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Parliamentary Report Warns Of New Oil Shock Looming

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Fuseworks Media
Fuseworks Media

Wellington, Oct 13 NZPA - Decades of economic turmoil and recessions face the world as oil supplies run low and energy prices surge, says a parliamentary researcher.

Parliamentary Library economics and industry research analyst Clint Smith has set out in his paper, The Next Oil Shock, evidence that the New Zealand economy -- and those of other developed and developing nations -- will be exposed to supply crunches and price spikes.

Though known oil reserves will last another 25 to 32 years, low-cost reserves are being rapidly exhausted, and an oil "supply crunch" could start in 2012 or shortly afterward as demand rises and supplies fail to keep pace.

"World oil production capacity will not grow or fall for the next five years, while demand will continue to rise," said Mr Smith.

"While the world will not run out of oil reserves for decades to come, it cannot indefinitely continue to produce oil at an increasing rate from the remaining reserves.

"There is a risk that the world economy may be at the start of a cycle of supply crunches leading to price spikes and recessions, followed by recoveries leading to supply crunches."

New Zealand was heavily dependent on oil imports and would remain so for the forseeable future, he said.

"Key export-generating industries in the New Zealand economy, including tourism and timber, dairy and meat exports are very vulnerable to oil shocks because of their reliance on affordable international transport."

While there was potential to substantially increase domestic production, this domestic production could not insulate the nation from global oil price shocks, because New Zealanders paid the world price for oil.

The present world demand for oil of 86 million barrels a day was predicted to rise to more than 87 million barrels per day next year and continue to increase.

Conservation organisation WWF today called for the Government to rethink its "do nothing" approach to future oil prices as outlined in its draft energy strategy, published in July. The Government said then: "Ultimately uptake of new energy sources and technologies will depend on the decisions made by consumers as they respond to oil prices."

A climate change campaigner at WWF-New Zealand, Peter Hardstaff, said the Government was redrafting its energy strategy and needed to take heed of the research.

"There is still time to put a plan in place that can help New Zealand transition towards being a more sustainable, less oil-dependent country," he said.

WWF called on the Government to develop a coherent strategy that includes investment in more sustainable transport options and the development of home-grown biofuels.

Opinion polling in August showed the majority of New Zealanders wanted investment in more sustainable transport options such as buses and trains to prepare for oil price increases, Mr Hardstaff said.

Green Party co-leader Russel Norman said the report showed that the Government's $11 billion road-building programme was "shortsighted and irresponsible".

He said the Government should focus on investing in rail, buses, walking and cycling.

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