Transition Culture

17 Jun 2008

£100 to fill up the tank? Just get used to the idea…

Here is an excellent article that appeared in Sunday’s Observer, which discussed peak oil and also mentioned Transition…

Oil Crisis: £100 to fill up the tank? Just get used to the idea.

By Jamie Doward, Gaby Hinsliff, Lisa Bachelor and Tim Webb. The Observer, Sunday June 15 2008

Queues at petrol stations may be a chilling taste of things to come. Prices are soaring, experts warn of shortages ahead, and some say the world is running out of fuel. Already people are getting out of their cars and finding other ways to travel, while less scrupulous drivers are stealing diesel. Has the motor car just stalled – or are our driving habits changing for ever?

Last Thursday evening, Shafna Chowdhury was visited by a gloomy portent of things to come. Following weeks of dire warnings of soaring oil prices presaging a bleak future in which petrol shortages and queues at the pumps are never far away, Chowdhury, 31, was forced to drive to six different service stations before she could fill up her Mercedes coupé.

‘I went to my local BP station and they weren’t allowing people on to the forecourt,’ she said. ‘I then went to two Esso stations and two Shell stations and there were huge queues at all of them. Some had bags wrapped around the nozzles of the pumps so it was obvious there wasn’t any petrol, but people were still queuing right into the main road.’

Chowdhury, from Ilford, east London, eventually managed to fill up at her local Tesco station, but was shocked at how much she paid. ‘I don’t usually fill my tank to the top, but I thought I’d better,’ she said. ‘It came to £60 – this has gone up dramatically since I last filled my tank.’

In Chowdhury’s case, this time around the queues were caused by shortages due to a tanker drivers’ strike rather than by any fundamental depletion in the world’s oil stocks. But this latter scenario is not without foundation, according to a growing body of analysts.

Suddenly it seems everyone is watching the petrol pumps, the final delivery points in a global distribution network that connects countries, ideologies, governments and money markets. From the traders on Wall Street betting on further oil price hikes to the Russians planting a flag under water at the North Pole to stake their claim to as yet untapped reserves; from a nervous Gordon Brown battling to keep the UK economy afloat, to the makers of Humvees and Britain’s road hauliers facing a bleak future, everyone has an interest in what is happening on the forecourts. Whereas once house prices were the talk of many dinner parties, now the question is: ‘How much does it cost to fill up your car?’ Experts predict that very soon, for most people, the answer will be £100.

However, a small but increasing number of unscrupulous people are paying ‘absolutely nothing’. Insurer NFU Mutual, which handles the bulk of insurance claims for farmers, reports a 30 per cent rise in thefts of red diesel in the first five months of this year as thieves in rural areas snaffle fuel from easy targets. ‘Farmers have improved security on their tanks, but we’ve now seen an increase in thefts, perhaps not surprisingly in view of the oil price increases,’ said Tim Price, spokesman for the insurance firm.

Meanwhile, petrol retailers say fuel sales have dropped sharply over the past few weeks and there are suggestions demand for petrol in Britain has slumped by as much as 20 per cent over the past 12 months and that people are taking to public transport.

According to the AA, the clock is turning back to the Seventies, to a time when only the middle classes could afford to drive and the less well off had to take public transport. ‘The worst affected groups are pensioners, people on low incomes, those living in rural areas and youngsters,’ said an AA spokesman. ‘We have already seen volunteer drivers dropping out of their good samaritan services in substantial numbers.’

Sarah Macmillan, who works in Oxford and lives 12 miles outside the city in Witney, is typical of many motorists concerned about soaring prices. ‘I’ve noticed the cost of petrol creep up from £1.08 a litre to £1.14 or possibly even more,’ she said. ‘I use the car every day and am seriously considering a move to Oxford later in the year so I can save money on petrol by cycling to work.’

More motorists may be getting on their bikes in the coming weeks. Next month marks the start of the holiday season in the US, the time when millions of Americans get motoring or take to the skies for their summer vacations. Historically this is a time when prices at the pumps tick upwards as demand for petrol in the US soars. Nervous British motorists watching the pumps are now asking themselves two urgent questions: how much further will the oil price rise and for how long can it be sustained?

A new phrase has crept into the lexicon of oil analysts: ‘the super spike’ – an unprecedented hike in oil prices that dwarfs anything before it. For a world teetering on the edge of recession, such a prospect borders on the apocalyptic. For beleaguered British motorists, who have seen the price of petrol rise by almost a quarter over the last 12 months, it is the stuff of nightmares.

And yet there seems to be a growing consensus among economists that the current high oil price is here to stay, even if it does ease off from some of the more stratospheric predictions made for its upward trajectory in the coming months.

The Wall Street bank Goldman Sachs predicts a $200-a-barrel super spike is a very real possibility in the near future. In layman’s terms, this is a near 50 per cent increase on current oil prices that if transferred to the prices at the pump (a sustained $2-per-barrel increase in crude normally equates to a 1p-a-litre rise on the forecourts) means the day when it costs almost £100 to fill up the average car may not be far off. Meanwhile, the Russian oil giant Gazprom sent shockwaves around the world last week when it warned prices could rise to $250 a barrel.

But some believe that the ballooning oil price is being driven by wild and irresponsible claims made by speculators and oil firms looking to make a quick killing. US regulators have already begun an investigation into claims that global energy markets are rigged. True, the amount of ‘hot money’ pouring into the oil markets, as with all commodities, has soared. According to investment bank Lehman, the total value of commodities held by investment funds has ballooned from $70bn at the beginning of last year to $235bn in April. With stock markets becoming more volatile as the credit crunch bites, investing in commodities has become a lucrative business.

But this is only a fraction of the trillions of dollars of oil traded each year. And analysts at Barclays Capital deny that the oil price is a ‘bubble’ similar to the dotcom boom and bust. Instead, they argue ‘current prices are rational and fair’ and suggest oil will remain at around $135 a barrel for Brent crude in the mid to long term.

Ultimately, many argue that, this time around, prices are rising for one reason: the world’s population will rise by half in the next 40 years, oil production is flatlining, and demand from the developing world keeps on rising. The International Energy Agency estimates that, if incomes in developing Asian countries increase by just 10 per cent, their demand for oil will soar by 70 per cent. What this means for the world economy can be summed up in one word: trouble. There are 150 net importer countries of oil, and only five nations export more than two million barrels a day.

Andrew McKillop, an oil analyst and author who has advised the European Commission, admits a looming global economic downturn may send prices down to as low as $85 in the short term. But he argues ‘the floor-price profile will stay inclined, upward. In 2009, $200-a- barrel oil will have every chance of becoming real.’

McKillop reels off a list of reasons why the fundamentals in the oil market have now shifted irrevocably: the failure of the Kyoto treaty to reduce demand; a 50 per cent increase in oil demand from China and India in the last five years; supply shortages; geopolitical instability in the Middle East …

Nestled in the picturesque Dart Valley, the sleepy Devon market town of Totnes is an unlikely place to start a revolution. But it is one of a growing handful of so-called ‘transition towns’, communities trying to wean themselves off relying on oil by changing the way they live – walking and cycling or using public transport rather than filling their cars; growing their own vegetables; and shopping locally to avoid trucking their produce for miles. In Totnes they are not waiting for petrol to get cheap.

Two years ago the town’s inhabitants were the eccentric fringe of the green movement. But now, as petrol prices soar, others are clamouring to join them. Rob Hopkins, of the Transition Town movement, says it currently has up to 700 communities registering an interest in joining, most from the UK but some as far afield as Australia.

To Hopkins, the high oil prices that have driven petrol through the pain barrier are more of an opportunity than a threat: he points out many ‘green’ energy technologies flowered only after the oil shocks of the Seventies, when the West could not afford to waste fuel.

‘My take is that high oil prices are a really good thing, and the higher they go the better in some ways, if we can respond creatively to it,’ Hopkins said. ‘At the end of the day, it’s the only thing that really focuses the mind. We are already starting to see an upsurge in the number of people getting back to growing food again, making clothes again. It’s not going to be easy, but the thing is the longer you leave it, the harder it is.’

Politicians, fearing a lynching at the ballot boxes, are not so bold. Gordon Brown has concentrated on showing he feels voters’ pain. In the aftermath of the local election meltdown, Downing Street was quick to signal that the rise in fuel duty planned for this autumn could be shelved and Brown has campaigned for Opec to increase oil production in the hope of lowering prices and bringing relief to garage forecourts.

But Vince Cable, the Liberal Democrat shadow chancellor and a former chief economist at oil company Shell, is sceptical as to whether this will achieve anything. ‘I don’t think Gordon Brown has any control whatever over this,’ Cable said. ‘All this posturing and demanding that Opec produce more is silly.’

Indeed, there is a growing consensus in government that, as one senior Treasury source puts it, expensive petrol is with us for the long term: therefore the logical answer is to re-engineer the economy to rely on it less – for instance by investing in hydrogen-powered cars and buses. But it will be hard for a government already lagging more than 20 points behind in the polls to start warning motorists that they should accept costlier fuel or buy eco-friendly cars.

The government’s one attempt so far to persuade more drivers out of gas-guzzlers has already met fierce resistance, with Labour MPs demanding a U-turn on plans to increase road taxes for older models of several popular family cars.

For those with even half-decent memories, the current situation seems little short of astonishing. After all, it was only a decade ago that talk in the oil industry was of over-capacity: as a result, compared with today’s prices, petrol was seriously cheap.

Now the overriding concern is whether we are reaching the end game, the era of ‘peak oil’ and the point when the world is at maximum production, after which supplies start to dwindle. Once little more than a cultish view, the peak oil theory has gained increasing currency in recent years.

Some – like McKillop – argue we are already there. Others suggest it is not far off. The Association for the Study of Peak Oil and Gas (Aspo) predicted earlier this year that the peak would come in 2010, others claim it is 10 to 20 years away. Optimists point out there is a huge amount of untapped oil in the globe that until now has been uneconomic to access, but, thanks to soaring prices, has now become viable.

‘The argument in its crude literal form that we are at peak oil and that is why prices are going up is nonsense,’ Cable said. ‘There are a mixture of reasons why oil production is not expanding, most of which are political, rather than to do with geology or economics.’ Abdallah Jum’ah, chief executive of Saudi Arabia’s national oil company, agrees, estimating the world has used only about a sixth to a third of its supplies.

But pessimists such as McKillop are not convinced. For a start there are concerns about how much oil even mighty Saudi Arabia has left. The secretive country doesn’t publish data and there are suggestions that its major fields are starting to run low.

Nor will drilling new fields be the panacea many hope – at least in the short term. ‘It takes time,’ McKillop said. ‘Take the Tupi field: 200 miles off Brazil and 1,500 metres deep. They hope to extract three to five billion barrels over 20 years – but some estimate it’s going to cost as much as $240bn to develop that field. That oil is going to be very expensive when it comes out.’

The world uses 32 billion barrels of oil a year. ‘You’ve got to develop six new fields like Tupi, and nothing like that’s been found for five years,’ McKillop said. ‘The future is coming towards us very fast.’

Britain’s love affair with the car may be heading for a crash.