Pumps, prices and projections

Pumps, prices and projections ‘Black gold’, the most sought after commodity on the planet, has long been the subject of controversy and conflict. Meadhbh Monahan examines the worldwide and national factors affecting the price of fuel at our pumps.

Crude oil was pumped from the ground in China over 2,000 years ago, used by native Indians as medicine and war paint, and first extracted from under the sea with drilling apparatus in 1955. Since then, the production and consumption of oil has risen to such a level that the main oil producing countries, governments, energy watchdogs and scientists are locked in a debate as to when oil production will peak, and subsequently, when it will run out.

There are two schools of thought. The first believes that a peak and decline are not far away, and warns that we are facing further economic problems and a lack of energy sources. In contrast, others argue that oil production will be sufficient to meet global demand well into the

21st century. They suppose that rising oil prices will stimulate exploration, discovery and the development of ‘non- conventional’ resources such as oil sands, which are abundant in Canada and Venezuela. This is proving correct as new exploration initiatives are underway.

The UK Energy Research Centre’s paper, ‘Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production’, states: “Most governments exhibit little concern about oil depletion, several oil companies have been publicly dismissive and the majority of energy analysts remain sceptical. But beginning in 2003, a combination of strong demand growth, rising prices, declining production in key regions and ominous warnings from market analysts

has increased concerns about oil security.” It continues that the global economic recession has brought oil prices down from their record high of July 2008 and warns that “there is a growing consensus that the age of cheap oil is coming to an end.”

Crude oil prices have risen dramatically over the years, from $15 per barrel in the mid-1980s to the high of $140 per barrel in July 2008. A barrel currently costs around $84 (£55). Increased prices have been driven by rising global demand from China and India, political instability, the war in Iraq, and a more assertive Russia.

Duty

Such developments are translated onto the forecourts of our filling stations because the marketplace forces of supply and demand directly determine the price of fuel. In addition, Alistair Darling’s fuel duty has seen a rise of one pence per litre (to be followed by another one pence rise in October and a further 0.76 pence in January 2011), and has increased the national average fuel price to 119 pence. Locally, this has risen to over 120 pence per litre (see graph).

Aodhan O’Donnell, Head of Transport at the Northern Ireland Consumer Council, criticised the rise, saying: “Fuel duty and tax account for almost 70 per cent of the cost of petrol and diesel. The Government is not helping consumers by increasing duty at this time.”

In response a Labour spokeswoman said: “Petrol prices have increased recently, that is why the Chancellor decided at the Budget not to go ahead with the full increase planned and to stagger it over a longer period.”

She highlighted Darling’s statement, where he said that staging the price increases “will ease the pressure on businesses and family incomes at a time when other prices are increasing. By the time the full rise comes in, at the beginning of next year, I am forecasting inflation to be back below 2 per cent.”

Exploration

New exploration programmes have begun in a bid to find more oil and gas. A small British company has begun drilling in the Falklands basin angering neighboring Argentina. And, in a move away from previous US energy policy, President Obama has allowed off-shore drilling for oil and gas in the Atlantic Ocean for the first time in 20 years in a bid to reduce US dependence on imports. Russia, which supplies approximately 12 per cent of the world’s oil, increased crude production in March to 10.12 million barrels a day. However, it now faces a threat from Poland, where oil companies are currently setting up rigs to extract the vast reserves of unconventional ‘shale gas’ which are trapped deep inside rock formations. As Poland currently imports 72 per cent of its gas, this development will weaken Russia’s grip on European energy supplies.

Conflict

It has long been recognised that oil is related to conflict. The Global Policy Forum (an independent UN policy watchdog) states: “Petroleum producing countries are plagued by corrupt[ion].

Foreign powers and their huge multinational oil companies often manoeuvre for control of the oil fields through clandestine operations or outright military intervention.”

Indeed, many major conflicts have been attributed in some way to oil, including Pearl Harbor, the Gulf War, the invasion of Iraq, and Russia’s war with Georgia.

The world’s oil is generally controlled by the Organisation of Petroleum Exporting Countries (OPEC), which includes the largest suppliers: Saudi Arabia, Kuwait, the United Arab Emirates, Iraq and Iran. The organisation was in the headlines in March for failing to create stricter output quotas in order to reserve what some commentators see as depleted oil reserves. Instead, suppliers were told to stick to their 2008 quotas of 24.845 million barrels per day because oil prices are at OPEC’s preferred price ($70-$80 per barrel) and they expect demand to recover this year.

Experts predict that the cost of fuel will continue to rise as the economy recovers, more oil exploration gets underway and government policy focuses on cutting carbon and substituting oil as the primary fuel source. This can already be seen in the Republic where the carbon tax has resulted in motorists having to pay almost five cents more per litre for fuel since last December.

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