Fuel Price increases- switch brand or drive less

Kim, May 17, 2010 at 11:48 pm

Prepare now for a looming oil supply crunch

South Africa has learned the hard way about the consequences of inadequate energy supplies. Since the electricity crisis erupted in January 2008, supply constraints have hobbled our economy’s development. Our leadership urgently needs to take action to avoid a similar looming energy crisis – this time concerning liquid fuels.

Over the past couple of years the world has begun to wake up to the reality of ‘peak oil’: the empirical fact that global oil production will inevitably reach a maximum rate – a peak – and thereafter decline inexorably due to the depletion of this finite resource.

Most of the world’s governments have for decades taken their cues on security of oil supply from the International Energy Agency, which was set up after the 1970s oil shocks. Until recently, the IEA maintained that there was no prospect for oil supply constraints before 2030.

But the IEA’s Chief Economist, Fatih Birol, admitted in an interview with the UK’s Guardian newspaper late in 2008 that he expects conventional oil production to peak by 2020.

In November, a whistleblower from the IEA alleged that the agency knew very well about the threat posed by peak oil, but was under pressure from member governments – chiefly the United States – to keep the issue under wraps out of fear that open acknowledgement would lead to a stock market collapse.

A comprehensive survey of academic research and industry reports on peak oil published last October by the UK’s Energy Research Centre concluded that “there is a significant risk of a peak before 2020”.

A report for the US Department of Energy in 2005 warned that mitigating actions needed to be implemented at least 20 years before the oil peak to avoid serious economic and social dislocations.

The peak and decline will happen at a time when demand for oil is growing very rapidly in many developing economies. China’s oil consumption has leapt from six to nine million barrels per day in the past three years alone.

Because oil exporting countries like Iran and Saudi Arabia have been consuming an increasing share of their oil production, total world oil exports have in fact been declining since 2005 – a major factor underlying the steep rise in international oil prices observed since then.

Until now, most national governments have not publicly acknowledged the threats posed by oil depletion. One exception is Sweden, whose government in 2006 outlined plans to halve the country’s oil consumption by 2020.

And in March this year, the UK’s Energy Minister called a summit with industrialists to discuss his government’s response to a near-term oil peak.

This follows the publication in February of a report entitled “The Oil Crunch” by the UK Industry Taskforce on Peak Oil and Energy Security. The taskforce – whose membership includes Sir Richard Branson, founder of the Virgin Group – stated that “We must plan for a world in which oil prices are likely to be both higher and more volatile and where oil price shocks have the potential to destabilise economic, political and social activity.”

The dramatic price spike in 2008, when oil reached $147 per barrel, was a major contributor to the global economic crisis. The recession dented demand for oil in the industrialised countries and effectively postponed the oil supply crunch for a couple of years, buying the world some precious time to prepare.

Despite the synthetic fuels produced by Sasol and PetroSA from coal and gas, respectively, South Africa imports about 70 per cent of its liquid fuels and is therefore highly exposed to international oil shocks. More than two thirds of oil imports come from the volatile Middle East.

Our transport systems are overwhelmingly reliant on petroleum fuels and accounts for over three quarters of national oil consumption. This dependence is our Achilles heel.

The Department of Transport calls transport “the heartbeat of the economy”. Rising fuel prices lead to higher prices of food and many other goods and services, pushing up the overall rate of inflation and raising the costs of living. Physical shortages of fuel would disrupt flows of commuters to work-places, learners to school, food from farms to supermarkets, and hamper economic activity.

All aspects of government policy should be underpinned by an expectation of much more expensive and scarcer oil supplies in the future. There is a wide range of policies and measures that can be implemented. The first step should be a comprehensive conservation programme that cuts unnecessary fuel use and raises energy efficiency.

One simple conservation measure is to reduce road speed limits – which will save lives as well as fuel and money. Educate drivers on ways to improve their fuel economy. Carpooling can be encouraged by having dedicated multiple-occupant lanes on city freeways. Various types of fuel rationing could also be considered.

Government support given to the automotive sector should be tied to improved fuel efficiency and incentives for the development and production of electric cars.

The second strategy concerns infrastructure spending.

Rather than widening roads and building new airports, public money would be better spent on more sustainable forms of public transport. The bus rapid transit systems under development in Cape Town and Johannesburg are steps in the right direction, as are safe cycle lanes and cheaper internet bandwidth to support telecommuting.

Our long-neglected railways must be refurbished, extended and electrified. For rail transport systems to be progressively electrified, the country will need to expand its electricity production even more than Eskom is currently planning. This will require huge extra investments in renewable energy such as wind farms and concentrated solar power plants. Such investments will have the additional benefit of creating new ‘green’ jobs.

Agriculture is another sector of the economy that is particularly vulnerable to rising oil prices.
Farmers will need support to cope with rising input costs and to progressively switch over to organic production methods that are not dependent on fossil fuels. A training programme for small-scale and urban farmers is also imperative to promote food security and social stability.

By acknowledging the reality of the imminent peak and decline in global oil production and planning accordingly, our leaders can do much to secure a positive future.

There is much that can be done to mitigate the impacts of oil scarcity, but the longer actions are delayed the more costly and difficult they will be. We need to seize the moment and accelerate the transition to a sustainable economy.

Jeremy Wakeford

Wakeford is an independent consultant specialising in energy, economics and sustainability. He is Chairman of the Association for the Study of Peak Oil South Africa (www.aspo.org.za) and Research Director of the South African New Economics (SANE) Network.

Note that this article has been slightly shortened.

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