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Don't moan about rising fuel prices - oil is a bargain

A FEW MONTHS AGO I was speaking to a senior Scottish businessman who had been, for a time, the chairman of a whisky distillery business. 

 

When he was appointed, he had asked if they bad a secure supply of all their key ingredients such as spring water, malt, barley, yeast and oak barrels and was told that they did. The only thing that didn't come from renewable sources was peat - the burning of which added an attractive smoky flavour to the whisky - but he was assured that, at current usage rates, there was at least 700 years supply. 

 

His reaction surprised the distillery manager - he suggested that it might be a sensible move for the distillery to set about ensuring that the conditions for the production of fresh peat be created, so that there was another supply when the current stocks ran out in 700 years. And of course he was quite right, it was the prudent thing to do. 

 

A similar question could be asked about crude oil, which is somewhat more important to the global economy than peat. But oil has not just taken several hundreds, but several millions of years to be created, and nobody is seriously suggesting that we set about creating the conditions to ensure that fresh supplies of oil are available to take over when current stocks run out. 

 

We are using a depreciating asset - every barrel of oil burnt today has been taken from under the ground and cannot be replaced. As a result, every single day the world's reserves of oil are reduced by 87 million barrels. 

 

There has been so much squealing lately that oil is far too expensive but, on this basis, oil is not expensive - it is actually still absurdly cheap. Even at today's so-called 'crippling' prices, petrol is still much cheaper than beer, or even bottled water. 

 

As Chris Rapley, the Director of the Science Museum, said at the lecture where he was awarded this year's Edinburgh Medal, every single barrel of oil is capable of doing the equivalent work of 35,000 hard-working people for one hour. As he pointed out, this is fantastically efficient - where else would you get folks to work flat-out for an hour for 3 or 4 cents? 

 

And the low price of oil has meant that, by comparison, alternative energy methods remain fundamentally uncompetitive, which is why so few renewable energy projects have been commercially developed so far - they just can't match the 'bang for the buck' provided by cheap oil. 

 

In addition, all this dependency that we have built up importing oil from politically unstable and socially oppressive Middle East countries has created a huge security threat and means that we can't properly challenge the undemocratic regimes in Saudia Arabia or Iran, or the corruption in Russia and Nigeria, because we desperately need their 'black gold'. 

 

The world is developing complex carbon trading systems in order to try to throttle back the consumption of fossil fuels but here in the real world - with global economies competing like crazy and ruled by short-term political leaders who cave in at the first sign of political protest nothing will really work until fossil fuels are priced more realistically. 

 

So we shouldn't panic every time oil gets more expensive - we should try as hard as we can to grin and bear it, and to reconfigure our economy to recognise that 'cheap oil' should be a thing of the past. 

 

It will be better for us all in the long term .• 

 

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