British Motoring - are its Days Numbered?

The raw cost of a barrel of crude-oil is now down from the record $136 to around $122, and yet fuel prices at the pump remain high. Not surprisingly, this is causing consternation among British motorists who have been calling for the government to cut its tax on fuel to restore the cost of a litre of petrol or diesel to more manageable levels. As an average, a vehicle that cost £50 to fill its tank in 2006 now costs around £85, or an increase of 70%. There is no way the government can cut fuel-taxes since it needs all the money it can get to pay for the welfare state, the NHS and the wars in Iraq and Afghanistan.

The fuel infrastructure has been compromised, it is blamed, for instance the strike at the Grangemouth refinery and the fire at another in Finland, which has hit fuel provision in Europe generally, and so refining capacity and distribution may impose a bottleneck to cheaper fuel, irrespective of the basic cost of a barrel of oil. Since oil prices are subject to the vagaries of exploration costs, pipelines being blown-up (e.g. in Nigeria) and an inexorable rise in production costs per se, in consequence of the need to draw oil from wells that was once considered not economically viable and also the price of capital equipment such as oil-rigs and platforms, we should not take too much comfort in the fall in oil prices, which remain six times that of 5 - 6 years ago.

The situation is not great for British motorists. Not only are fuel costs increasing to the level that will force many cars off the road, certainly if, as is inevitable, the ultimately rising oil price is borne by the cost of the fuel that is refined from it, but there is very little new infrastructure in terms of motorways, in comparison say with Spain, a country that has invested heavily in its transport infrastructure. In Britain, the roads went the same way as the railways (in the latter case due to privatisation) and their retrospective refurbishment will cost more than routine maintenance would have done, if it can indeed be done to the same level given present costs and that investors are reluctant to put their money into a system that is not guaranteed to provide good returns.

If cars will be forced off the roads by inexorable hikes in fuel costs why should anyone invest in more roads? The car is seen as a symbol of prosperity across the world. In the early 1960's certainly not everybody had a car. With one wage coming into a house, cars were expensive and higher-purchase arrangements not as convenient as they are in today's credit bubble. Now car-ownership is practically a given. Both in terms of their price and quality, cars are cheaper than they once were, in real terms. Little tin-boxes on wheels I often think of them as, rather than a Bentley or even a "Jag". In developing economies such as China one principal aspiration is to own a car, an untenable situation since there is insufficient cheap oil to keep even the existing number going, let alone double that by 2030, as I have read projected, if more Chinese, Indians and South Americans own cars in consequence of the growing success and prosperity of these nations.

I strongly suspect that oil-prices will increase again, and we are presently in a lull on what will prove to be a relentlessly rising curve. I note too that it is now thought there may be 30 billion barrels worth of recoverable oil in the North Sea. Now this is mostly not down to new finds but that oil formerly considered uneconomic to extract has now become so in consequence of the massive rise in oil prices. If, as I believe, the price of oil will increase to $150 by the end of this year and $200 or so by the end of $2009, there may be around $4-6 trillion to be earned from the extra North Sea bounty.

To put it into a different perspective, if the UK gets through 80 million tonnes of oil a year, call it 100 million to allow for some lucrative exports, that amounts to 730 million barrels annually, and so the "new" reserve would be enough to keep the UK in oil for 40 years. Personally, I agree with King Abdullah in Saudi, that we should keep it for ourselves and not waste is as we did the first tranche.

However, it is an unknown quantity just how much oil can be extracted and it is of course the rate of extraction rather than the quantity of the reserve that determines how useful this will be to us - hence providing yet another bottle neck, like fuel.

Related reading.
[1] "The end of the road for British motorists." By Neil Lyndon. http://www.telegraph.co.uk/news/newstopics/fair_deal_for_drivers/2017868/
The-end-of-the-road-for-British-motorists-as-cost-of-petrol-hits-new-high.html
[2] "North Sea could see second oil boom due to huge unexplored reserves." By Andy Bloxham.
http://www.telegraph.co.uk/news/2077195/
North-Sea-could-see-second-oil-boom-due-to-huge-unexplored-reserves.html