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New Zealand: No easy solutions in sight to keep oil prices in check

During the debate about the 5c-a-litre rise in petrol excise, politicians and commentators have suggested deferring the increase until oil prices stabilise at lower levels. No one, however, has been able to offer a valid reason why prices should come down.

With global crude oil consumption running at a staggering 84 million barrels a day, the price of about US$56 a barrel seems entirely reasonable. At an equivalent price in our currency of 50c a litre, even imported bottled water is more expensive.

Most people are aware that crude oil prices are at all-time highs. Fewer people know why, and fewer still have heard of a Shell Oil geophysicist called M. King Hubbert.

In 1956 Hubbert predicted, with considerable jeopardy to his career, that United States’ oil production would peak some time between 1965 and 1972. In making this prediction he had determined that the production rate of oil follows a bell-shaped curve.

As it turned out it wasn’t until 1972 that analysts realised the peak had occurred two years earlier, in 1970. Hubbert’s theory was proved correct. US oil production has declined ever since, so much so that today that country produces only about half as much as it did in 1970, roughly 5 million barrels a day.

No amount of future drilling can reverse this trend. If the Arctic National Wildlife Reserve is opened up for drilling, the peak production from this environmentally sensitive area will amount only to an additional half a million barrels a day, in about 15 years from now.

Expanding his analysis to the global oil situation, Hubbert predicted in the late 1960s that the global peak would be some time around 2000. His estimate has been further refined, notably by Princeton geologist and former Shell colleague, Professor Kenneth Deffeyes. His somewhat tongue-in-cheek prediction is November 24, 2005 - Thanksgiving Day in the US.

Other estimates range from already peaked to an optimistic 2035, which comes from the US Geological Survey.

Regardless of when the peak occurs, we are already living with high oil prices and price volatility. More than 50 countries are now producing less oil than they did a year ago, and discoveries of oil peaked in the 1960s. Despite comments from the Organisation of Petroleum Exporting Countries (Opec) about increasing production, there appears to be almost no spare production capacity. Qatar Oil Minister Abdullah al-Attiyah said recently the current high prices were "out of the control of Opec".

Even with these high prices, demand for oil continues at unprecedented rates. China looks set to import 30 per cent more oil than it did last year, and demand has also increased in almost every other country.

The peaking of supply coupled with high demand can only lead to higher and higher oil prices for the foreseeable future. Simply put, oil-producing nations cannot get oil out of the ground fast enough to meet demand.

New Zealand’s transport agencies need a contingency plan for the rising price of oil. At US$70 a barrel, the Auckland Regional Transport Authority should be looking to secure options on electric rolling stock for our rail network.

At US$100, the Government should be suspending all new roading projects. At US$200, Auckland International Airport’s proposals for a second runway should be shelved in favour of a container wharf for shipping.

Reliance on emerging new energy technologies such as hydrogen won’t help us in the short term, either. The so-called hydrogen economy is a net energy-loss proposition - more energy is put in to the extraction, compression and storage of hydrogen than comes out of it.

In addition, more than 90 per cent of hydrogen is obtained from fossil fuels, which defeats the purpose of an alternative fuel.

While hydrogen can also be obtained through the electrolysis of water, this process requires electricity and is 70 per cent efficient. Adding the compression and storage requirements of hydrogen to the equation means that hydrogen is a net energy sink.

Nuclear power will not help us, either. Significant environmental issues aside, uranium is subject to the same bell-shaped production curve as oil, and evidence exists that it, too, may have reached its peak.

In New Zealand, alarmingly, it would appear there is no contingency planning for the likely prospect of high oil prices.

The Government still retains a billion-dollar investment in Air New Zealand. The Treasury is still apparently sticking to its long-term prediction of US$35 a barrel. The Auckland Regional Council makes little mention of fossil-fuel dependency in its regional land transport strategy.

The 5c increase in petrol excise tax is to be spent on roading projects, when a better use of this money would be investing in research and development of non-fossil-fuel energy sources and projects.

Other countries are beginning to accept that Hubbert’s peak is inevitable. Queensland politician Andrew McNamara recently gave a speech on it, concluding that "no alternative energy source available to us today or in the foreseeable future is going to make up the total energy shortfall".

In the US, Republican congressman Roscoe Bartlett gave an hour-long presentation to Congress on Hubbert’s peak.

When Hubbert’s peak becomes a reality, only the economies that are fastest to adapt to new energy sources will survive and prosper.

New Zealand, with its near total reliance on fossil fuels, coupled with poor contingency planning, does not look set to be one of them.

* Cameron Pitches is the convenor of the Campaign for Better Transport.

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