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Oil prices

At the end of September 2004 oil reached $50 a barrel. Petroleum hasn’t been this expensive in 25 years. And it shows no sign of going back down again soon. Good news for oil-exporting countries, at least for the moment. Not so good for the car manufacturers, aviation companies and other large enterprises dependent on this fossil fuel.

How did oil prices get so high? Analysts point to the ongoing insecurity in Iraq. But this isn’t the whole story. There have been a number of other events recently that have combined to push up prices to double what they were only two years ago.

A large Russian oil company is involved in a struggle with the government over unpaid tax, which might bankrupt it. Campaigns over land rights are disrupting production in Nigeria, and a series of hurricanes have temporarily closed down some refining activity in the Gulf of Mexico, with the loss of half a million barrels a day from the market.

Usually demand can be met by releasing more oil from producers’ reserves - but these are exceptionally low at the moment.

Meanwhile, the USA, with only 5% of the world’s population, continues to use 25% of the world’s oil and newer economies in Asia are following their example. China has overtaken Japan as the world’s second biggest consumer, and the car is rapidly replacing the bicycle as the preferred means of transport. India’s economic growth has resulted in a 130% increase in energy consumption over the last twenty years.

But what can governments do to offset such dramatic price rises? In the USA, with oil of its own, some have called for increased production from new sources such as Alaska. The trouble is, there’s no guarantee that this will bring in more than a couple of year’s extra supply at the rate that the country likes to consume it.

Others think it makes more sense to try and reduce the amount of oil people use. This can be achieved by increasing efficiency- developing cleaner fuels or smarter car engines. Recent calculations suggest that the USA can cut greenhouse gas emissions by 10% if drivers simply switch to hybrid electric cars.

Some oil companies have started to turn their attention to alternative, renewable energies, such as the sun. Solar technology has advanced significantly in the last twenty years, and there is the real possibility of every house and workplace being fitted with a photovoltaic cell which would provide virtually free and unlimited electricity for heating and lighting.

The hydrogen fuel cell is another technology nearing commercial viability with several big car companies involved. This could see the end of the petrol-driven internal combustion engine. There are experiments with hydrogen-fuelled buses in Canada and Western Europe. In Iceland there are plans to run the entire economy on hydrogen within a generation.

If energy diversification becomes a reality, high oil prices in the future will be far less a cause for concern.

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