Oil Price Rises to Impact Transport Sector

The long-term growth in the transport sector will shortly become unsustainable due to oil price increases forecast to occur in the next few years. These are amongst the conclusions of an important report by energy analysts Douglas-Westwood. Oil price rises due to concerns over a possible war in the Middle East are, according to the report authors, nothing compared to what is ultimately in prospect. The World Oil Supply Report states that global oil reserves are being drawn down at an unprecedented rate and even assuming no growth in demand it is likely that that by 2010 oil supply will begin to be constrained by global production capacity and oil will permanently cease to be abundant. Supply and demand will be forced to balance – but at a price. Then, like during the oil shocks of the 1970’s, prices could double or treble within two or three years as the world changes from oil abundance to oil scarcity. And amongst the first to suffer will be the transport industry. “The transport industry is growing rapidly, in particular, vehicles that use refined oil products. As the limits of oil supply are reached this growth will become unsustainable and alternative fuel-efficient transport systems will be required. Although the automobile industry has begun to develop new fuel systems, – notably fuel cells – there will be real pressures to find replacements to gasoline/diesel-fuelled internal combustion engines possibly as early as 2005” says study author Dr Michael Smith. “Particularly threatened is the airline industry, as there are currently no commercial alternatives to jet fuel. It is therefore inevitable that the cost of air travel will rise considerably in future years, and as a result a large-scale reduction in the number of operating airlines and aircraft can be expected as passenger numbers decline.” Importance of Investment The report notes that a number of countries are already facing up to the prospect of energy supply shortfalls. Individual governments such as the UK’s are beginning major programmes to encourage renewables, and some of the large oil companies such as BP and Shell are also investing heavily in renewable energy. However, the report suggests that increased investment will be needed in all energy sources, from natural gas to nuclear power. “The need to develop regional alternatives to oil-powered air and automobile transport, and the advantages of electrified local rapid transit and regional rail networks will become obvious as oil prices increase,” added Dr Smith. “Governments need to be investing heavily in building, improving and renewing local and regional rail systems to offset future transport problems that will arise in the critical years. Direct investment in electrified rail travel could ultimately become very profitable for private companies.” “As oil production declines the shipping industry will also be affected, in particular companies concerned with building tankers and the transport of energy supplies across the oceans. There will be a large increase in demand for specialised LNG vessels. Oil tankers will continue to be in demand, albeit plying fewer routes, however when oil production capacity begins to decline a reduction in tanker numbers is inevitable.” Oil Production to Peak Soon Over the last century the developed world has depended on cheap oil supplies to fuel economic growth. Outside of periods of disruption caused by war and general political instability, oil supplies have been abundant, and they will continue to be so until global peak production capacity has been reached. When this peak will occur and how large it will be are factors critically important to regional and global economic growth. The overall conclusion of the extensive research carried out for this report, into all potential sources of oil, is that the world’s known and estimated ‘yet to find’ reserves cannot satisfy even the present level of production of some 74 million barrels per day beyond 2022. Any growth in global economic activity only serves to increase demand and bring forward the peak year.