Rising Oil Prices a “Wake-up Call”

Dean Sigler Sustainable Aviation Leave a Comment

With revolt and possible revolution threatening the shutdown of the Suez Canal and driving crude oil prices up, a recent article in Flight Global merits reflection.

Flight Global’s lead sums up a threat and a hope in one tidy paragraph.  “The International Energy Agency raised an alarming note as our power-hungry lives got back into gear after the holidays.  ‘Oil prices are entering a dangerous zone for the global economy. The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil-consuming countries and to the oil producers,’ it said.”

Rising prices for crude and jet fuel following a peak in 2008

With fuel prices at the end of 2010 up one-fifth over those at the end of 2009, ticket prices necessarily follow, with the danger of lower passenger loads, fewer flights, and generally diminished convenience and economy for air travellers.   

Some carriers such as RyanAir, already notorious for suggesting pay toilets on their airliners, tactically hedge by buying an oil company’s future reserves at a current low price when they think prices will rise.  It’s a gamble, but less so in an era of post-peak oil, with prices almost certain to escalate.  Bigger carriers, such as Air France, British Airways and Lufthansa, practice strategic hedging, always buying future fuel at current rates.

At some point, oil companies may withdraw such pledges to future capacity, leaving everyone to pay market rates.  As oil prices near $100 per barrel, the pain may extend to everyone, including the oil companies.  Fewer passengers will equal fewer barrels sold.  Accord to Flight Global, the Saudis are countering this by increasing production to maintain oil in the $70-$90 per barrel range, and thus maintaining the status quo – for now.  How long that pricing strategy can hold out against diminished reserves and reduced shipping reliability will be a question of how much fuel all users demand.  Larger demand shortens the time until a true day of reckoning.  Producers and consumers alike must make difficult decisions based on that encroaching reality.

A promise inherent in higher crude prices is the added incentive for governments and private industry to invest in promising bio-fuels development.  At what point development of and risk-taking for new technologies outweighs loyalty to the tried-and-true is debatable, but the hovering threat of $100 per barrel oil seems a likely goad.

Turmoil in Egypt, possibly emulated in other countries, might be the biggest reason to look elsewhere for future energy needs.  The cost of military intervention will probably become less desirable as an option for the developed countries, and thus less of a hold that non-democratic leaders can maintain over their own people.

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