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Petrol Prices are Falling, But Will We Always Be Paying Too Much for Oil?

24/04/2013 13:10 BST | Updated 24/06/2013 10:12 BST

This month UK motorists have been celebrating a 4p reduction in the price of a litre of petrol. The news brought some relief to businesses and consumers dealing with the economics of rapidly escalating fuel costs. In February, petrol experienced its third 8p to 10p-a-litre increase in 12 months.

The price of filling-up was not quite as steep as the all time record-high of March 2012, but it came at the worst possible time: right in the middle of a long, cold winter.

There is a widespread sense of injustice about the price we're paying for our fuel. Each increase is met with outrage and often organised opposition, while a furore greets any energy company announcing profits.

What people want is simple enough - to pay less at the pumps - but in practice, and despite George Osbourne's suspension of a 3p increase in fuel duty in this year's budget, that is probably beyond the ability of anyone to deliver.

The price of oil has quadrupled over the past decade from $25 per barrel in 2002 to $110 in 2012. All the forecasts predict that it will continue rise. That is not surprising because our entire industrial and agricultural system relies upon a constant supply of oil. Currently we burn through 90 million barrels per day (mb/d).

Over the long term it is difficult to see how demand will slacken. In 2030 there will be 9 billion people in the world, rather than today's 7 billion, and many more living high-consumption lifestyles. As such, demand for oil is conservatively predicted to be at least 25 per cent higher.

Nor should we forget that there isn't an infinite supply of oil. It is by its nature non-renewable: a 'use-once' source of energy. So even if we are finding more creative ways to extract what's left one day we are going to run out. It's impossible to know for sure how much oil remains and we won't know for certain until we reach a point where we can't extract enough to satisfy demand.

'Peak Oil' is the term used to describe that point: when the maximum rate of global petroleum extraction is reached, after which the rate of production enters into terminal decline. The idea of peak oil is based on observations of production from existing oil wells and fields combined with estimates about the likelihood and size of undiscovered reserves.

The Day of Peak Oil itself is impossible to estimate, because the world's reserves of oil remain hidden from us. We may have already hit peak oil. The International Energy Agency believes that 2006 was the peak year of production for conventional crude oil, and even the most optimistic estimate forecasts that production will decline after 2020.

Environmentalists reading might be inclined to cheer. Their argument is that market forces will push consumers to make better decisions about energy use and conservation, and create an opportunity for alternative fuels. That is almost certainly true, but ignores the fact that the high price of fuel is not simply due to demand, but moreover to the rapidly rising cost of extracting whatever is left.

Whichever projection is correct, it is highly unlikely that we will ever be able to increase production much beyond 90 mb/d; a lot less than we are predicted to need. So while it is inevitable that oil will run out, long before then, it will have become prohibitively expensive.

We can but imagine the impact that will have on economic growth. The current price of oil is having a hugely negative impact on the global recovery.

The irony is that there is no economic or techological reason for our continued reliance on petroleum. Alternative liquid fuels do exist today. Methanol is one such viable alternative, offering convenience and efficient energy storage on a large scale over without any of the shortcomings of biodiesel, hydrogen or battery power.

So what's stopping us?

There is a widely held misconception, among politicians and the general public alike, that addressing this problem is exclusively the domain of science and engineering. That is simply not true. Technological solutions largely exist today. There is no major breakthrough waiting to happen, nor is one necessarily required.

The key obstacles to achieving energy sustainability are not technical and scientific, but in fact the political and public understanding of the issue. 

Historically, energy transitions take 35-50 years to happen. There's no reason to believe that the move we must make to a post-carbon economy is going to be any quicker, and a great deal to suggest that it will take much longer. Making the kind of decisions that will enable us to do that takes brave politicians with the vision to see a pay-off down the line, unblinded by the short-termism that blights all our current crop of political leaders. Certainly there is no sign of anyone making them.

It is an incontrovertible fact that at some point in the future, we are going to need an alternative to oil - and to coal and gas - to power our homes and industries and to fuel our trains, planes and automobiles.

Surely it makes sense to do so, while there's enough fossil fuel left to allow us to do so?

Project Sunshine: How The Sun Can Help Science to Fuel and Feed The World by Steve McKevitt and Tony Ryan is published by Icon Books, priced £16.99.

If you enjoyed this article, you'll probably likeEverything Now, also written by Steve McKevitt and published by Route Publishing, priced £8.99.

If you're not sure, you can always download the podcast first A Drink with Steve McKevitt it's free as well