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What happens when the oil stops coming?
by Denis Welch & Matt Nippert
Global demand for oil is expected to outstrip supply within five years. And that is going to hit us all where we live – literally.
Swing north from Wellington, swing east at Paremata, follow the road around the bays, take a right up Spinnaker Drive from the Pauatahanui Inlet and there it is – Whitby, peaceful and prosperous on a sparkling morning in early spring. No slums, no industrial zone, no motorway roar. A rolling residential enclave rich with parks and greenery, contentedly middle class, it’s the kind of place that most of the world’s population can only dream of living in.
Even well-heeled New Zealanders have to queue to buy into it. “We can’t get enough houses,” says estate agent Bill Pretious. “We can’t develop land quickly enough to sell it,” says Whitby Sections sales and administration manager Anita Baker.
Established in the early 1970s, Whitby is one of New Zealand’s first planned suburbs – what used to be called a dormitory town. Now home to 10,000 people, it is completely residential except for one small shopping centre (not even a mall), and eerily reminiscent, in its manicured precision, of the The Truman Show or The Stepford Wives.
The effect is reinforced by the street names, most of which borrow from nautical terminology, and 18th-century terminology at that, reflecting the fact that Whitby (Yorkshire) was the birthplace of Captain James Cook. Discovery Drive, Bowsprit Way, Bosun Terrace … even Longitude Place, the Quarterdeck and the Companionway. The planners must have had a ball.
Hardly anyone works in Whitby. Nor is it a haven for retirees. This is a place to come home to; the jobs are elsewhere, in Wellington city or Lower Hutt. “A big percentage of the people in Whitby work in the Hutt Valley,” says Pretious, “so they go over Haywards Hill. It’s only 20 minutes away, 15-20 minutes away. And the other half go the other way, into town.”
Baker echoes that, saying, “We’re 20 minutes to town, 20 minutes to the Hutt, 20 minutes to the [Kapiti] Coast.”
Exactly. Twenty minutes … by car. Not bus or train or bike or Shanks’s pony. The entire existence of Whitby is predicated on the private car. Most households have at least two of them. There are buses, “but most people drive,” agrees Pretious. “It’s built for the car.”
Imagine, then, a world where you can’t depend on the car any more: what would happen to Whitby? “That’s a good question!” says Pretious with a slightly nervous laugh. “We’d probably get boats and take the boat round to Porirua …”
It may not be such a far-fetched scenario. Either that, or a massive transformation of public transport options – otherwise Whitby could be looking down the barrel (an empty oil-barrel) of decline and decay.
Two years ago, in a cover story on the impending oil crisis, the Listener quoted BERL economist Ganesh Nana as saying that world oil prices would need to average up to $50 a barrel over the next decade to force lasting changes in New Zealanders’ love affair with the car. BERL was picking, then, that the price would be around $45-50 a barrel for the next two years. Reality check: it is now around $70, after hitting $78 a few weeks ago.
Are we awake yet? The dramatic price increases expected to come with peak oil may already be upon us, says David Strahan, author of The Last Oil Shock. “We’re now nudging the inflation-adjusted all-time high,” he says. And oil analysts are predicting worse to come. Goldman Sachs earlier this year said it expected oil to hit $95 a barrel by the end of 2008, while the Canadian Imperial Bank of Commerce topped that estimate by picking $100.
The peak of production itself may not be long in coming. In mid-July the International Energy Agency (IEA) released a report noting that oil production had stagnated and, in many regions, declined. Meanwhile, demand for liquefied fossil fuels, led by the booming economies of China and India, is growing.
While careful to avoid endorsing outright the idea of a “peak”, the IEA report says oil production has now “reached an effective plateau”, adding that by 2012 demand is expected to exceed supply, which will lead to shortages and further price rises, with widespread effects on trade, transport, work and housing.
Say again? Demand is expected to exceed supply by 2012? That’s less than five years away. And although New Zealanders have been cushioned by the high Kiwi dollar of recent times, which by keeping our petrol prices relatively low (the fourth-lowest in the OECD) has perhaps fostered the illusion that we’re not so badly off, prices are rising again as the Kiwi dollar falls.
The bottom line is that, adjusted for inflation, the price of crude oil in US dollars is now at levels unseen since the second oil shock in 1979, when here in New Zealand the then Energy Minister, Bill Birch, introduced carless days in an effort to wean the country off petrol.
And during that oil shock, says Bob Hargreaves, professor in property studies at Massey University, Whitby suffered. The rise in petrol prices, combined with the inconvenience of carless days, led to a decline in property prices. Or, as Hargreaves bluntly puts it, “The market suddenly said ‘Hey! It’s not that great to be commuting.’”
If carless days or some form of petrol rationing are coming soon, then it will make serious economic sense not to live too far from where you work.
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