It has been a depressing last while for public transport advocates like myself. The government’s stone-age attitude to transport funding, further delays for rail electrification (at least the funding for the electric trains) and the inevitability of having $1.4 billion wasted on the Waterview Connection make it easy to get depressed about whether we are heading at all in the right direction when it comes to transportation – or whether all the optimism of the last few years (that Auckland might actually eventually have a half-decent public transport system) was misguided. Clearly we’re not really heading in the right direction at the moment, and it’s going to take something pretty huge to get Steven Joyce and the National Party to realise that it’s stupid to keep building more and more roads, especially in a fairly large city like Auckland.

What that “big thing” will inevitably have to be is another oil spike, like what we saw in the middle of last year. It might make sense to sink $1.4 billion into a 4.5 kilometre road when petrol’s $1.60 a litre, but that might be quite different at $3 a litre. Of course, if I knew when petrol would reach that price I would be making my money as a oil trader rather than as a Planning Consultant, but there have been some interesting trends lately in the price of oil that have pretty much slipped by without notice. As most of us know, oil prices peaked in July last year at around $US147 a barrel – which translated into a price of around $2.20 a litre in New Zealand. From July until September the prices remained pretty steadily high, before totally crashing thanks to the global financial collapse. There are a number of factors that contributed to the collapse in oil prices: a reduction in demand for oil, a strengthnening of the US dollar, the popping of a speculative bubble and so forth.

So oil prices subsequently collapsed, reaching a low of around $US40 a barrel in January this year. Since that time prices have been pretty steady at around $US50 a barrel, although over time slowly creeping up. However, in the last month there have been the first signs of an economic recovery out of the USA, and oil prices (which many commentators suggest will be one of the earliest indicators of a recovering global economy) have leapt up, as shown in the graph below:

oil1This graph shows that over the last month oil has increased in price by $US16 a barrel – from $US50 up to $US66. Of course that’s still not even half the price of where we were last July, but it is still a pretty big increase from the lows in January. This lends weight to my opinion that the biggest reason for falling oil prices in the last few months of 2008 was simply a reduction in demand for oil, that itself was caused by the global recession. Since 2005 oil supply has barely been able to keep up with demand, and the 2008 oil spike was a sure sign that supply could actually no longer meet demand: otherwise it certainly would have been increased at such profitable prices. As the global economy starts to recover demand will increase and therefore prices will increase once again: it’s only really a question of how dramatically this process will happen.

So let’s say that by the end of this year the worst has passed with regards to this recession. What can we expect oil prices to be at by the end of the year? Considering they’ve risen $US16 a barrel in the last month on the merest possibility that things are starting to improve, I guess it’s not out of this world to think that we might be somewhere up near the $US100 a barrel mark again. Another interesting factor will be the exchange rate between the New Zealand dollar and the US dollar. I doubt we’ll be touching the 80c mark that we did last year, which means that $US100 a barrel oil prices will probably mean $2 a litre petrol prices in New Zealand.

This is the elephant in the room I think, that is being ignored by Steven Joyce and his cronies. Peak oil is “the issue” for transport over the next decade or two, and yet it simply gets no mention whatsoever in policy documents relating to transportation. There’s a belief that roads will drive economic growth, without realising that roads are hopeless if we can barely afford to pay for fuel to drive the cars and trucks that use the roads. Current government transport policy is encouraging auto-dependency, which in turn encourages oil dependency. Electric cars and the like are decades away from being affordable to the masses – so the government is basically setting us up to be screwed by future oil spikes over the next 5-10 years.

Pretty crazy if you ask me.

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  1. That’s $66 in the midst of a pretty strong recession. That tells you something about the fundamentals of oil. Even at that price I think it’s significantly undervalued, and wouldn’t be surprised if it was near $100 again by the end of the year.

  2. I don’t see the Waterview Connection as inevitable. There’ll be one election before it starts and another before it ends, even if they run to time.

    A rearguard action could delay it by a couple of years, after the fashion of the M11 link road, Newbury bypass and Manchester Airport protests.

    If it’s delayed and over-budget enough, a future government might scrap it, especially if nobody can afford to drive by then.

  3. Good point Rich. The government is making it pretty damn hard to delay the project though – perhaps they realise it will become less viable as time goes on?

  4. I don’t drive a car, partly because Wellington, where I live, has quite good public transport. How much impact will petrol at $2 have on kost motorists, and will it change their habits? On the same issue, when petrol prices did go up a lot in 2008, they hiked the fares of public transport in Wellington, using the petrol price increase as justification, saying it had increased the costs of providing buses and trains. I’m slightly cynical of this justification, but if true, it means were screwed regardless of if we invest in roads or public transport.

    Regarding Waterview, it’s a lost cause, and its far better to fight for something positive (i.e. electrification, CBD loop, integrated ticketing) than against every new road project that comes up.

    Slightly of topic, mind if I ask when construction on electrification of Auckland’s rail network will start, and end? I hope its done soon, especially given the trend towards public transport, both in NZ and the western world.

  5. Electrification – construction of the “wires” and associated works should start in the next few months. As for the actual trains, ask Steven Joyce as he’s probably the only person in the country who knows. Or perhaps he doesn’t even know….

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