Huge challenge facing us all
May 28 2008 by Andrew Hebden, The Journal
FERRY services from Newcastle to Norway and the 350 staff employed on the route yesterday became the latest unexpected victims of the soaring cost of oil after DFDS announced it was axing its loss-making service.
The decision was an unwelcome but timely reminder of the widespread impact of high fuel prices, on a day when protesters returned to the streets of London and South Wales in an attempt to persuade embattled Prime Minister Gordon Brown to scrap plans for a 2p fuel tax rise.
The case against the tax rise is, in the current climate, looking highly persuasive and, while Brown can politically ill afford another humiliating U-turn, he can even less be seen as aloof to public opinion. The only real decision now, I suspect, is how he can scrap the rise while saving face. It’s an unenviable challenge.
Let us not, however, lose sight of the bigger picture. The rising cost of fuel is only in small part a political issue. In reality, it is a simple case of supply and demand and at the moment getting enough stuff out of the ground to satisfy the thirst of an industrialised planet is proving difficult.
The most telling comments yesterday came not from the scene of the fuel protests but from Shell UK boss James Smith who warned the era of “easy oil” is well and truly over. He said Shell alone has invested in 30,000 “technologists” who are working round-the-clock on how to get to the oil reserves that are remaining. It is a subject touched upon before in these pages, but exploration is becoming an increasingly tricky – and therefore expensive – business for the likes of Shell, even when they are making handsome profits.
The bottom line was that, as these costs increase, the company is not in a position to yield to consumer demand and slash the cost of a tank of petrol. While there is a school of thought that an impending recession will ultimately see the price of a barrel retreat from the recent record highs, the bare facts of the matter surely necessitate that the long-term trend will still be upwards.
Mr Brown may well be able to ease the short-term pain and the hauliers are playing a clever game by striking at the prime minister while he is still reeling from his other political woes. But ultimately there is only one way you can bring down prices which have been caused by a fundamental shift in the balance of supply and demand – and that represents a massive challenge for every one of us.
Andrew Hebden is Assistant Editor (Business) of The Journal
