Friday, October 12, 2007

Should we worry about oil?

With oil hovering on the wrong side of $80 a barrel lately, maybe it's time to plan for a different energy future to the 'business-as-usual' one we have all gotten used to.

In its forecast for 2008, the Central Bank of Ireland assumes an average oil price of $71.80 a barrel next year: almost 15% below its recent highs. What if they are (seriously) wrong? What if the price of oil moves towards $100 a barrel as some pundits have recently forecast? We will be faced with a very different economic outlook, and consumers will be paying out a lot more for personal transportation (and electricity and gas to light and heat their home) than they have done so far this year.

I have worked on a number of studies and analyses before in relation to Ireland's vulnerability to an oil shock. The message is clear: part of the success of the Celtic Tiger over the past decade has been the extraordinarily low prices of oil and gas historically speaking - which in turn have fuelled economic growth and our trade-led success.

We cannot and should not assume that we will see a return to such low prices again, nor that the future will see only modest increases in energy prices beyond their current levels (as the Central Bank does). There are lots of smart people and smart companies in Ireland and abroad working on innovative new ways to get more from the energy we consume as well as to find new sources of energy.

Let's hope they succeed before we have to make some very hard decisions as individuals and as a nation.

1 comment:

  1. What I've found extremely interesting to observe is the unforeseen consequences of oil alternatives. Biofuels are suddenly contributing to the rise in food prices. Granted the primary cause for the rise at the moment is the demand from China and India for diary products, but suddenly as biofuels catch on in popularity they'll really impact food prices.

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