A couple of days ago my latest purchase from Amazon, Resilient Cities by Peter Newman,Timothy Beatley and Heather Boyer, arrived. I’m only part way through it so far, but it certainly makes for an interesting read. Basically, the book looks at how cities should be altered to ensure they can best respond to Peak Oil and Climate Change over the next few decades – how they can become resilient to the significant changes that face us in the future. I have not quite got into the details of the solutions, but the problems are quite starkly outlined on page 32:

Climate change imperatives suggest reductions in greenhouse gases of at least 50 percent by 2050, from around 9GT of CO2 to around 4.5 GT of CO2 are needed worldwide.

Oil production is predicted to decline to approximately 15 billion barrels a year by 2050; a 50 percent reduction. Remarkably the two agenda of climate change and peak oil overlap precisely: 50 percent less by 2050.

One is demand driven, the other is supply driven. Either way, we have to find a way to reduce the need for these fuels. For oil, it will mean designing cities in which we drive 25 to 50 percent less. Trucking will carry 25 to 50 percent less freight and aviation will have even fewer planes. For our buildings it will mean 25 to 50 percent less fuel will be necessary for heating and cooling. Is this possible? What technologies will be needed to help make this happen? How will we rethink our cities to meet these goals?

In my opinion it is transportation that is the biggest challenge here. Most electricity in New Zealand is generated from renewables, and we certainly have the options – solar, wind, geothermal and tidal – to generate 100% of our electricity from renewables in the future. So that kind of covers the ‘buildings’ issue. Sure, we have Plug-in Hybrid Electric Vehicles (PHEVs) as a potential saviour in the future, but as this book states: “it will take 20 years to move a transport system into even a small proprtion of such vehicles and power systems.” What are we going to do in the meanwhile?

Leaving aside climate change for a bit, given the significance of the anticipated drop in oil production it’s interesting to have a little dig into what the government thinks of peak oil and how we might best respond to the challenges it presents. I guess the first step is to see what the government anticipates fuel prices to be over the next few years, as spiking fuel prices will be the most obvious and telling effect of peak oil and declining oil production. Helpfully, Treasury has included predictions of oil prices for the next few years in its Budget Economic and Fiscal Update. Page 10 of that document outlines shift in oil prices over the last few months – generally a recovery from the plunge that they took when the global economy turned to shit late last year:

Rudimentary signs of stability have also been evident in global markets. Share markets have recovered from their low point in early March and in some cases have recouped their 2009 losses, but remain well down on previous peaks. Commodity prices have also risen, with the Commodity Research Bureau futures index up 20% from its low in early March. West Texas Intermediate oil prices have increased from their low of US$34/barrel in February to just under US$60/barrel in early May and world prices for New Zealand’s major commodity exports rose in spot markets in March and April 2009. Financial markets have also shown some signs of stabilisation with a narrowing of spreads between interbank and effective policy rates, particularly in the US; safe-haven demand for US dollar-denominated assets has declined, and – combined with higher commodity prices – this has led to the appreciation of the New Zealand dollar from below US 50 cents in early March to above US 60 cents in early May.
Next stop is to have a look at page 36, which outlines the official Treasury prediction for oil prices over the next four years:
Oil prices – The average price of West Texas Intermediate (WTI) oil on a quarterly basis peaked at US$124/barrel in the June quarter of 2008 but had declined to US$43/barrel by the March 2009 quarter as demand fell with the slowing of the world economy. Based on the average futures prices for WTI oil in March 2009, it is assumed that the price of oil will gradually increase over time, reaching US$60/barrel by the end of 2010 and around US$68/barrel by the end of the forecast period. Over most of the forecast period the oil price assumption contained in the Budget Forecasts is approximately 20% below that assumed in the December Forecasts.
There’s even an interesting diagram included, which graphs Treasury’s expectations for oil prices over the next few years, which I’ve included here. A few things to note (or alternatively, laugh at) about this diagram. Firstly, the predicted oil price in this estimate is 20% below what was estimated in December 2008. This is despite oil prices in May 2009 being around $20 a barrel more than they were in December 2008. Secondly, the forecasts are amazingly smooth and predictable. Never mind the volatility that the graph shows as having clearly occured since 2005, clearly the future will be nice and smooth and predictable. Clearly, the fact that oil production peaked in 2005 but demand, once it recovers from the current recession, will continue to increase will have no effect on the volatility of oil prices over the next four years. Well to me this argument sounds not only implausible, but actually incredibly reckless – given the potential effects of peak oil. Thirdly, and perhaps most embarrassingly for Treasury, if I take a couple of seconds to check on current oil prices, I find that they’re sitting at around $US72 a barrel.

So according to Treasury, prices should increase slowly to reach around $US68 a barrel by 2013. But hold on, they’re currently $US4 a barrel more than that! In the middle of a recession! With demand significantly lower than it’s been for a number of years! As Homer Simpson would say: “D’oh”.

Keep in mind, this is New Zealand’s official prediction of oil prices over the next four years. This is the information that our response to peak oil will be officially based upon. This is the information that our transportation policies and their resilience to peak oil will be based upon (that explains a lot actually). This is pathetic. 

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  1. http://anz.theoildrum.com/node/5477
    >> Kjell Aleklett, a physicist from Uppsala University in Sweden, says Australia’s relatively underdeveloped public transport system leaves the country more vulnerable to a downturn in energy production. “Australia is very sensitive to such developments,” Professor Aleklett told the Herald. “Much of your industry and transit is dependent on oil, and supplies will decline.” <<

    What a fabulous moment to go build some (drum roll and lights please) "ROADS OF NATIONAL SIGNIFICANCE".

  2. Compared to Auckland, Australian cities have fantastic public transport systems. I imagine that would mean that we’re even more vulnerable.

  3. Australia relies heavily on long distance trucking, and the great majority of people in Australian cities drive everywhere.

    I also saw Australia become a lot larger as the price of oil rose. Suddenly Sydney wasn’t so close anymore, and people had to think hard about travel.

    I don’t think Australia is better insulated.

  4. Sydney and Melbourne have around the same population density as Auckland. Brisbane and Perth have significantly lower population densities than Auckland. However, all four cities have significantly better public transport systems than Auckland does – and significantly higher public transport patronage. So for intra-city travel I would say that Auckland is at least as vulnerable as the Australian cities, and perhaps more so.

    Regarding inter-city travel – yeah Australia’s so massive that they’re definitely more vulnerable. Perth’s going to become one hell of an isolated city if air travel becomes unaffordable to most.

    apl – I don’t think they do. Even the IEA is predicting peak oil within 5-6 years now. Not long ago they were saying oil wouldn’t peak for decades…. how things change huh?

  5. Two things, one small, one big

    Although I agree with your conclusion that treasury oil price estimates are unreliable, I don’t think you should discredit them on the basis that they don’t predict short-term volatility. Predicting the general trend is the aim.

    It seems to me that you rely quite heavily on “peak oil” to justify public transport investment. I don’t doubt that if/when peak oil comes then public transport is a big part of the solution but surely a case for public transport can be made without referring to peak oil or climate change. I think that some people (who control the money?) don’t give much weight to these arguments. For example: NZ doesn’t produce oil. It would be good for our balance of payments if we spent less on it. Public transport would allow us to do this without sacrificing people getting places. Have there been any studies that look at the ecomonic benefits of NZ spending less on oil?

  6. Interesting points Richard. I know that a significant proportion (around a quarter I think) of the money we spend on imports is on oil and cars. That’s a significant strain on the economy.

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