[Peakoil] Fwd: Gittins in yesterday's SMH

[Alex P]

Thanks to Jenny for finding this

Alex
O4O4873828

ACT Peak Oil discussion list
http://act-peakoil.org


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What goes up will keep it up
September 28, 2005


  a.. Fuel prices will keep rising as the world's two biggest sleepers 
awake 
to a new era, writes Ross Gittins.
IF YOU'RE upset by the high petrol prices of recent days, you ain't seen 
nothin' yet. Prices are set to stay high and go a lot higher in the coming 
years - with regular spikes as hurricanes and other supply disruptions come 
and go. Just how high prices will rise is anyone's guess.

Petrol prices are just a symptom of something much bigger: the arrival of 
the industrial revolution - the same one that began in Europe in the early 
1800s - in Asia.

We've seen poor Asian countries, such as Japan, South Korea, Taiwan, Hong 
Kong and Singapore, transform themselves into rich countries, but now 
they're being joined by China and India.

What makes those two countries special is that they're the biggest in the 
world, with populations of 1.3 billion and 1.1 billion representing no less 
than 37 per cent of the world's population.

China's economy has been growing at the rate of 9 per cent a year for a 
quarter of a century, which means it's been doubling in size every eight 
years. India's growth hasn't been quite as fast and began only at the start 
of the '90s.

When countries go down the path of rapid industrialisation, they chew up 
huge quantities of natural resources and energy. At first this is about 
building transport, power and other infrastructure, factories and offices. 
Before long it's also about supplying the appliances, cars and better 
housing demanded by increasingly affluent consumers.
To some extent the industrialising countries supply their own energy and 
natural resources, but to a large extent they have to import them. Their 
economies become huge importers of rural and mineral commodities and huge 
exporters of manufactured goods.

Our own federal Treasury has been making projections on the assumption that 
China's industrialisation will continue to the point where its population's 
material standard of living has reached 70 per cent of developed-country 
living standards by 2050.

Do you see what this means? The world's rich countries - accounting for 
just 15 per cent of global population - have long been consuming a vastly 
disproportionate share of the world's energy and other natural resources. 
But now about 40 per cent of the world's population is in the process of 
changing their status from poor to rich and, in the process, hugely 
increasing their per-head consumption of energy and resources.

When you think about all the use of non-renewable resources, all the 
pollution, all the waste matter, all the greenhouse gas emissions this will 
entail, you have to wonder how the globe's natural environment will stand 
the strain.

Is it physically possible for 55 per cent of the world's population to 
enjoy the present Western standard of living?

But before you get your brain around that mind-boggler, you're faced by a 
more prosaic realisation: we - the rich people of the world - are going to 
have to share the world's limited resources with a higher proportion of the 
world's population.

Now, you may think it will be many years before the average Indian is as 
affluent as the average Australian. True. But the events of the past few 
years demonstrate that the pressure on the prices of energy and other 
resources has started to build already.

It's worth noting that, unlike most rich countries, Australia stands to be 
a beneficiary from this process. Sure, our motorists and road transport 
industry will suffer along with those in other countries. But Australia 
happens to be a major exporter of minerals and energy. We may be a net 
importer of oil, but we're a big and growing exporter of natural gas and a 
huge exporter of coal.

Remember that the reason the Federal Government's coffers are overflowing 
at present isn't a windfall gain from the various taxes on petrol - that's 
largely a delusion - but the huge company tax collections from our booming 
mining companies.

Even so, the future looks far from golden for our motorists. What should we 
be doing to ease the pain of rising petrol prices? Well, this is where the 
economic rationalists have it right: we should let the market price of 
petrol (including the taxes built into it) go where it will.

If only more Australians had a better grasp on the laws of supply and 
demand, they'd understand the paradox that the rising price of petrol (and, 
of course, oil) offers the best prospect of preventing, delaying or 
limiting further price rises.

The market price rises whenever demand grows faster than supply. That's 
exactly the problem at present, thanks to the extra demand from China. (And 
when supply is at full stretch, the market price will bounce around in 
response to temporary disruptions, such as hurricanes in the Gulf of 
Mexico.)

But a rise in the market price acts as a signal both to sellers on the 
supply side and buyers on the demand side.

The signal to sellers is: at this price, selling oil is highly profitable 
so find more of the stuff. In other words, it acts as an incentive to 
prospect for oil reserves and expand refining capacity. It makes previously 
uneconomic reserves profitable. It also encourages people to bring forward, 
or discover, petrol substitutes (such as ethanol) and invent ways of 
improving fuel efficiency.

The signal to buyers is: at this price, petrol is hugely expensive, so find 
ways to economise in its use and search for cheaper substitutes.

Already we're seeing signs that motorists are responding to this "price 
signal". Sales of new small cars are up, while sales of gas-guzzling 
four-wheel-drives are down. Passenger numbers on Sydney buses are up. Sales 
of petrol are down.

Once governments accept that the upward pressure on petrol prices is 
long-term, there's much they could be doing to switch from building more 
expressways to improving public transport, and to shift long-distance 
freight from road to rail by straightening rail tracks and charging trucks 
the true cost of the road damage they do.

Barring the possibility that internal political developments derail China 
and India from their path of industrialisation, it's only the things the 
West might do in response to rising oil and petrol prices that could defeat 
my prediction that those prices will go on rising for decades.