Are we stuck in an oil price doom loop?
I’m reading The Third Industrial Revolution by Jeremy Rifkin – I’ll post a review here in the next few weeks – but in the first section he makes a persuasive argument that everytime the global economy tries to rally, the demand for oil pushes its price up, smothering the green shoots.
The graph below shows Brent and West Texas Intermediate oil prices. You can see how they shot up to a peak in 2008 before crashing as the global financial markets went into meltdown. But the prices have rallied again staying above the $100 mark which seemed so impossible pre 2008. This has lead to periodic warnings from the International Energy Agency amongst others that we will never get out of the mire if prices are that high. The big question is: how much is oil price a symptom and how much is it a cause of financial woes? This is rarely part of the current political discourse in the UK which has recently been focussing on tax on snacks. Are we hiding from the truth and squandering opportunities to break out of this loop?
The loop poses a real challenge. Money is tight, oil prices are stifling growth, so where are we going to find the investment to break free? Clearly it would have been better to be investing in the boom years, but we are where we are. I think the answer can be seen in Southampton – where a distributed energy system has developed over 21 years, expanding organically – and in Woking – where an innovative energy services company financing system has allowed enormous investment in local energy generation – and more recently in Birmingham.
These example show it can be done and for the time being we might just have to start small and grow. But we could have lots of entrepreneurs and forward looking companies initiating lots of these small projects. Innovation is key – not just in technology, but in finance and, dare I say it, public/private partnerships. But more than anything else, we’re going to have to face up to the fact we have a problem.