THE OIL CRUNCH

The publication a report called ''The Oil Crunch - a wake up call for the UK economy'' (on 10th February 2010) has warned that we will all face a serious rise in the cost of heating, transport, food and other goods, the hard-hitting report can be said to have largely slipped by under the radar. The report was researched by the Industry Taskforce for Peak Oil and Energy Security, which rather than consisting of the usual Green suspects, is actually a group of British companies members including Sir Richard, Brian Souter, chief executive of Stagecoach, Scottish and Southern Energy boss Ian Marchant and Philip Dilley, chairman of consultancy firm Arup.

The report which pulls no punches has said that Government must recognise the risks to the economy and produce contingency plans for transport, retail, agriculture and alternative power. It suggests that the challenges facing the UK will far exceed those currently presented by the financial crisis and that the poorest in society will be the most vulnerable to potentially significant increases in fuel costs.

There are further dire warnings that unless the Government gets its act together on alternative energy then there is the distinct possibility that during the term of the next government that fuel price unrest could lead to real shortages in consumer products and compromise the UK's energy security.

While not specifically dealing with the issue of climate change, the report stresses the significant overlap between the issues of pollution and depleted resources. The vulnerability of transportation to rising oil prices, with small and large businesses ranging from supermarkets to manufacturers being reliant on fossil (oil) fuel based delivery networks, is also highlighted.

The report calls for more research and development of alternative methods of powering vehicles and the electrification of the railway network. Surprisingly, the report has also called for an end to the £9 billion tax break on fuel for domestic airlines and suggests that the money for public transport investment, and that more efforts should be put into encouraging less car travel.

Basically the UK's freight network, its cars and its public transport systems are almost entirely dependent on oil, which when you factor in the threat of the oil price rises (known as the Oil crunch) and factor in climate change, make the way the UK operates unsustainable. The report warns that economic growth could be endangered with rapid price rises raising the costs of raw materials and reducing consumers' spending power as they fork out more on energy and transport costs.

The report notes that there could be a social recession which will hit the poorest households hardest, and calls for the UK Government to make serious provision for the effects of a rise in food prices, which may be triggered by increases in farming costs as agriculture in the UK is far too reliant on oil-related products like fertilisers the costs of which will also rise along with oil prices.

What makes this report timely is that we have already seen warnings from Ofgem – the Energy Watchdog, which has publicly warned that electricity and gas may become unaffordable for an increasing number of households unless drastic action is taken to secure power supplies. In recent years Oil prices have been particularly unstable with peaks of $147 a barrel in July 2008 before falls to $32 a barrel that December 2008 as the worldwide financial crisis and the economic downturn hit home. Oil prices rose again towards the end of last year reaching some $70 to $80 a barrel.

Oil Prices have stayed relatively static in recent months as worldwide economies continue to struggle. It is grimly ironic that the effects of the worldwide economic crisis may have bought us some more time (2 years), as they have pushed back the ''oil crunch'' point – which is when worldwide demand will use up stocks faster than they can be replaced by new production – the question is will the UK Governments and business use this precious time to work out how to solve the problem or not?

The UK is seen as being vulnerable to energy price rises, as it is so dependent upon imported energy supplies, something that is made worse because many of the areas where oil and gas are imported from are politically unstable. Now oil prices are, once the world economy comes out of recession, still predicted to climb to a sustained level above $100 a barrel within the next five years, which is good news for Mr Putin, the Iranians and the Saudi’s but bad news for Mr Brown’s successor whoever they may be and bad news for the rest of us.

Developing sustainable secure renewable energy supplies is the only serious answer to this problem, that and curbing our dangerous addiction to oil fueled air travel and road haulage – which brings us back to a radical idea of investing in our railways and electrifying of our railways and getting freight of our roads and onto our railways. Another question to ask is how serious will any incoming Government be towards investing in and developing our railways?