Australian energy policy is far too crude
President George Bush has asked Saudi Arabia to increase oil production to reduce the pressure on oil prices. It is a short-term, politically expedient solution to the problem and demonstrates a lack of understanding of one of the most serious economic and development issues of our time. Managing the decline of oil must begin now and our leaders need to pull their head out of the sand and start talking about it. The short-term political issue may be the price at the pump, but the medium to long-term issue is the lack of oil into the future.
Keeping prices low is not going to help anyone. Even motorists who demand lower prices will only face more dramatic increases in the future. The oil markets are doing us all a favour.
Australia has very low energy prices, yet we have the audacity to complain about them. A government legacy that future generations would look back on and appreciate would protect the future economy from more dramatic falls would be to encourage less consumption of petrol and conserve it for future generations.
As much as President Bush would like to think increased global production would bring the price of oil down, it may not. Even the current $50-plus dollars for a barrel of crude is based on speculation, not availability. Currently, there is enough oil to go around, but buyers and analysts are not sure for how much longer. Some suggest the price is over-inflated by over $20 dollars. This is a naïve view.
The market is actually protecting us because like it or not, we are running out of oil. We have been running out since we started extracting it from the ground. Oil is a fossil fuel and by its nature there is only a certain amount.
The British Oil Depletion Analysis Centre predicts the Earth’s original oil holdings were around 2000 to 2400 billion barrels. About only half of this is left. And, it is only in the last 30 years we have really become serious oil users. This is what peak oil is all about and what the markets are waiting for.
Peak oil refers to the point in time when extraction of oil from the earth reaches its highest point and begins to decline. We won’t be able to say when we have reached peak oil until after the fact.
Kenneth Deffeyes is a geologist at Princeton University and an expert in the work of Shell Oil geologist M. King Hubbert. Hubbert successfully predicted peak oil production in the US almost 15 years before it occurred in 1970. Deffeyes has used Hubbert’s work to analyse global oil supplies and estimates that global peak will occur sometime this year.
This is what is keeping the markets on edge. With more experts coming forward and predicting we are close to peak oil, prices are starting to reflect nervousness about scarcity.
When peak oil kicks in it, the decline will become obvious. We are on an exponential curve where oil consumption is concerned because the oil supply is decreasing and demand shows no sign of slowing.
At a federal level politicians need to start discussing the impact of oil decline on our nation. They need to begin debating what alternatives are required and where investment should go to support those alternatives.
Prices can’t be kept low, but our consumption can be changed and alternatives can be sought. But we need to start acting now.
Daniel Donahoo is a fellow at OzProspect, a non-partisan, public policy think tank