Look you crazy people. Green thinkers, politicians, advocates, and crazies have been saying for decades that oil would one day become too expensive to base an economy on.
Even though this isn’t the mythical ‘peak oil’, we’re experiencing what a high-cost-oil-economy is like.
You can’t say you haven’t been warned. You’ve had DECADES to sort your shit out and find a low-oil alternative…
11 June, 2008 at 9:29 pm
Meh – We’ve still got cheaper petrol than Europe had when it was US$40 a barrel. So much for to expensive to run an economy on.
Not that any country does really ‘run’ a country on petroleum.
11 June, 2008 at 9:32 pm
Yeah, but I was on the phone when you told me way back then … and it was my Mum so I wasn’t listening.
11 June, 2008 at 10:18 pm
Saw a very interesting film during the Festival a couple of years ago about how Cuba had been forced to amend their economy and transport after the end of the Cold War meant no more subsidised oil from the USSR. There’s a lot to be learnt from that premature example of having to wrench a country away from its addiction to the stuff.
11 June, 2008 at 10:25 pm
Another thought: basically now’s the time to get in on the ground floor and buy shares in those that are likely to be providing the next generation of network and video-conferencing services. When it simply becomes too expensive to be flying back and forth between Wellington, Auckland, Christchurch etc, the demand for that high-quality video-conferencing capacity is going to shoot up. Video chats on skype are nice when you’re talking to a mate on the far side of the planet, but they’re still too flaky on NZ ‘broadband’ to cut it for work purposes most of the time.
12 June, 2008 at 6:56 am
you mean, other than those few countries that use fossil fuels to transport, say, all their products, foodstuffs, workers, consumers and military?
12 June, 2008 at 8:51 am
When it simply becomes too expensive to be flying back and forth between Wellington, Auckland, Christchurch etc
And when will this happen, exactly?
It has never been cheaper to undertake such flights. The fares are so low that I don’t hesitate to hop on a plane and fly to Auckland or Christchurch. The packed planes demonstrate many other people find it the same.
12 June, 2008 at 11:04 am
corporates don’t normally just jump on a plane, and will almost inevitably pay higher prices.
if fuel costs continue to soar, so could the price of kanohi te kanohi meeting.
(PS. welcome to object dart!)
12 June, 2008 at 7:48 pm
“From 1991 through 1999, jet fuel prices averaged 56 cents per gallon, and never exceeded 65 cents. The significance is not only the reasonable average price, but also its stability. It is against that backdrop that operational decisions and investments were made. Airline financial planners did anticipate higher fuel prices, but not to the extent and duration they have witnessed over the last few years. For most carriers fuel has now tied, or overtaken, labor as their largest expense.
Between 2003 and 2005, the average market price of jet fuel soared from $0.88 to $1.72 per gallon. In the period during and after Hurricanes Katrina and Rita, prices in the Gulf Coast spiked to $3.13. The outlook for 2006 is no better, with experts projecting an average in excess of $1.80. This forecast is especially critical at this time because airlines are increasingly exposed to fluctuating market prices as their fuel hedge positions deteriorate. This includes leading low-cost carriers, all of whom likely would have lost money in 2004 and 2005 had it not been for their hedges. On the other hand, at 2003 fuel prices, nearly every U.S. carrier would have recorded meaningful profits.
At today’s consumption rate, every penny increase in the price of a gallon of jet fuel drives an additional $195 million in annual industry operating expenses. In fact, from 2000 to 2005, the industry’s fuel tab doubled, from $16.4 billion to an estimated $33 billion, even though it consumed less thanks to increased fuel efficiency. That’s just staggering, and like any other tax, fee or cost increase, is virtually impossible to pass through to the consumer in this environment of limited pricing power.”
Testimony of the Chief Economist of the Air Transport Association of America in 2006.
Current average price of jet fuel in US dollars (from various markets where it is traded)? As at the time of writing this, US$3.82
More commentary, this time from Platts.com: “Frankly, we do not believe that the US airline industry can withstand $100+/barrel oil prices without major structural change,” analysts at Merrill Lynch Airline Research said.”
It seems that although airlines have made some gains in fuel efficiency from flying lighter planes (got rid of ovens, and even whole galleys) and tweaking flying practices and wingtip design, basically they’re massively exposed to the rise in oil prices because they haven’t hedged against it. Unless NZ airlines have bucked the industry trend to do this on a very significant level it’s likely they will face similar pressures to the US airlines.
The recent price increase announcements from Air New Zealand suggest this is not the case:
“The price of domestic airfares will rise by an average 4% as will international airfares sold in New Zealand, Australia and the Pacific Islands. Domestic and short haul international increases are effective from 16 June with long haul expected from 20 June.
“As a small, nimble operator we have the benefit of being able to quickly adjust schedules to maintain a cost effective operation that ensures capacity meets current demand in the markets we serve,” says Mr Fyfe.
“Relative to other airlines Air New Zealand is well positioned with superior product, a network primed for growth, a relatively young fleet and great people. However we are not immune to changes in demand and sky-rocketing fuel costs.”
US data (I haven’t found NZ data) indicates a clear upward trend in the cost of air travel. It’s now back above pre 9/11 prices.
Corporates may continue to pay increased prices for a while. But they also look after their bottom line, and when the cost/benefit ratio tips in favour of videoconferencing instead of travelling to meet in person, those who have invested in capacity and technology will be doing well.
Whether that outweighs the returns you could have got in the meantime on investing in air travel is another question, and one for analysts at places like Merrill Lynch.
Some people are apparently hoping that the price of oil will ‘inevitably’ come down. It may do, but the recent threats from Israel to attack Iran, and previous US statements that Bush did not intend to leave office with the situation in Iran ‘unresolved’ (to paraphrase), don’t suggest that this will be any time soon. Which begs the question of how fixed is the demand in the face of increased high prices?
(P.S. Che – what’s the code for quotes?)
12 June, 2008 at 8:13 pm
Sorry, should have finished that outpouring with ‘continuing high prices’ not ‘increased high prices’.
Difficult to proof a long comment in a little box!
12 June, 2008 at 9:39 pm
Not that any country does really ‘run’ a country on petroleum.
you mean, other than those few countries that use fossil fuels to transport, say, all their products, foodstuffs, workers, consumers and military?
Fossil fuels in general aren’t overly expensive – gas and coal haven’t spiked the way petroleum has. Also oil’s mostly a transport fuel which isn’t the entire economy just a component of it.
In any case your assertion that oil’s become too expensive to base an economy on seems to be proven wrong by the world’s continuing growth, particularly in the developing world which should be least able to afford something that’s too expensive.
corporates don’t normally just jump on a plane, and will almost inevitably pay higher prices.
if fuel costs continue to soar, so could the price of kanohi te kanohi meeting.
Umm… doesn’t the fact that most corporates buy expensive tickets mean an even smaller percentage of their tickets pays for fuel costs?
12 June, 2008 at 10:04 pm
well… that would be true if it was what i asserted. which i didn’t.
i merely alluded to the idea that the cost stresses some are experiencing is what a high-oil-cost economy is like, “theoretically” mind you.
13 June, 2008 at 4:03 pm
Heheh – even if companies are not be so worried about saving on the increased cost of travel, it seems government is:
From this secondment listing from the State Services Commission.