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Get your foot off the gas - it's black gold

What will cost $3 a litre, require car-pooling, the permanent military occupation of Iraq and oil drilling on the Great Barrier Reef? Petrol, according to experts who have been contemplating its future in an oil-poor Australia.

In Sydney, it might mean a real estate crash and a long recession.

These are some of the consequences, experts say, if Australia does not wean itself off a diminishing supply of fossil fuels.

World oil prices surged yesterday after a Goldman Sachs study warned of a possible "super spike" in prices to above $US100 a barrel. Last week the average price of fuel in Australia hit an all-time high of 106.4 cents a litre. Crude oil prices have risen 500 per cent since 1999.

Last year the world used about 30 billion barrels of oil - the equivalent of draining Sydney Harbour 10 times - and consumption is growing as fast as the economies of China and India.

However, according to a growing consensus among politicians, oil industry analysts and environmentalists, supplies are reaching their peak - an event once thought to be decades away - and will soon rapidly decline.

"It's very possible that 2005 will be the peak year," says Richard Heinberg, author of The Party's Over: Oil, War and the Future of Industrial Societies. "If you look at new production supposed to come online this year, it's only enough to make up for depletion, and probably won't be enough to compensate for added demand from places like China and India and the US."

It is a creeping drought that never ends. Last financial year, Australia recorded its lowest crude oil output in 20 years, with production falling 16 per cent on 2002-03. "The consumption of crude oil and condensate in 2003 could be sustained by remaining economic reserves for only 11.3 years," said Geoscience Australia.

With its reserves dropping fast, Australia has becoming increasingly dependent on imports, most of them from the Middle East.

Heinberg believes the violence in that region has more to do with oil futures than weapons of mass destruction or terrorism. "We're going to see increasing militarism around the world, particularly US efforts to control oil-rich regions on the pretext of terrorism," he told the Herald.

Back at the bowser in Sydney, there'll be civilian casualties. Ali Samsam Bakhtiari, an executive with Iran's national oil company, warned a conference in Perth last year that petrol in Australia could hit $3 a litre within three years.

Andrew Stoeckel, of the Centre for International Economics in Canberra, scoffs at this claim. "That forecast is not believable. When the oil price rises sharply, it dampens economic activity and chokes off the price rise," he said.

According to the CIA, world oil reserves will last for about another 35 years at current demand levels. But demand growth is outstripping new finds and eating into the future.

In a world where virtually everything we consume depends on oil for its production or transport, the implications are considerable.

Inflation and unemployment will grow; driving will be very costly.

Heinberg said suburban planning based on freeways - championed by the State Government - would be seen as folly. "In the future it's going to be very difficult for individual people to own and operate automobiles. The expense is just going to be too great so, people will need to rely on public transportation. If that's not there, it will mean immense hardship for huge segments of the population."

In the US, car makers have cut back production amid falling demand for the once desirable four-wheel-drives while Toyota has reported a 120 per cent increase in orders for its gas-electric Prius hybrid last year.

Rising oil prices will also push up the cost of air travel. Aviation fuel has risen 28 per cent in price since January, shaving millions of airline profits.

The federal Industry Minister, Ian MacFarlane, said Australia's response was "a combination of increased exploration, new technologies and a re-balancing of the overall mix of fuels used in the country with the addition of renewable alternatives and gas".

One loser could be the environment. The Government's energy white paper last year made oil drilling on the Great Barrier Reef a priority, while the US Congress last month approved President George Bush's plan to allow oil exploration in Alaska's Arctic National Wildlife Refuge.

Meanwhile, as the crisis looms, Australia is busily shipping what remains of our oil and gas overseas as fast as tankers can carry it. Recent deals worth tens of billions of dollars will give China and South Korea guaranteed access to output from the North West Shelf for up to 30 years.

Americans, who consume a quarter of the world's oil output, are being told Australian gas is the answer.

"Chevron Texaco is working with governments and partner companies to secure the largest deposits of natural gas in Australia for shipment to the US," said an advertisement in the New Yorker this year. "A steady supply of cleaner fuel to light our homes and keep us warm? Sounds like a lot of g'days to come."

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