Friday, 23 May 2008

Escape from big oil !

Retail petrol prices have just crashed through the $ 1.60 a litre barrier in Australia - and in the months ahead new record will be broken. Pundits talk of $ 2.00 a litre being reached by Christmas - and the chill thought of petrol being sold at $ 3 a litre sometime in the future is a recurring nightmare.

There is an inevitability about this scenario. The amount of oil still in the ground is finite - and the growing middle class economies of China and India - and their consumption of new motor vehicles - ensures that demand will continue to outstrip supply.

Unless we address this problem a huge surge in inflation is inevitable. There comes a point reached when the average citizen simply can not continue to put fuel in the car's tank to commute to work - and at the same time pay the house mortgage and put food on the table for his or her family.

That food price also spins out of control because farms run petrol using machinery - and the cost of processing and getting food to market is reliant on the petroleum industry.

We face economic disaster unless our government bites the bullet and makes some hard decisions now - and there is an answer to our captivity by big oil.

This country has huge reserves of natural gas that are measured in centuries. It would simply take a decision by the Federal government that - by command - our transport industry will run on gas in the future.

There has been a half hearted attempt to convert the existing car fleet to natural gas by way of subsidies. That requires renewal and a massive increase in capacity which will require subsidies from the huge budget surplus. In this instance, survival must take preference over slow strangulation at the hands of big oil.

The government must also grasp the nettle and make it compulsory for all new cars sold in this country to be gas powered. There will be howls from the motor industry, but that is the price manufacturers have to pay if they want to continue to trade in this market.

The government should also seize control of the supply of automotive gas and take it out of the hands of the oil giants. While ever the oil companies control gas they will sabotage supply to safeguard their own profits - which they will jealously guard until the last oil well runs dry.

From a practical point of view, the government will need to price automotive gas to the same tax level that applies to petrol, but that still leaves reasonable profit margins for extractors and the industry which will market it to motorists - and keep the retail price somewhere about $1 a litre.

The weakness in this scheme is heavy transport. Diesel comes from crude oil and it will take time for heavy transport to move to engines capable of running on natural gas, but once the economics become viable that will happen very quickly.

Is a gas powered nation a dream ? It all depends whether we have a government capable of taking the hard decisions and implementing them. The alternative is slow strangulation and galloping inflation. The ball is in the government's court !

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