The technique is used to extract ‘unconventional’ oil and gas – that’s industry speak for sources of hydrocarbons that until recently were deemed too expensive or difficult to extract, but as the reality of peak oil kicks in the boundaries are being pushed further out.

The technique has been implicated in serious contamination of water supplies, and a correlation has been drawn between fracking and swarms of earthquakes in at least three American states.  It has been banned in France, is under investigation in other European states, and some parts of the US.

Fracking has happened in Taranaki, and has been proposed for other parts of the country, including the East Coast and Canterbury. The industry in New Zealand is staunchly defending the practice, with John Bay, the Chair of the Petroleum Exploration and Production Association (PEPANZ), insisting that problems elsewhere were caused by ‘cowboys’, whom our government would not allow to operate here.

Given the present government’s enthusiasm for extraction of oil and gas, and their willingness to downplay the risks,  I’m less inclined to rely on them!  The fracking that has occurred in Taranaki was done without resource consents .   The Taranaki Regional Council only last month decided that perhaps there had better be a consenting process in future.

The Greens believe in evidence based policy.  Much of the evidence we are seeing indicates that fracking is  dirty, dangerous, and completely at odds with an intelligent 21st century economic or energy strategy. We want a halt to the practice until we see clear evidence that fracking really is safe, poses no threat to human health; our land, water or level of seismic activity; and that any benefits really could outweigh the costs.

I”m launching a petition that asks Parliament to initiate an independent investigation through the Office of  the Parliamentary Commissioner for the Environment, and for an immediate moratorium on the practice until or unless the PCE can give fracking  a clean bill of health. I hope you will sign it, and encourage others to do the same.

So download the petition [PDF] here and get people signing it!

The Chair of PEPANZ appears almost breathless with excitement as he seeks to fulfil the primary objective of his organisation, “to publicise, promote and advance the interests of the oil and gas exploration industry in New Zealand”.

The East Coast, we are told, has been only ‘lightly explored’.  In fact there have been  surveys done of the area’s onshore and offshore potential since at least the 1970s, and the likely existence of  reserves recognised, albeit in a number of discreet fields rather than one large single reserve. All that has changed is that in the face of declining reserves of cheap, readily accessible oil and gas elsewhere, the industry is moving to ‘frontier’ areas with  a much higher risk profile than would have been contemplated even a decade ago.

Apache we are told is a ‘solid’ company, and isn’t it good that Shell are now players in the South Basin?

With a US$43 billion asset base, Apache are certainly in a position to accept some financial risk from frontier exploration, especially when our government is hanging so much of its misguided economic policy on the back of an extraction-based model worthy of 19th century robber barons.   We  New Zealanders of course will be carrying 100% of the environmental risk – it is our land, water and coastlines that could be irreparably damaged in the event of  a major accident.

And of course while it is noted that Shell has entered the fray in the South Basin, no mention is made of ExxonMobil and Todd both bailing out on the grounds of unacceptably high risk due to the harshness of  the environmental conditions and  remoteness.

Explorers apparently are not put off by protests from Greenpeace (who we are told are only in it for the headlines) nor by ‘local tribal groups’.  That sounds to me like throwing down a wero, a challenge,  one which I’m sure nga iwi o te motu will not hesitate to take up!

We are told that fresh water contamination from fracking (hydraulic fracturing) in the US has only been due to ‘cowboy’ operators cutting corners, but we need not fear for our precious water resources because the Government will ensure that no such operators will be allowed here. I wonder how our single inspector will detect the presence of cowboys, assuming they are astute enough not to turn up wearing a ten gallon hat and carrying a six-gun?  How will he or she manage to be present at every site throughout every operation to spot corner cutting?

We desperately need a government with a progressive, 21st century economic policy, based on the kind of initiatives that groups like Pure Advantage are advocating.  We need a clean green economy that works for everyone, not a backward looking ‘drill and hope’ mentality that creates so much environmental and economic risk for so little benefit.

Auckland City’s discussion document makes the case for a compact city, well served and made more liveable (and economically successful)  by an integrated, efficient public transport system.

The National government’s cabinet papers by comparison support a ‘more of the same’ approach, more expansion of the city’s footprint, and investment that perpetuates Auckland as a car-centric city.

The Government’s justification for this is not persuasive, even if you assume no changes in external conditions.

Their analysis becomes even less convincing when you notice the elephant in the room that the government studiously ignores; that is the inevitability of continuing rises in the price of  liquid fuel as peak oil effects kick in.

The time when peak oil could be dismissed as a mad conspiracy theory is long past, unless one thinks that the International Energy Agency is complicit in the deception.

The Agency’s official line is that peak oil will occur in 2030, but this is seen as highly optimistic even by Dr Fatih Birol, the agency’s own chief economist.  Birol thinks that 2020 or sooner is more likely, and has stated the problem very clearly, saying :

“One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us’.

Incidentally, that other hotbed of radical environmentalism, the US Joint Forces Command, expects a 2012 peak.

What all this means of course is that we are most unlikely to see the price of a litre of fuel drop below the new baseline of $2-00, and it is more likely to stay well above that.  This means that filling the tank on even a modest family car will stay around the $100 mark, a big chunk out of any household’s weekly budget.

The Automobile Association has entered the fray suggesting that putting more costs on motorists in order to fund public transport initiatives means that only the rich will be able to afford to drive.

The reality is that affordability is already an issue. Spending on infrastructure that further embeds dependence on private vehicles rather than reducing it, in the face of increasing prices, is just foolish, and will guarantee that we fail to achieve environmental, social or economic sustainability for our city.

With petrol prices nearing record highs, UK Energy Secretary, Chris Huhne, said Britain had no option but to speed up efforts to move away from oil. “Getting off the oil hook is made all the more urgent by the crisis in the Middle East. We cannot afford to go on relying on such a volatile source of energy when we can have clean, green and secure energy from low-carbon sources.”

We’re facing the same pain at the pumps here, yet the focus on what to do about it in the media seems to limited to advising people to ‘pump up their tires, go easy on the brakes and close the windows’ which is simply a Band-Aid covering up our severe dependence on oil for transport.

The UK report is receiving bouquets and brickbats there but for me, it raises the serious question – where’s our plan?

New Zealand is one of very few countries with no modern strategy to deal with oil price shocks and last year turned down a Green Party request for an inquiry. Oil is the lifeblood or our economy and as research I released last week shows that every increase of $US1 in the price of a barrel of oil wipes out $40m to $60m of New Zealand’s annual gross domestic product, and destroys between $22m and $33m in household spending. We’re hooked on oil and in denial about it.

We have comprehensive plans for biosecurity, terrorism, and the Rugby World Cup and I believe it’s irresponsible for our Government not to develop a comprehensive oil price shock plan.

It’s a pity this will be such a distraction from the real issues half a world away here in Aotearoa / New Zealand, where we desperately need to address climate change, peak oil, social inequality, environmental pollution, and the inter-relationship between those issues

But, in the context of the ***** *******, I guess none of that is important, other than for the distraction it will inevitably provide.

I’m tempted to turn comments off on this thread. Unfortunately, they will inevitably continue for the next however many months elsewhere, so no point I guess. So try to get it over and done with here.

Update: Given the debate on the comments thread over the original White Wedding video or the piss-take, you now have both. Satisfied?

But I wondered if it was possible to quantify the comparison between the departure tax and oil price increases.

According to the Herald the cost of the departure tax is: “Premium tickets to New Zealand face taxes of up to $355 while economy class travellers will be charged half that amount.” So roughly $175 for an economy ticket.

So how does that compare to the impact of oil price rise? The library had a go at it for me:

A Boeing 747 consumes 0.0167 gallons of jet fuel per passenger per mile – that comes to about 4.6 oil barrels for a one-way flight from Wellington to London.

Jet fuel costs about 20% more barrel than crude oil – it was selling for USD$95 on October 29^th and crude was about USD$80. This rough relationship appears to have held in the past.

So, if crude hits USD$100 a barrel, then jet fuel should be about USD$120 a barrel, a USD$25 a barrel increase from now.

USD$25 multiplied by 4.6 barrels equals USD$115. At the current conversion rate, that’s about NZD$150.

So, a rough measure would see the cost of the fuel needed to fly someone one-way from Wellington to London increase by about NZD$150 if the price of a barrel of crude rose from the roughly USD$80 it costs today (actually, currently trading at USD$85 on the back of the US quantitative easing announcement) to USD$100.

Can anyone put a hole in these figures?

So, if these calculations are correct, the increase in cost of a ticket due to the increase in departure tax is roughly comparable to the increase in cost of a ticket due to an increase in oil prices to US$100 a barrel.

There is no question that climate change and rising fossil fuel prices will change travel patterns, and we should be taking this future into account in our tourism and economic strategies.

International air travel was not covered in the original Kyoto Accord, but Europe recognised early on that a price on carbon emissions from long haul flights would have to be applied.  Otherwise, growth in demand for air travel would quickly outstrip any gains in fuel efficiency.

There is nothing wrong with the Government lobbying for New Zealand’s interests in the UK, but we need to be realistic. Collectively humans will travel by air less frequently in the near future, because we’re not going to see a cheap replacement for fossil fuels for aircraft any time soon.  Even if we weren’t concerned about human induced climate change, rising oil prices will have the exact same dampening effect on international tourism.

So it’s time to pull our heads out of the sand, and start planning for an economic future that isn’t reliant on cheap fossil fuels. This means rethinking tourism, Mr Key. Here are some ideas about a realistic tourism strategy.

One of the most serious yet ignored issues of our age is the end of cheap oil, which was raised in Parliament today by Russel Norman and was the focus of a report released earlier this week by the Parliamentary library.

Do you think oil will ever be cheaper than it is now? Hardly any layman or expert believes cheap oil will last forever, and many believe we are nearing, or have already hit, peak oil – the end of cheap oil. Peak oil isn’t a theory, it is a geological fact. There is only so much oil in the world and at some point we’ll reach its’ halfway point, which means that no matter how much we’d like more (demand), we will never produce more (supply). An additional problem is that worldwide we’ve already got the easiest, cheapest, most accessible half so what’s remaining is the hardest, most expensive to extract and least accessible. We’re going further and deeper in our hunt for oil, sometimes with catastrophic consequences like seen in the Deepwater Horizon accident.

The International Energy Agency estimates the peak lies somewhere between 2013-2037; but add in oil producing countries and their geo-political games, supply disruptions like Hurricanes and climate change, and a global lack of investment and the good money is on oil getting more expensive sooner rather than later.

One of my favourite TV shows is The Wire which is about drug dealing? I learnt that when demand is high and supply low, prices goes through the roof. That’s bad news for New Zealand because we’re p-addicts. We’re petrol addicts who are 98% dependant on oil for transport, so we’re going to have to wear the higher cost of our drug of choice or crash.

Like the metaphorical question, what’s it got to do with the price of fish? Lots. Oil accounts for half of the costs of Kiwi fishers and a massive percentage of the costs of growing food, moving food medicine, the majority of our products, our exports and all those tourists that come here. In short – our whole economy. Oil is pervasive and is in everything from fertilisers, furniture and us. A study by the U.S Center for Disease Control and Prevention tested humans for chemicals and metals, and recorded 212 different compounds – more than 180 of them products that started as natural gas or oil. We’re so dependent on oil that when prices seriously rise or fluctuate widely, as seen in previous oil shocks in 1973, 1979, 1990 and 2008, it damages our economy big-time.

Remember when the price hit $US 100 a barrel temporarily in 2008? Imagine $200 a barrel or higher? Imagine if you couldn’t afford to get to get to work. What would you do? Imagine if you couldn’t afford to fill up your car or you lost your job because tourists couldn’t afford to travel here. Imagine countries converting food-growing land to biofuels production, food prices spiralling and people in developing nations starving. Imagine all the people suffering. You may say that I’m a dreamer, but I’m not the only one.

I learnt in Scouts “Be prepared.” We’re extraordinarily vulnerable in New Zealand and the sooner we get ready the better. Other nations, and interestingly militaries like the Pentagon and the German Bundeswehr, are making plans, yet we seem to have a ‘she’ll be right mate’ attitude and are ignoring it.

In fact, we’re strengthening our addiction. We’re still pouring money into new motorways. Well, more accurately, borrowing globally to fund our $10.7 billion seven Roads of National Party Significance that will just encourage more cars onto congested roads. We’re still planning to close four regional rail lines (even my beloved Gisborne-Napier line) and sprawling our cities ever-outwards over farmland, which means transport costs for those on the city fringes are very high.

We need an urgent inquiry into our vulnerability, what impacts higher oil prices would have on New Zealand and a strategy to reduce dependency – now. We need to make the most of the last of the cheap oil to transition our transport systems, energy supplies and communities towards sustainable alternatives. The earlier we start the better.

We need a plan because the worst thing we could do is focus on alternatives that are even worse for climate change than oil, like growing biofuels on former rainforest land and extracting oil from tar-sands or coal. Unfortunately, the state-owned coal miner Solid Energy, with the Government’s blessing, is starting a lignite-coal-to-diesel plant in Southland – a lignite-coal-to-fertiliser plant that will have huge greenhouse gas emissions. Like jumping out of the frying pan and into the fire.

What would an Oil Transition Plan look like? I think it would set out a pathway to reduce our dependence on oil from getting about (more fuel efficient cars, car-pooling, better public transport choices), moving stuff around (freight off trucks and onto electric rail or coastal shipping), travelling internationally (researching alternative aircraft fuels, fast ships and I kid you not – airships), communicating (super-fast internet), growing food (locally sourced organics), and electricity (wind, wave and geothermal).

The crucial part is finding local solutions. In an oil constrained world everyone will need to adapt to their own local circumstances. Across the nation Transition Towns groups are envisioning a low oil future and preparing solutions but tragically the Government fiddles while Rome burns.

What are we waiting for? I think our politicians are dropping the ball big time by failing to prepare. It’s negligent to ignore so great a looming threat. I’m not surprised though. I believe they’ve been captured by short-term thinking and corporate interests; suffer from a lack of vision; and pander to a media more interested in the latest little scandal than public broadcasting or journalism.

The good news is that many of the solutions are good for their own sake, not just for freedom from oil dependence or climate change. More walkable or cycleable cities and fast, affordable public transport are nice anyway. Car fuels that don’t kill hundreds of Kiwis every year from air pollution are a good idea, as is safe organic food. The even better news is, if we get in quick, we could sell many of the solutions around the world.

We’re a resilient, innovative, ‘can-do’ nation, lets Scout-up, ‘be prepared’ and give the three-fingered salute to oil.

The International Energy Agency (IEA), the US Department of Energy, and Lloyd’s of London are all warning of an imminent oil supply crunch and price spike. Russel is concerned that all these institutions have made it very clear the world is facing an oil price shock in a few short years and this will have a very significant impact on the world economy.

Says he, “No matter how many new oil wells are drilled, New Zealand’s economy will be hit hard by the coming price shocks. It’s time to face the future rather than stick our heads in the sand in the hope that this problem will all go away”.

Colmar Brunton research commissioned by the World Wildlife Fund (WWF) has shown that 72% of New Zealanders think the Government should prepare now for future oil price rises by investing in alternative fuels and public transport.

It seems Kiwis understand that this is an opportunity to achieve economic resilience in the face of a changing energy landscape. Those countries that adapt by transitioning to a low carbon economy are the ones that will prosper.

Yet National and ACT, supposedly the parties of sound economic management, are so tied to their 20th century approach that they can’t even hear what the rest of the world is saying when it comes to oil. Adding insult to injury, Gerry Brownlee intends to gut the NZ Energy Strategy, a sad response to the changing world energy picture, lacking any kind of a plan to deal with this risk to our energy security.

At least the public see through it. So a reminder to please ensure John and Gerry get the message by making a submission on the draft Energy Strategy by 5pm this Thursday, 2 September.  See our submission guide for help.

That report was buried by the Bush administration but managed to leak out anyway. Did we listen? No.

Now one of the world’s biggest insurers is telling business that the two biggest risks they face are peak oil and climate change. It seems Lloyd’s has gone a bit green, or has started reading frogblog.

The White Paper, put out by Lloyd’s and Chatham House, is called Sustainable Energy Security: Strategic risks and opportunities for business.

Traditional fossil fuel resources face serious supply constraints and an oil supply crunch is likely in the short-to-medium term with profound consequences for the way in which business functions today.

I recommend that everyone reads this document.

Meanwhile, President Obama is telling America to get ready for an oil constrained future. Many are calling this his ‘war on peak oil‘ speech, but he doesn’t mention peak oil directly, and seems to hint that an awful lot more drilling and oil spills will be necessary in the future. Yuk.

When will our Government wake up to the reality? When will we stop borrowing to build new roads to nowhere, rather than maintaining the road network we already have and optimising its shared use with public transport?

Surely our Government’s public denial of the realities of peak oil suffers from a serious credibility gap?

Needless to say, if a spill that spanned from the East Cape to Taranaki happened here, we would not cope well.

Maritime New Zealand has just $12 million worth of oil spill recovery equipment and dispersing chemicals scattered in 20 locations around the country, and three 8.2 metre transportable oil recovery vessels

It is reckless to start a deep water oil drilling program in New Zealand’s southern ocean, one of the most important ecological regions on the planet, when the oil companies don’t know how to plug deep water oil wells if anything goes wrong.

We should stop the proposed deep water oil drilling program in the Great South Basin until the oil industry identifies the exact cause of BP’s oil catastrophe, explains how it can be prevented from happening again, and demonstrates that it can plug oil wells in deep water.

Russel was repeating his challenge to the Government to halt all drilling programmes until such time as the industry demonstrates that it can handle a leak in deep water conditions.

What Russel didn’t know at the time was that only an hour later, Minister Brownlee would be hosting the Brazilian oil giant Petrobras upstairs on the 9th floor of the Beehive, to sign off on an exploration permit in the Bay of Plenty.

If there is one thing the Deepwater Horizon spill in the Gulf of Mexico makes abundantly clear is  that oil companies are working beyond the limits of their technology, and human and environmental safety is at risk.

There is no doubt,” Bea told NBC News Senior Investigative Correspondent Lisa Myers in an interview this week, “that safety was compromised. The biggest underlying problem of all, Bea says, is that “we horribly underestimated the risk.”

Ironically, Petrobras had a rig explode and sink in 2001, also costing 11 lives. While that was a clear case of human error and not a blowout, it too was exacerbated by cost cutting and technical failures that could have mitigated the damage.

As we desperately try and prop up our growth economies with cheap fuel, we are being forced to take bigger and bigger risks to grab bits of a smaller and smaller fossil energy pie.

Peak oil will only increase the frequency and impact of this type of accident. It’s high time we called a halt to further exploration and re-evaluated our priorities.

My logic was that the US economy’s stagnation and the jitters across the Euro zone about Greece’s near default and the plight of the PIGS would surely be keeping the oil market depressed. And it is.

Rembrandt points to high stocks and high spare capacity in oil producing countries as his reason for the price to be lower – but it is stubbornly staying in the $70 dollar range.

Adding fuel to my misgivings is a little celebrated change in how much people in Europe pay for oil versus the Americans – the drop in the Euro now means that the European advantage has evaporated and US consumers now get their oil a tad cheaper relative to the Europeans. Oil Insights explains:

From the first time in 3 years, on a relative basis oil is going to be cheaper in the US when compared to the Euro-zone. In addition to the sovereign debt crisis, the austerity measures, the public protest riots and the widespread distress and turmoil, the PIGS (Portugal, Italy, Greece, and Spain) now also need to worry about more expensive oil.

I cannot see oil doing anything but going down. Why is it staying buoyant?

When asked about the theory of “peak” oil in the world and whether that theory was now dead, Mr. Voser said “I think what is dead is cheap oil.”

You need more technology, innovation and will find oil further away from markets, Mr. Voser said. More will be spent to get oil and consumers will pay, both for oil and gas.

Mr. Voser also said oil price volatility is here to stay. More money is flowing into commodities and there are more players in the market.

This is, of course, what I think, as I have been talking about the end of cheap oil and extreme oil price volatility for years now.

The article also mentions the rise of electric cars. they are not a solution to the predicament of peak oil, which cannot be ‘solved’. (That’s the definition of a predicament.) However, cars we will always have with us, just like we still have the print media despite the rise of radio, TV and the internet. Electric cars will be a huge step in the right direction. Pity they will be predominantly the domain of the rich and of delivery businesses.

Kiwirail has told the media they are asking for submissions from the public before making a decision. Although, in practice, I can’t see any mention of the submission process on their website…

Anyway, if you want to make a submission to Jim Quinn, the Chief Executive of Kiwirail then send it to ruth dot larsen at ontrack dot govt dot nz.  The closing date  is this Friday, the 12th of February. If you’re struggling for ideas here are:

6 reasons why we should keep the line open:

1. The cost of reopening lines snowballs the longer they are closed. It would cost far less to keep this line open now than to close it and re-open it again 10 years later. According to Jon Reeves Kiwirail has just discovered that it will cost them almost $10 million to fix up the Rotorua-Waikato railway line which they closed down in 2001. That’s because a lot of the sleepers have been stolen.
2. It provides an alternative (the only open rail line) to the North Island Main Trunk Line in case of a volcanic eruption or earthquake
3. It could be a major tourist attraction. It is easily one of the most scenic rail routes in the North Island
4. Closing it will mean yet more freight moves around our country by trucks, which are energy inefficient and tear up road surfaces. Maintenance would make it more attractive to freight and probably increase it’s usage
5. Closing it will continue the process (which Fonterra has already started) of shifting most of our freight through 1 or 2 major ports. That may be good for Fonterra but it’s very bad for the environment (and road surfaces) driving freight 100s of kms more than necessary
6. Given what experts are saying about peak oil we will need this rail line in future to transport freight and people when oil prices rise

Any other reasons you can think of?

Apparently the report claims a connection between the high oil price in recent years and the financial crisis, which others have been saying for a while, but it would be interesting to hear that from an institution like the IEA. So far I’ve only gotten my hands on the executive summary, which makes no mention of that though.

Other than the eye popping trillion dollars of investment needed each year to ensure oil supply keeps up with demand (last year they were saying only 360 billion…), here are a few things which jumped out at me from the summary:

Quite conservative estimates for oil prices (already too low!)
“Oil prices are assumed to fall from the 2008 level of $97 per barrel to around $60 per barrel in 2009 (roughly the level of mid-2009), but then rebound with the economic recovery to reach $100 per barrel by 2020 and $115 per barrel by 2030 (in year-2008 dollars).”

Acknowledgement of the fact that 450ppm will give us only a 50% chance of hitting the 2 degrees of warming target
“To limit to 50% the probability of a global average temperature increase in excess of 2°C, the concentration of greenhouse gases in the atmosphere would need to be stabilised at a level around 450 ppm CO2-eq”

It ends with an urgent call to action on climate change
“A critical ingredient in the success of efforts to prevent climate change will be the speed with which governments act on their commitments. Saving the planet cannot wait. For every year that passes, the window for action on emissions over a given period becomes narrower — and the costs of transforming the energy sector increase. We calculate that each year of delay before moving onto the emissions path consistent with a 2°C temperature increase would add approximately $500 billion to the global incremental investment cost of $10.5 trillion for the period 2010-2030. A delay of just a few years would probably render that goal completely out of reach. If this were the case, the additional adaptation costs would be many times this figure. Countries attending the UN Climate Change Conference must not lose sight of this. The time has come to make the hard choices needed to turn promises into action.”

SeekingAlpha have done a summary of the executive summary, for the truly rushed among us.

Everyone agrees that we’re in a crisis. Officials and politicians point everywhere and say – Hey look! Green shoots! The worst is over.  Others urge us to ignore the green shoots, the worst is yet to come.

I’ll stick to something I know a little about. Oil. I have said repeatedly that we won’t be in recovery until oil is in the $70-$90 US$/bbl range for some time. Well, it has been in the range, only just, for some time now. The $70 – 90 range is the cost of bringing new oil online, as opposed to the cheap and easy oil we still get from our declining elephant fields.

My question is whether our hovering in the $70/bbl range is a sign that the global economy is coming through the crisis, a sign that we’re being forced to drill new oil because of cheap oil’s decline, or is it the result of a false optimism in the markets, driven by the US printing printing money/debt like there is no tomorrow.

I’m beginning to think it’s a bit of all three.

Meanwhile, our mortgage crisis deepens. When will the awkward bubble in high debt dairy burst?

What do you think?

Green shoots or growing rot?

It’s electric. It’s cool. The Model S can make the sprint from zero to 60 mph in 5.6 seconds, crossing the quarter-mile stripe in 14 seconds flat. Give the Model S a longer track and it will top out at 120 mph. I’m old enough to know what that means.

I want one. Poor consumerist frog. Some tendencies are hard to break, even after years of abstinence.

The reality is, this is as close to a test drive as I’ll get in the next 5 years:

Electric cars are not going to magically replace their petrol brethren in time for the oil crunch that is coming in 2015 or the IEA’s prediction of peak oil in 2020, if it hasn’t happened already.

The shock to our cheap/subsidised transport dependent culture in the near future is going to be massive. But, just like cinema didn’t kill the radio and TV didn’t kill the cinema, cars we will always have with us. They will just return to being the luxury item they always really were. (That’s why we really don’t need any more roads, it’s enough to improve/maintain the ones we’ve got)

Still, I can look longingly through the showroom window as I did all those years ago, and dream of my fancy new wheels…

If I get out my crystal ball, I would forecast oil to bounce around in the $60 -$100 range until the financial crisis settles down, as the marginal cost of a new barrel of production is currently between $70 – $90 per barrel. Once the global economy is perceived to be back onto it´s exponential growth path, prices will spike once again before dropping back to the marginal barrel range as the growth bubble is burst once again by high oil prices. Each time this happens, the marginal barrel priced will ratchet up, taking the overall average price up with it. In short, I predict a wild roller coaster ride.

Bank on one thing – volatility.

I think we’re witnessing just such a movement. The current steady rise reflects the perception that we are on the road to economic recovery. (We may actually be on that road, but it is the perception that I think is important)

As usual I have to take the cheap shot and point out that oil is already dearer than the Budget Economic and Fiscal Update two weeks ago said it would be over the next five years!

Now that we’re in that marginal-price-of-new-oil price range, I have to ask. Is this the sign of a real recovery, where new oil does have to come into production to support a return to economic growth? Is this simply the perception of an economic recovery, which for all intents and purposes has the same effect on prices, but is ephemeral? Or finally, is the 9.1% decline rate of existing fields, as predicted by the International Energy Agency (IEA), forcing the market into the new oil production just to keep supplies steady?

My guess is that today’s price results from a combination of the second two. The economic news out in the world is not that rosy, despite all the money being printed in the name of stimulus. The massive production decline rates continue whether we are in recession or not.