Cameron Pitches asks what strategy the Government has for rising oil prices.
A little over a year ago, when oil was $US56 a barrel, I wrote an article which concluded that New Zealand needed to diversify away from fossil fuels in order to survive and prosper.
One year on, and with oil now over $US70 per barrel, there has been no policy response at all from central Government. Projects that would reduce our dependency on imported fossil fuels, such as electrification of the rail network, are being passed over in favour of completing “missing” links of the motorway network. With the price of oil forecast to go much higher than the 25% increase we have had in the last year, many fossil fuel dependent projects simply will not be viable.
Fuel prices will continue to rise as they have done for over five years now. This is because demand continues to grow globally, while supply remains flat or even starts to decline. Recent studies show that 9 out of the top 10 international oil companies have flat or declining production rates as a result of their oil fields maturing.
So why do fossil fuel dependent transport projects continue to be funded in New Zealand? Because the benefit cost ratio (BCR) framework used by Government agencies completely ignores the future price of fuel.