This month's briefing paper brings Saudi Arabian production and oil speculation into the spotlight. Click here for the PDF version.

Oil prices continue to maintain their record high levels, and consequently the New Zealand economy is likely to move into a recession, accompanied by high inflation.  In particular, the petro-chemical, airline and fishing industries are coming under increased pressure as a direct result of increasing oil prices.

An international summit between oil consuming and producing nations was hosted in Jeddah, Saudi Arabia on the weekend of the 21st June.  Oil consuming nations sought to convince Saudi Arabia to increase its oil supply.  No offers were forthcoming from oil consuming nations to reduce their demand.  The summit produced no practical outcomes as the proposed increase in output from Saudi Arabia had already been signalled previously.  We examine the Saudi Arabian oil supply situation in detail in this month’s edition of the Oil Production Briefing Paper.  We also examine claims that speculators are adding a premium to the price of oil.

By all means blame high fuel prices on OPEC,  geo-political uncertainty, gouging oil companies, speculators, the Government or anyone else if it makes you feel better.  But don’t overlook supply and demand.

Three years ago, when oil was $US56 a barrel, I wrote an article pointing out that over 50 countries were producing less oil than they did the previous year, and that oil producing nations had started to reach natural limits on the amount of oil they could extract out of the ground to meet rising demand from China and other emerging nations.

I concluded with a call for all levels of Government to prepare contingency plans in the event oil exceeded $100 a barrel.

This is an extract from a speech I gave last month to the Whenuapai Airport Action Group, pointing out the increased costs that were about to hit the airline industry. John Key and Mayor Andrew Williams were in attendance. Since giving this speech, fuel prices have increased even further and Air New Zealand has announced two successive fare increases totalling 6% - Ed

...It just amazes me that proponents of more airports or runways for the Auckland region fail to consider the impact of rising oil prices on the future demand for air travel.  Oil prices have quadrupled in US dollar terms or tripled in terms of the Euro in just four years.

Executive Summary

Market Summary

Oil prices across all grades remain at all time highs, despite conventional crude oil achieving record production rates.   Aviation fuel prices stand out in particular, with an increase in price of over 60% in a little over six months.

Oil supply from non-conventional sources such as biofuels and oil sands are not adding significantly to the supply deficit.

Production data from the American based Energy Information Administration (EIA) and the European based International Energy Agency (IEA) also shows that higher prices are not leading to any significant decrease in demand for oil.

Download the PDF version of this paper here.

by Todd Litman,  Victoria Transport Policy Institute, 17 September 2007 

Abstract 

Traffic congestion tends to maintain equilibrium. Congestion reaches a point at which it constrains further growth in peak-period trips. If road capacity increases, the number of peak-period trips also increases until congestion again limits further traffic growth. The additional travel is called "generated traffic." Generated traffic consists of diverted traffic (trips shifted in time, route and destination), and induced vehicle travel (shifts from other modes, longer trips and new vehicle trips). Research indicates that generated traffic often fills a significant portion of capacity added to congested urban road.

A US study finds that motorists can lose more time in delays due to road construction than they will save in years of driving on the newly "improved" road.

Executive Summary

Oil prices are currently at record highs.  Higher oil prices are often attributed to geo-political instability, refinery constraints, hurricanes, or any number of other reasons.  While these factors may affect short term prices, the main reason for the upward trend in oil prices in recent years is that demand is exceeding supply.
 
Since 2002, oil production has been increased by 13%, to current levels of almost 86m barrels per day.  But this increase in output has not kept oil prices low – in fact oil prices have increased four fold in US dollar terms over the same period. This runs counter to the free market economic model which suggests that lower prices should result when supply is increased, if demand is constant.  Clearly demand has been outstripping supply, forcing the price up.

Recent statistics indicate that global oil production appears to be flat or declining:

• Global production of conventional oil has been in decline since the maximum recorded output of just over 74m barrels per day set in May 2005.
• Global production of liquids from all sources, including oil tar sands, gas-to-liquids, coal-to-liquids and bio-fuels has been flat since the maximum output of 86m barrels per day set in July 2006.

Growing internal demand within oil producing nations also appears to be accelerating the worsening supply situation.

It remains to be seen if demand growth and falling export levels can be countered by new oil projects coming on stream, and from other fuels sourced from oil sands and bio-fuel technology for example.

Close monitoring of oil production and oil export figures is suggested.  In particular OPEC claims that they will bring 500,000 barrels per day of oil to the market later this year. Failure to achieve this would indicate a clear supply issue with the oil market, which will inevitably lead to higher oil prices for the foreseeable future, in the absence of any decrease in demand.

Download the PDF version of this paper here.

Christopher E Harris, PhD (Planning)

Two recent papers have described an ‘Americanisation’ of transport policy in Auckland, New Zealand, characterised by the successful advocacy of motorways at the expense of rail. Arrested development of rail transit in Auckland presents a striking contrast to Wellington, New Zealand, where suburban rail is as well developed relative to population as in Perth (WA). Wellington’s suburban rail was installed as part of a state-led development planning programme. By the late 1940s this template was intended for extension to Christchurch and to Auckland, then undergoing rapid growth. Following a change of government in 1949 development planning ceased and a state highway fund was established to fund urban motorways instead. The principal conclusion is that state support for development planning along transit corridors may be a prerequisite for successful urban transit development.

Al Gore has done a great job of popularising global warming.  His crystal clear presentation of the scientific consensus has helped swing world opinion to the belief that governments and individuals have a moral imperative to address greenhouse gases.

But what about another inconvenient truth – oil depletion? 

The fact that conventional crude oil production is in decline is now irrefutable. From production data from the International Energy Agency, global crude oil and condensate production has never exceeded 74.15 million barrels a day.  This happened in May 2005. 

Of the 98 oil producing countries in the world, 60 produce less and less oil each year.  North Sea oil production in the UK, for instance, peaked in 1999.

Campaign for Better Transport, 30th March 2007, PDF version available here.

The Campaign for Better Transport (CBT) would like to congratulate the Government for attempting to develop an energy strategy.

As the CBT is primarily focused on transport issues, we have chosen to concentrate our submission on this area.

We have arranged our submission into key headings. We have also included a commentary on some specific wording within the NZES document that we think should be reconsidered in the "Edit; Undo" section at the end of this document.

Finally we have answered selected questions from the “Have Your Say” sections of the strategy.

The latest installment of Mike Tritt's excellent video series is now available via YouTube.  The myth that sustainable transport is "uneconomic" is thoroughly debunked.

Mike Tritt is producing a series of very professional videos on Auckland's public transport woes.  This is essential viewing!

Why is this section of motorway in central Auckland turning green? Could it be a radical new plan to graze sheep in central Auckland? Or perhaps the beginnings of a new park, right in the heart of Spaghetti junction? A microlight landing strip even?

Read our submission on ARTA's Sustainable Transport Plan

A little over a year ago, when oil was $US56 a barrel, I wrote an article which concluded that New Zealand needed to diversify away from fossil fuels in order to survive and prosper.

One year on, and with oil now over $US70 per barrel, there has been no policy response at all from central Government. Projects that would reduce our dependency on imported fossil fuels, such as electrification of the rail network, are being passed over in favour of completing "missing" links of the motorway network. With the price of oil forecast to go much higher than the 25% increase we have had in the last year, many fossil fuel dependent projects simply will not be viable.

Our submission on ARTA's Land Transport Programme identifies some key weaknesses to be addressed.  The LTP sets out the work for the next financial year.

After years of neglect the rail service has had some long awaited investment. While most of this has been focused in rail stations and double tracking the western line there is no long term planning document. A good rail system can lure people out of their cars, because people see that rail travel is faster, cheaper, more convenient and more comfortable than driving.

During the debate about the forthcoming 5c per litre increase in petrol excise, a number of politicians and commentators have suggested deferring the increase until oil prices stabilise at lower levels. Yet no one has been able to offer a valid reason why prices should come down.

Integrated ticketing systems are a feature of public transport in cities in the developed world. Indeed, some countries such as the Netherlands and Switzerland have national integrated ticket systems. In the two countries with which New Zealand has the greatest cultural commonality — the UK and Australia — integrated ticket systems are well established in virtually all major cities. Those in London and Melbourne are particularly outstanding, but there are many other good examples, such as in Brisbane, and in Newcastle (UK).

The Auckland Business Forum [Herald, Thurday September 16] falls into the trap of defining a solution as the problem when they advocate that we urgently need to "complete the road network." Problems with Auckland transport need to be examined objectively first before a solution can be put forward.

Read our guide to the Government's plans to clean up our air. Diesel makes up 40% of the fuel consumed in the Auckand region.

Owen McShane is right to financially scrutinise the Campaign for Better Transport's "Airport Maxx" rail link proposal to Britomart - as all transport projects should be. However he misses a few important points and a number of broader economic factors need to be considered than just the cost of capital.

In a recent paper Christopher Sheil of the University of NS Wales talked about editors of the Australian Financial Review being "PPPed out". He went on to say that that it may be a deliberate strategy, by supporters of PPP, to make the topic so complicated and boring that raising public awareness of the implications of PPP will be an uphill struggle.

This paper is only a brief description of how new roads are financed and built now; what PPP (Public Private Partnership) is all about; the pros and cons of PPP; which current roading projects are candidates for PPPing and some proposals.

Rather than create an ad hoc national rail policy in the wake of Tranz Rail offloading its passenger services, the Government should create a long term policy that will serve the public well into the future.

In this article written back in 2000, Chris Harris outlines four fallacies that still hold true today