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by Steve McKinlay
3 March 2005, Wellington


As this statement goes to press May 2005 delivery sweet crude on NYMX is US$54.10.

The price of oil has increased around 300% since 1999 — a fairly obvious trend in anyone’s language. Yet politicians, voodoo economists, dubious media “analysts”, the AA and all manner of similar soothsayers and faith healers intent on ignoring the hard empirical data are putting the “spike” down to an aberration. According to such wise sages we are sure to see oil prices return to “normal” sometime soon.

Our Government still believe that oil will return to US$20 to 25 dollars a barrel according the Ministry of Economic Development’s website. This blind faith in the face of Adnan Shihab-Eldin, OPEC secretary-general’s claim yesterday “I can’t rule out the rise of a barrel of oil to US$80 in the coming two years” is laughable. Akin to closing your eyes at a busy intersection and pulling out hoping for the best the Government is playing dice with New Zealand’s future in maintaining such absurd beliefs. Oil will never return to 20 dollars a barrel. Cheap oil is over!

The question on the average SUV driving punters lips is why? Why should we have to pay such high prices for petrol when oil companies are making record profits? The answer to this is obvious to any first year micro-economics student. Supply and Demand.

The ugly fact that is becoming more evident as each price spike passes is that supply is increasingly unable to keep up with demand. Or, that demand for oil is about to surpass the available supply. Globally we are (almost) consuming more oil than we can produce. Growth in non-OECD countries grew at an astounding rate between 1995 and 2004, developing countries such as India, China and the South American nations are trying to catch up with the western world. Over the last 10 years the world has grown it’s oil consumption by an astonishing 10 million barrels of oil per day. Is this growth sustainable? Quite possible, at least in Non-OECD countries such as China. Demand is likely to grow just as fast in 2005. Will the supply keep up? Highly unlikely.

The lingering theory that remains firmly implanted in the relatively thick skulls of economists is that demand growth will spur a surge in supply. This theory is quickly being seen as the latest myth surrounding the current price of oil. While supply is able to quickly meet demand there ought to be little reason for a 300% increase in the commodities price. Anyone wanting to refute such an argument must provide some other explanation for why oil prices are sitting close to record all time highs.

Although there are large projects accounting for 4-6 million barrels of oil per day production due to come one line within the next year or two it is unlikely that such a massive ramp up of production will make much difference. On current demand growth consumption will grow by a similar amount. Increase in supply must also take into consideration current depleting reserves across much of the Non-OPEC supply. Demand growth with depletion percentages increasing will effectively offset new production.

Peak Oil detractors are quick to criticise the idea that world oil production is reaching it’s limit, or that demand will surpass the available supply as a conspiracy theory or with arrogant dismissal as simply a nonsense, yet those holding such views must provide another more plausible theory as to why the oil price is currently approaching all time highs. They are generally unable to because no other plausible theory exists. The price of oil is high simply because demand is very high and supply is very tight. To alter the outcome one must alter either side of the equation. Decrease the demand or increase the supply — neither seems likely.

In regard to conspiracy theories we couldn’t help considering the following explanation for the petrol tax hike.

Our Government is well aware of Peak Oil thus the 5% Petrol Tax is an underhanded market signal. A signal that alternatives need to be developed to our energy hungry, drive in utopia, recreational shopping lifestyles. The petrol tax is a dissuasion to you purchasing that black V8 SUV you had your eye on. It is a signal to the market to use alternatives such as rail transport, rickshaws and Goggomobils.

Thus the revenue gathered from the new petrol tax will NOT infact be spent on thousands of kilometres of roading, a complete and utter waste of resources, a piteous investment in an infrastructure that has absolutely no future. Instead the surplus will be spent on developing sustainable cities with energy efficient transit solutions, importing rickshaws from China obviously, reconditioning scooters and Cub Commuters.

Petrol Tax — it’s just a warm up, get used to it, things are going to get a lot lot worse.

Steve McKinlay for
Powerless NZ
3 March 2005


More information about global peak oil and resource depletion can be found at http://ontic.blogspot.com.

PowerLess NZ is a growing group of scientists, energy analysts and concerned citizens whose principle objectives are to alert both Government and the general public to New Zealand’s looming energy crisis. Our aim is to support development of renewable energy resources at both a private and public level, as well as encourage a firm move away from dependence upon fossil fuels.