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The Newspapers

We are in the process of preparing four newspapers for June 2015, one for each scenario. Read the newspapers to better understand the scenarios and if you feel moved to become a reporter for us, that would be great! You will need to Login/Register to be a Reporter Read the Newspapers

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Scenario: News
Newspaper for 1st June 2015

Have we been here before? - high oil prices only a blip

Vincent Cable in an article in the Guardian on August 8, 2005 says we have and that the price of oil will fall.

We have been here before. At the peak of the 1979/80 oil shock, when prices reached $80 a barrel in today’s terms, a poll of forecasters showed a consensus expecting prices to rise indefinitely. The forecasts were underpinned by the belief that supplies were becoming exhausted or that the Opec cartel had limitless capacity to adjust supply to maximise revenue. Little account was taken of the supply and demand response which led to the collapse of prices within five years. The old adage of all commodity markets that high prices lead to low prices was forgotten. It is being forgotten again.

The Economist agrees that although high prices will continue into 2006, new supply and refining capacity will then come on stream and prices should fall.

. The unspoken assumption made by both these commentators, is that higher prices will lead to an increase in supply. It is stating the obvious, but we cannot indefinately keep increasing supply of a finit resource to meet demand. We have used about half the worlds supply or oil, the easy half, the rest will require significantly more energy to recover.

If this is to be a oil price blip, then either we need to increase supply or reduce demand growth. Here are the options:

Make significant finds soon of quality oil and gas that can be brought to market quickly. (Scenario: Business As Usual) This article: Oil Field Mega Projects 2004 (pdf) published in Petrolem Review shows confidence in supply to 2007 but a lack of recent discoveries to boost supply beyond 2007.

We all go on an efficiency drive and significantly reduce demand growth. There is still plenty of room for increased energy efficiency, not so much in how individual machines use energy, but at a business or process level. For example, consider the practise of having a centralised distribution system. If transport costs become very high, there is only so much to be gained by making your vehicles more fuel efficient, but there is a much bigger potential gain to be had by redesigning your distribution system. This idea is discussed further in the classic book Natural Capitalism. (Scenario: Enlightened Transition)

Collapse the world economy will leading to dramatic drop in demand and therefore price. (Scenario: Localisation)

Ration available oil to ensure enconomic stability and restore confidence in the market (Scenario: Fair Shares)

Of course there are other factors that might drop the price short term - reduction in taxes, confidence in the market. However a drop in prices leads to an increase in demand and the cycle starts again. Let’s hope this is a blip on the way back to low energy prices, but we need to prepare for this being a blip on the way to higher energy prices because there seems little hard evidence to support anything else.

Posted by on 08/10 at 10:14 PM

Your blog is realy very interesting.

Posted by Gaane on 09/18 at 12:14 AM