue long and hard, and they don’t think we’re anywhere near peak oil either.”

    Perhaps, but then again, they’re coining money on the back of demand and still have a lot of oil left to sell – they hardly want alternatives to be investigated too thoroughly just yet!

    Insider – take your point about the flawed predictions of the past. But the question you really should be asking is not “how much oil is left” but “how much new exploration is being done, and is it really realistic to expect new capacity to come online fast enough to meet anticipated demand growth AND depletion of existing fields”. The answer is pretty obviously no, even if you want to assume that there are still sufficient reserves to be found.

    There’s also the issue of accessibility. No one is (or perhaps “no one should be”) debating the existence of reserves (various oil sands for example), but actually getting oil and keeping it cost effective is another matter.

  17. T-rex 17
    16 June 2008 at 2:24 pm

    Draco – Exactly. Asking OPEC about the viability of oil is like asking the NEI about the viability of Nuclear power. They’re hardly going to say “twilight technology, start thinking about and deploying alternatives now, we’re plenty rich enough already thanks”

  18. gobsmacked 18
    16 June 2008 at 2:31 pm

    John Key will propose cutting petrol tax.

    It will be a clever (i.e. shameless and empty) pseudo-policy, which he will soon announce (sorry, “have a look at”, because “Kiwis are hurting at the pumps” and “the government can’t keep ignoring them”).

    He will call for a cut in GST or petrol tax until personal income tax cuts take effect, on Oct 1. National did the same in 2005, just days before the election. It’s a way of being populist while keeping a “responsible” fig-leaf. Key will call this “emergency relief”.

    But the election will (almost certainly) be AFTER Oct. 1, so he won’t actually need to put the policy into practice. He just needs to propose, not deliver. Cullen & co will call it the blatant politicking that it is, but most commentators will not bother with principles of long-term economic policy, but will instead tell us about “perception”. And a large chunk of the electorate will fall for it.

    You have read it here first.

  20. Stephen 20
    16 June 2008 at 2:34 pm

    I can sort of appreciate that people still want to be able to use ‘individual’ transport rather than relying on public transport jafapete, and nuclear is a tricky one, rather than cut and dried I think…

  21. roger nome 21
    16 June 2008 at 2:39 pm

    Phil:

    Why would you listen to what OPEC has to say about peak oil?

    http://www.theoildrum.com/node/4153

  22. jh 22
    16 June 2008 at 2:46 pm

    The only Insider that counts is a big dipstick in all the wells. In those bib wells they have men in boats (foriegn workers) doing depth soundings…. It’s a dirty job but the pay is good.

  23. T-rex 23
    16 June 2008 at 2:51 pm

    Nuclear is tricky, for sure, I have no problem with people who present it as such. But often you hear it brought out as a potential silver bullet that would solve all ills if only the damn greenies would get over themselves. Especially when you hear things like “New plants are safe” and “the waste issue is easily solved by putting it in a hole”.

  24. Stephen 24
    16 June 2008 at 3:01 pm

    Yeah, there are so many contextual issues surrounding nuclear that it is almost pointless to wholeheartedly support or despise it without looking at what particular options would be applicable IN NEW ZEALAND. e.g. earthquake zones, size of plant, decommissioning costs etc etc…

  25. oilpop 25
    16 June 2008 at 3:02 pm

    No to to mention the brisk economic activity that the decline of oil prices will being in the months to come, anybody who doesn’t buy some puts on oil options righ now, is missing oen of the best financial opportunities of 2008. Godspeed

  26. killinginthenameof 26
    16 June 2008 at 3:30 pm

    How do we know that the oil producing states are not just pulling an enron?

  27. Rex Widerstrom 27
    16 June 2008 at 4:17 pm

    Nor is a Fuel Watch website like Australia’s going to do anything to bring prices down.

    Errr… wrong. And wrong.

    FuelWatch isn’t “a website”. It has a website, but so do BP, Shell etc. FuelWatch is a scheme that requires service stations to publish what their at-the-pump price will be for the following day. They are legally required to maintain that price for 24 hours. The prices are published in the newspaper, appear on the commercial TV station’s news bulletins (between the markets and the weather, usually) and are mentioned on the radio. TV and radio usually restrict themselves to the dozen or so cheapest.

    Thus the information is readily available and people do respond, as is evidenced by the queues at the stations advertised as cheapest.

    And it does result in lower prices. WA has had FuelWatch for years now and the prices it’s drivers are charged are consistently lower than those of the eastern states, despite WA’s incomes being amongst the highest in the country and it’s demand – especially for diesel to fuel the mining industry – being high.

    It’s failing (which is seized upon by critics) is that it won’t permit service stations to lower prices beyond those that are published by FuelWatch. So if the station across the road from the one with the cheapest fuel wants to compete by giving up it’s price-gouging ways and lowering it’s prices, it’ll be breaking the law if it does.

    Provided that restriction is removed, FuelWatch is well worth considering for NZ.

    captcha: Reading’s hitting (which, when run together, conjures an unfortunate image of Al Bundy and his morning newspaper).

  28. T-rex 28
    16 June 2008 at 4:25 pm

    It’s failing (which is seized upon by critics) is that it won’t permit service stations to lower prices beyond those that are published by FuelWatch.

    I disagree, I think that’s actually a strength. If stations can react during the day, they can just all start high – there’s no competitive advantage to going low. If, however, you’ve got to stick with what you offer, then it’s a closed tender type arrangement. It’ll deliver far better results for the consumer – just not for the companies who choose to charge high. Where’s the problem?

  29. roger nome 29
    16 June 2008 at 5:11 pm

    killinginthenameof:

    “How do we know that the oil producing states are not just pulling an enron?”

    What’s far more likely is that OPEC over-estimate their reserves.

    The OPEC countries decided in 1985 to link their production quotas to their reserves. What then seemed wise provoked important increases of the estimates in order to increase their production rights. This also permits the ability to obtain bigger loans at lower interest rates. This is a suspected reason for the reserves rise of Iraq in 1983, then at war with Iran.

    In fact, Dr. Ali Samsam Bakhtiari, a former senior executive of the National Iranian Oil Company, has stated unequivocally that OPEC’s oil reserves (notably Iran’s) are grossly overstated. In an interview to Bloomberg in July 2006, he stated that world oil production is now at its peak and predicted that it will fall 32% by 2020.[50]

    http://en.wikipedia.org/wiki/Oil_reserves

  30. Rex Widerstrom 30
    16 June 2008 at 6:05 pm

    T-rex: you have a point. But FuelWatch is effectively massive free advertising for the cheaper servos. So to start high means their published prices, promted via FuelWatch, wouldn’t attract anybody.

    All I can say is it seems to work in WA, where we pay less than the eastern states and about 50c a litre less than NZ.

  31. T-Rex 31
    16 June 2008 at 6:32 pm

    Rex – yup, I understand that, think it’s a great scheme, I just think it’s also good that they won’t let stations change their price during the day for the reasons I described above.

  32. George Darroch 32
    16 June 2008 at 11:42 pm

    What have the Kiwiblog crowd got to do with this?

    It is Labour who is building the motorways.

  33. expat 33
    17 June 2008 at 9:14 am

    Oh, Helens peak oil is here? Well that settles the argument then. Stop now people, go home. Peak Oil is here.

  34. roger nome 34
    17 June 2008 at 11:49 am

    Hey nice argument expat. I notice that nearly all the Tories who used to argue against me when I proposed that peak oil would be within the next 15 years are silent now. That started 3-4 years ago.

    You can start on the road to Damascus here if you like:

  35. Dave McArthur 35
    17 June 2008 at 2:54 pm

    The regions that prosper in the Post Cheap Mineral Oil/Gas Age will be those who have invested in intelligent uses of their electrical and solar potential – including rail, shipping and well insulated dwellings. New Zealand has failed to do this and I now rate Michael Cullen the worst Finance Minister in at least 70 years. Previous Finance Ministers can be excused for not understanding the full impacts of our use of mineral oil/gas. However the lessons of the 1970-90s were clearly there by 2000 for anyone with a will to learn. These were spelled out to him in great detail by many people and he just scoffed at them. He inherited a world in 1999 in which the prices of mineral commodities were historically extremely low. This gave him the splendid opportunity to reshape a more sustainable New Zealand and he has sqandered it in motorways, jet travel, SUVs, McMansions etc.
    Now he has surrendered entirely to the Stock Market sector with KiwiSaver, pouring funds into a black hole rather than any of the above mentioned requisites for a sustainable country. The Stock Market is based on the tragic belief that mineral oil will retail at about $US25 for ever and is now set to implode – the implosion being delayed a little by Michael pouring billions of hard-earned dollars of the average Kiwi into the brokers’ pockets to prop them up.

    Dave McA

  36. expat 36
    17 June 2008 at 8:27 pm

    nome – you are deluded. you and travelerev need to form a support group.

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