Oil Depletion Primer

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Back in October of this year, a Parliamentary Research Paper entitled “The Next Oil Shock?” was released.  If you are looking for an up-to-date primer on the oil supply situation, look no further.  The PDF version is here.  It’s a great summary that demands a coherent mitigation strategy as oil nudges towards $90 a barrel.  As such this has been ignored completely.  Here’s the summary:

  • Oil is “the lifeblood of modern civilisation”. This paper provides an overview of the global oil market. In particular, it examines the outlook for oil supply and demand over the next five years, and the economic consequences.
  • Low-cost reserves of oil are being rapidly exhausted, forcing oil companies to turn to more expensive sources of oil. This replacement of low-cost sources of oil with higher-costs sources is driving the price of oil higher.
  • While the world will not run out of oil reserves for decades to come, it cannot indefinitely continue to produce oil at an increasing rate from the remaining reserves. Forecasts indicate that world oil production capacity will not grow or fall in the next five years while demand will continue to rise.
  • If oil production capacity does not rise as fast as demand, the buffer of spare production capacity disappears. In such a ‘supply crunch’ the price of oil ‘spikes’ to high levels. High oil prices can induce global recessions.
  • Organisations including the International Energy Agency and the US military have warned that another supply crunch is likely to occur soon after 2012 due to rising demand and insufficient production capacity
  • There is a risk that the world economy may be at the start of a cycle of supply crunches leading to price spikes and recessions, followed by recoveries leading to supply crunches.
  • New Zealand is heavily dependent on oil imports and will remain so for the foreseeable future. While there is potential to substantially increase domestic production, domestic oil production cannot insulate New Zealand from global oil price shocks because New Zealand pays the world price for goods like oil.
  • Key export-generating industries in the New Zealand economy including tourism and timber, dairy, and meat exports are very vulnerable to oil shocks because of their reliance on affordable international transport.

The Effect of Deregulation on Railway’s Profitability in NZ

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An historical perspective by Gordon Bonetti, CBT Member

The Maori people of New Zealand have a very apt proverb, “Mata a muri kei te aro ke!”Loosely translated it means, “ To find the way forward we must first look back into the past.”So it was from this viewpoint that this article was compiled.

NZ Herald’s editorial of 20th May “We’re Stuck with Kiwi Rail,like it or Not” twice makes the statement, “Rail has not paid its way for generations,if ever.”  Historically, there is evidence this is incorrect.  Transport archives reveal that from 1965 to 1970 NZ Govt. Railways actually ran profits totaling $16 million, had a surplus again in the early 1980s then made a record profit of $23.9 million in 1984. So,whilst a state run operation in a regulated environment where road & rail were co-ordinated, rail was profitable.  However, despite warnings to the contrary, the Bolger Government continued to implement the Transport (1983 ) Amendment Act, further progressing the Douglas-era “freemarket” deregulation model. Thus evolved the present transport shambles we have today. Eventually by 1990 in the cut-throat, free-for- all transport market which evolved, rail was $1.3 million in debt. (The Bolger Govt trunk electrification cost $300m of this.) So in October 1990 Govt. wrote off the debt from the Railways Corporation & injected new capital to form a separate entity NZ Rail Ltd. This company made a profit of $36.2m in 1992 and $18.0m in 1993.

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Taken For A Ride

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Taken for a Ride is an amazing documentary by Jim Kleina and Martha Olson that documents the efforts to derail mass transit in America. Using historical footage and investigative research, this film tells how GM fought to push freeways into the inner cities of America, and push public transportation out.

Ideal Fare Structure For Auckland

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Over at the forum, I asked the question what would make a good fare structure for Auckland.  Given the recent news that the Snapper system is coming to Auckland next year, I think it is important to focus on what would really make a difference to the average punter using buses, trains and ferries in the Auckland region.

Personally I’m drawn to the idea of fare caps, which is how I understand it works in London. In this scenario, punters are charged when they get on their first trip, but as they get on subsequent trips during the day they aren’t charged over a certain fare cap amount ($5 for example).

Anyhow, the post got a really great response from loose_shunter, “a fares policy person” over at the Victorian Department of Transport. It’s well thought out and informative, so I’ve posted it here as an article.  ARTA, employ that person!

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Waterview Motorway: Economic Nonsense

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With most business opportunities, it is possible to calculate the expected monetary benefits and costs, while considering other factors such as the opportunity cost of capital and project risk.A similar approach for transport infrastructure projects is also attractive. Just work out the benefits in today’s money, divide this by the cost and – presto! – you know exactly how much the economy will benefit from for every dollar spent.

Take the proposed Waterview motorway extension, for example. Treasury and Ministry of Transport officials have worked out that for every dollar spent on the $2.8bn motorway connection between Mt Roskill and Waterview, the economy will receive $1.15 worth of benefits.

In the business case document now being considered by Cabinet, officials point out that “full tunnel” option means that the benefits are only a little in excess of their costs. Some above ground options might save up to $200m from the construction cost, but these have higher social and environmental costs, and also involve the loss of park land and a significant number of houses.

Considering the billions of dollars at stake, one would hope that the economic benefits and costs of the various options are as accurate and as realistic as possible. So are they? Well, no, actually.

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The REAL cost of automobile dependency

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Now if I’m being honest here, I will admit that public transport advocates do get hammered a bit on the whole “economics of transport” debate. The roads lobby constantly states how through petrol taxes trucks and cars pay their way, yet at the same time rail and buses simply can’t fund themselves and require massive subsidies. Now I’ve always thought this strange – that something which just seems so much more efficient (putting a whole lot of people inside a metal box and moving them) could actually be not as economically justifiable as something which just was so obviously less efficient (putting one person in a metal box and then shifting heaps of those metal boxes).

Thanks to a most excellent book that I own, called “Asphalt Nation: how the automobile took over America and how we can take it back“, by Jane Holtz Kay, we can see the argument for cars over public transport start to unravel. Not only in terms of the environmental and social impact of cars – but in their economic inefficiency, striking at the very heart of those who promote roads-centric policies. It’s a book that Steven Joyce, Minister of Transport, should definitely read. It is written from an American perspective, but pretty much everything can be applied to New Zealand as we’re definitely one of the most auto-oriented countries in the world, particularly in the case of Auckland. An interesting quote on page 128 looks at the overall cost to individuals of transportation:

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The Cost of Free Parking

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Transport planners Julie Anne Genter, Stuart Donovan and Professor of Economics Tim Hazledine explain why there is no such thing as a free lunch, and there is no such thing as free parking. Read the rest of this entry »

June ’08 Oil Production Briefing Paper

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This month’s briefing paper brings Saudi Arabian production and oil speculation into the spotlight. Click opbp_june_2008 for the PDF version.

Oil prices continue to maintain their record high levels, and consequently the New Zealand economy is likely to move into a recession, accompanied by high inflation. In particular, the petro-chemical, airline and fishing industries are coming under increased pressure as a direct result of increasing oil prices.

Saudi All Liquids Production

Saudi All Liquids Production

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