17 Oct 08 Eddie's Blog Global

Price variability

In the middle of the international crisis that is engulfing the financial system, it seems slightly off the mark to talk about fossil fuel variability. However it still has to be talked about. We have seen oil go from $60 to $146 a barrel and back down to $87 in the space of a year.

This pattern will be repeated adnosium into the future so long as we persist with putting a major emphasis on fossils for our energy.

It is almost impossible to plan for the future when you don’t know the cost of one of your main inputs. Have a look at the devastation created in the airline industry due to its reliance on fuel costs.

Think about what it’s doing to the hundreds and thousands of SME businesses. These businesses are the mainstay of employment across the globe. They are not extremely profitable; they cannot afford to have Energy Future’s people predict the price of energy.

Their profitability depends on the day that they decide to buy their energy, not in the quality of the proposition that they offer their customers. It’s a shocking situation that can only be cured by the world moving away from dependence on fossils and by building renewable energy projects.

In a globally co-ordinated world, there is another possibility for a solution and that is the producing companies and the producing countries to work together to charge a fixed price, within a band, if you like.

In our previous blog, we pointed out that nobody gains from cheap oil. So if the world, particularly Saudi Arabia, the Gulf States, Russia and the big oil companies were to agree to keep the oil price at $125 a barrel then we might have one chance of dealing with this corrosive volatility. We know the world can cope with oil at $125 a barrel. The price could be maintained at this level.

This price would foster innovation into alternatives. It would drive us towards electricity to power our transport. It would supply the oil rich but struggling economies with guaranteed cash flow. Maybe most importantly, it would stop China and India copying us in the West and induce them to build a new future for their people using substantial power sources. 

It would also allow our SMEs, airlines etc. plan for the future instead of having to live in trepidation of the next day’s fuel prices.