Is fuel too costly?

The price of a barrel of crude oil is hovering around the 130 dollar mark and people in the industry are already warning of 200-dollar barrels. Even three-years ago such figures would have seemed impossible – just as impossible in fact as the average American driver paying almost four dollars for a gallon of gasoline! These nightmare scenarios have been played out before and many authors have made millions from predicting doomsday scenarios. But is the high price of crude really that bad?

The fact is that through the last century and a half of oil exploration, refining and useage, costs of the sweet stuff have not varied by much, if you factored in inflation. There were the occasional hiccoughs predicated by political manoeuvring, but mostly adequate reserves and known processing costs ensured stability. What has changed the equation now? It isn’t as if the reserves have dropped substantially – instead look at what’s driving demand. The world’s prosperity for one – or more particularly that of the often misjudged third world. As the economies of India, Brazil and China heat up, they are looking for energy and that is stoking demand. Besides, with their new found wealth, the countries are ready to pay for it.

Then there is the realisation that the cost of energy has to reach real-life levels. There is no panacea as far as crude goes. We will have to wait for a few million years for the next fill and we will literally be part of that. Hopefully, much of the carbon we have pumped into the atmosphere will also sink down. And like everything else, once we get used to the higher price, no one is going allow it to go back to the old days.

Is there positive side to this mess? Yes there is. Especially for the industries that have been espousing greener solutions over the years, like wind, wave, tidal and solar power and all the other products and services that were too costly to use in the era of cheap fuel. We would expect more solar panels to be installed despite the low efficiency they have – just because it is now more affordable. Hybrid cars, with their dual propulsion and hence costlier systems will now be in fashion. And more money will be available for research into alternative energy sources and applications.

Additionally, high prices will ensure that companies will invest in developing new fields and optimise existing resources.

The high cost of crude will not stop people using it overnight, but will certainly add a nail to the coffin and will allow us to look out and see that there is life beyond fossil fuels. It is not going to happen soon, maybe not in our lifetimes, but one day mankind should be free of worrying about the consequences of what is coming out of the tailpipe as well.

The next time you fill up at the pump, just be happy that you aren’t facing the full brunt of the real cost of fuel.

This blog first appeared as the Letter from the Editor in our June 2008 issue

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