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Oil spike takes off

Written By: - Date published: 11:50 am, April 11th, 2011 - 36 comments
Categories: energy - Tags: ,

Get ready for another petrol increase this week. Last week, the Dubai crude benchmark, which most of New Zealand’s imports are priced of, shot up over 4% in NZD terms. Unless that rise reverses right away, petrol will have to rise past $2.25 a litre. We’re now pay $160m a week for oil imports – $2b a year more than a year ago.

We’re seeing a pattern where small events cause oil prices to leap and then the prices not falling when the event ends. For example, last week oil workers in Gabon went on strike. It took just 0.25% of world supply off the market but oil rose several percent. When the strike ended, the oil price didn’t sink. In fact, it kept rising.

Increasing unrest in tiny producers like Syria and Yemen, and the slim threat of revolt in Saudi Arabia, is used to explain these oil prices – but that’s a shallow analysis that missed the real story.

The world supply situation is incredibly tight. For nearly two months Libyan imports have been offline (apart from one shipment from rebel-held Tobruk last week). The Saudis are supposedly using spare capacity to fill this gap but it’s not clear how much this is really happening.

There just isn’t enough oil to go around and the price will keep rising until economies go into recession and start demanding less oil.

New Zealand imports about 150,000 barrels of oil a day. This time last year, oil was $110 NZD a barrel and that meant we were paying about $117 million a week. Now oil is over $150 a barrel and we’re paying over $158 million a week. An extra $40 million a week – 1% of GDP – is being sucked out of our economy for no extra stuff.

In total, we’re paying 4% of our GDP just to import oil. If we could cut that consumption just 10%, we would have $800 million more a year to invest in our own country rather than seeing it go up in smoke.

36 comments on “Oil spike takes off ”

  1. Colonial Viper 1

    Petrol over $2/L means zero or negligible economic growth.
     
    Factor in English’s Budget cuts and you will have an economy going into a death spiral.
     
    Perfect for those who are cash rich here and overseas who want to buy up more hard NZ assets.

  2. Shane Gallagher 2

    The University of Otago has calculated that we have about 50% redundancy in our internal trade transport – ie. just moving apples to Auckland from Wellington and moving the same number of apples from Wellington to Auckland (that is just a random made-up example).

    So we could significantly reduce the amount we spend on fuel – BUT we would need a level of centralised control that a lot of people would balk at – even though it makes perfect sense. If we push for lots of true efficiencies we can reduce costs to the country (and make a big dent in our CO2 emissions!).

    • Rich 2.1

      Reducing subsidies to road transport would be a help though.

      • Bored 2.1.1

        Rich and Shane, you are both right about being able to get far greater fuel efficiencies, in particular with regard to trucks on roads. The whole thing is predicated on just in time delivery. Years back we had local warehouses from which distribution was done, now it is sent overnight by truck from Auckland etc. What this meant for businesses was that they were able to free up capital otherwise tied up in stock. To carry that stock again will mean either we wait for delivery or we pay more.

    • PeteG 2.2

      Shane, apples could be a good example if they are bulk distributed like wine, produce from Cromwell (Central Otago) is trucked to grocery warehouses in Christchurch (420km) and then to Dunedin (360km) instead of direct (220km).
       
      780km versus 220km.

      Trains won’t solve that example.

      I’m not sure if it still is but Speights beer was brewed in Dunedin, taken by tanker to Christchurch and bottled, then distributed to Dunedin and further south.

      • Draco T Bastard 2.2.1

        Trains won’t solve that example.

        Well, I suppose that would be dependent upon where the train tracks are. Using the trains is, after all, more efficient than using trucks.
         
        There’s always going to be some centralisation and so there will always be some double trucking. The idea is to minimise it as much as is practical and not try to eliminate it altogether.

        • ZeeBop 2.2.1.1

          If Dunedin makes beer then sells the bear in kegs, then why would you need to ship bottled beer there? If it needs bottled beer someone will oblige. Dunedin will then have a cheap beer that keeps profits in Dunedin, save fuel costs, and have a market for their beer even in the worst of downturns. But no! The brewery is owned by ?foreigners? so of course when they look at the costs they see the multiplier effect results in an era of cheap oil, but we’re no longer in an era of cheap fuel, the brewery would make more money by being less uniform. It should be a right to be able to go to a lot brewery and buy a keg of beer!

          • Draco T Bastard 2.2.1.1.1

            Not everyone wants a keg of beer and it’s probably inefficient/not practical to have a bottling factory in every city.

  3. Galeandra 3

    Trrraaaaaaiiiinnnnns!!!!!!!!!! Now where did I read recently that modern diesel trains can shift a ton of freight a thousand miles on only a gallon of diesel. Must be somewhere stateside, so maybe a link in the Archdruid’s report?

    • uke 3.1

      Coastal shipping may be even cheaper. Although obviously slower.

      Quite logically, given we are a sea-bound country (Zealand = “Sealand”), this was our first modern method of goods distribution.

  4. Steve Withers 4

    I saw this coming last year, so in August started walking the 8kms to work. I now walk to work 5 days / week (16kms / day). I filled my 1.3L car yesterday for $67. First time in 3 weeks. Our (family of 4) monthly petrol bill would be under $100 now, down from over $300 if I was still driving to work every day.  That is saving us over $2,500 / year at current prices….and I’m much fitter, having lost 15Kg. So what happens to the oil price, for us directly, is no longer a major concern.  

    It’s easy to reduce oil dependency if you put your mind to it and get off your arse.

    • r0b 4.1

      Good on you for all that you have done personally. Been through a similar process myself.

      So what happens to the oil price, for us directly, is no longer a major concern.

      If only that were true. Food prices will rise, prices in general will skyrocket, there will be social unrest. We can’t opt out. It’s going to be a major concern to all of us.

      • Steve Withers 4.1.1

        R0b: We’ve installed a composter and have a veggie garden up and running. The tomatoes have been awesome so far. Shortly to be extended. Adding a beehive in September and 4 chooks. We’re on a sunny 900m2 section, so have some space for a couple of fruit trees, too. Also signed up with Ooooby and making connections with other local back yard gardeners to share skills / resources and spread the word. Hopefully we can at least help neighbours meet and beat the challenges as they arise.

        If the National-lead government doesn’t even see and thus won’t do anything to meet the challenges of the years ahead, it doesn’t mean we ALL have to behave like hedgehogs on the highway of life.

        • r0b 4.1.1.1

          All good stuff! You should do us a guest post some time on the experience of going “Good Life”, with any advice and resources.

          Ooooby looks good. I hope you have also checked out Transition Towns:
          http://www.transitiontowns.org.nz/

          • Steve Withers 4.1.1.1.1

            Thanks. 🙂  I’m a total gardening newb, so seeing very myself as a “test case”.  Our goal is to set up whatever we can provided it doesn’t take more then 30-60 minutes / day to operate and maintain. Preferably every second day once everthing is set up. In theory, we will weed and water and address pests as they arise as efficiently as possible. We also plan to grow the things that are dear at the supermarket. No point spending more growing on relatively inefficient back yard gardening to grow what’s cheap anyway. I’ll check out transition Towns. Thanks.

        • uke 4.1.1.2

          In the bad old days before 1935, when most NZ families were poor, people would often forego the luxury of a lawn and fill up the front yard with potato plants. When you think about it, grass lawns and ornamental gardens are a waste of good growing space.

          • Draco T Bastard 4.1.1.2.1

            I’m pretty sure that ornamental gardens are a by product of herb gardens which can be quite ornamental.

            • uke 4.1.1.2.1.1

              Yeah, fair enough. I guess I was thinking of inedible ornamentals like hydrangas, agapanthas, daffodils, tulips and such like.
               
              And I suppose vegetable plants can be ornamental. In Lambton Quay, Wellington, the WCC sometimes plants very pretty-looking veges like purple kale. It’s probably all completely inedible from the fumes. The logic is somehow typical of our times.

              • sean

                This is still prevalent throughout provincial Italy – anyone who doesn’t use every available inch of their gardens for growing food is looked at like they are a freak.  You can go to towns and count the number of lawns on the fingers of one hand.
                 
                I imagine no matter what this attitude will eventually be embraced over here, giving we have a climate conducive to year round growth in most places.

  5. JaJ 5

    Raise petrol taxes by 50c per litre. Use all of the revenue – though no more – to cut income and corporate taxes. Result: reduction in use of private transport, increased incentives to purchase fuel efficient cars over gas guzzlers, increased public transport patronage. All this without impoverishing households or decreasing returns on investment in the corporate sector.
     
    Hopefully the standard can agree that this would be sensible.

    [lprent: What blighty is referring to (below) is the self-martyrdom offences in the policy. Familiarize yourself with them because repeating the offense is a fast way to get a well deserved band.

    “The Standard” is a dumb program that has no opinions. It runs as a coop which means that it doesn’t have a editorial opinion. The commentators are about as diverse in their opinions as it is possible have in NZ without allowing idiot trolls to take over.

    Fortunately for you I can’t find a trace of you offending before. But you have now been warned. ]

    • Blighty 5.1

      cue comment from Lynn about how the standard is just software and can’t agree to anything.
      Just you wait, Lynn. It’ll be self-aware before you know it. Already, it’s as intelligent as whaleoil.

      • lprent 5.1.1

        Nope.

        This site is made up of structured code. That means it has been built with a inherent philosophy by a large number of people trying to make things better not only now, but also into the future. The code reflects that and generally so do the users of it here. A large proportion of the success of the site comes from its large numbers of comments, and that comes from the trust that peoples details will not be abused. Of course this doesn’t mean that you won’t get abused yourself by other commentators or moderators – but that tends to be rather educational for all concerned. It certainly never seems to stop people coming back (apart from the very small list of extremely persistent recidivists).

        Whereas if you look at Whaleoil as being a program, then it is a bit like his website. Bloody thing starts from a good base in its current incantation (the previous drupal site was to put it mildly – a total abortion). It has been weighed down with a pile of heavy crap plugins layered on top of each other and with so much javascript and HTML in there that it takes forever before it loads and stops popping up visual junk everywhere. It can reasonably be used to demonstrate how not to build a social media website.

        But that isn’t the worst of it. Because Whale as a software component tends to act like a Trojan key-logger abusing private details, there are no comments. Without the required sarcastic feedback in comments that would encourage him to amend his habits, his writing tends to read like a megalomaniacs wet dream where he is shouting into a echo chamber.

        I don’t think I could write anything quite so boring…

    • Steve Withers 5.2

      JaJ: I suspect car drivers will tolerate faceless, nameless “market forces” driving oil prices upward. But they will kill, cook and possibly eat any politician that even suggested it for the purpose you describe. 🙂

      • Draco T Bastard 5.2.1

        They certainly seem to get upset when congestion charges are mentioned.

      • JaJ 5.2.2

        A valid point, and probably the biggest obstruction to progress are groups demanding more pork for there pet cause. I suspect though that petrol tax hikes could be sold to the public as part of a package including compensatory tax cuts – or they can always be pushed through as part of “We’re out of hear anyway” third term 😉

    • JaJ 5.3

      Sorry, I didn’t mean to be self sacificing – I know what you mean. I genuinely did think that the community of bloggers and commentators built around thestandard.org.nz would agree 🙂

      • RedLogix 5.3.1

        We do, but we’ve also seen how deeply sacred motor cars are to most kiwi males.  They’re embedded in our psyches so profoundly that most men would sooner you cut their bollocks off than threaten their wheels.

  6. outofbed 6

    Maybe Read this report
    A study commissioned by the New Zealand Transport Agency on freight transport in New Zealand, including an analysis of the prospects for coastal shipping.
     
    Seems coastal shipping is the way forward  not  RONS, funny that
     
     

  7. ChrisH 7

    MartyG, Don’t you mean $115 a barrel not $150?

  8. Jenny 8

    Extreme, increasingly desperate measures are being used to extend the world’s remaining dwindling estimated reserves.

    Here in New Zealand we are seeing these desperate measures being played out in the Raukumara Basin. In a move similar to Muldoon’s actions to protect nuclear warship visits, John Key says he is, “not ruling out the navy or air force”.
    Infamously when NZ navy helicopters were aggressively used against anti-nuclear protesters, many small vessels were swamped and deliberately sunk by the downdraft of naval helicopters. 
    Already there has been aggressive and repeated low level buzzing of the protest flotilla by airforce Hercules.
    Greenpeace activists told Radio New Zealand they would not be intimidated.

    Despite not receiving any complaint from Petrobras the police said they are exploring taking harsher action against the protesters.

    • RedLogix 8.1

      Remember when our navy was sent by a proud nation to protest the French nuclear tests at Muroroa?
       
      How far we have fallen.

  9. Jenny 9

    The first day of the working week toiling at my soul sapping, less than environmentally friendly job, overcome by Mondayitis, I usually get weighed down by the state of the world.

    But today I couldn’t avoid having a smile on lips and a song in my heart every time I thought of the Greenpeace and te Whanau a Apanui activists out on the open ocean who have managed to put a spoke in the wheel of the planet gobbling machine. 

    They have the courage and the wit to do more than just bemoan the state of the world.

    Good on them.

  10. exit lane 10

    “If we could cut that consumption just 10%, we would have $800 million more a year to invest in our own country rather than seeing it go up in smoke.”
    and there is a plan to help do that – a report commissioned by the NZ Transport Agency in 2008 is gathering dust..
    http://oilshockhorrorprobe.blogspot.com/2011/03/oil-price-response-plan-for-new-zealand.html

  11. HC 11

    If there are still a few Al Qaeda cells active in the Middle East, or if some other saboteurs may take their fancy and do what certain Gaddhafi supporters have just done in Libya, then we will get a real crisis very quickly.
    The average mum picking up her kids from school will not realise until the price will hit $ 3 or 4 a litre. That is what many in Europe already pay. Well, are we not well prepared here in Aotearoa? We have a government that spends time on diddling with a bit tax more or less here, but which has no real plan for the longer term future.
    So suddenly everything will go up in price, because cheap oil is a thing of the past. Wow, what surprise, surprise, surprise. Blame whom? Those that live in LaLaLand and think miracles will happen will soon get all hot and bothered under their tops. I am sure of this, we are approaching the crisis much faster than others predicted.

  12. Steve Withers 12

    Yeah…but those mistakes will all be “in the past”..and the people who made them will just want us all “to move on”. That’s how slippery incompetent folk avoid being accountable.

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