Hon. Jeanette Fitzsimons
Green Party Co-Leader
24 August 2004

ATTENTION: ECONOMICS & ENERGY REPORTERS
Speech on The Budget's oil price projections
(Appropriations Bill Third Reading)

The 2004 Budget is a house of cards. It has some very nice features we would like to support but a strong wind is blowing and the cards are flapping. Without an unprecedented effort to strengthen the foundations we will be without shelter in the future. I said this in mid-June in the last Appropriations debate and since then the wind has only got stronger.

In the last week the price of crude oil has passed US$46 a barrel. This is more than twice the MED prediction ten months ago, of $20 in 2004. It is a substantial increase even since the first reading of this Bill. Some analysts give it a 50:50 chance of reaching $50 within weeks.

The media by and large don't understand what is going on, so most New Zealanders don't either. The Christchurch Press says it is "driven by the situation in the Middle East". It isn't, actually - the war in Iraq is driven by the shortage of oil, not the other way round. Serious supply disruptions which knock out a major supplier would be likely to take the price to $100 or more.

No, the recent price rises are about demand - increasing demand in virtually every country, including a 40-per-cent increase in one year in China, the second largest oil importer. That rising demand is against a background of gradual depletion. US oilfields passed their peak and have declined since 1970; NZ oilfields passed their peak around 1986 and have declined steeply since; world oil supply is expected to peak in the next decade if it hasn't already done so. Only hindsight will tell us exactly when.

More important even than the date of Peak Oil is the date on which demand rises above the rate at which the remaining fields can supply. That date is very close. So oil prices may fluctuate a bit with markets and weather, but there can be no downwards trend from here.

Rather than use this debate to admire the fine features of the house of cards and criticise those which disappoint us, I want to examine the strength of that wind and the steps we need to take right away to reinforce the cards so we may have some shelter left after the storm.

The best estimate of the strength of the wind is that current oil production is 81 million barrels-a-day, and total productive capacity is only 82.5. As fields pass their peak the rate at which the oil will flow also reduces. One-and-a-half million barrels-a-day is a very small margin to cope with supply disruptions, let alone more growth in demand, but both are likely.

The single most important thing we must do to secure our economic future is to reduce our dependence on oil. If anyone in this House doesn't believe that, I invite them to show where the stuff is going to come from at anything like the prices we have had in the past to meet the current record rates of demand which show no signs of easing.

The National Bank says the extra $300-400 million oil imports are costing us will knock 0.4 per cent off our GDP this year. The Reserve Bank is worried about inflationary effects, as oil affects the price of everything else. But that's just the start.

The point is that when we pass a Budget, we commit money to building for the future, and we need to think about what we are building. New motorways are planned based on predictions of traffic growth. How much of that growth will occur if fuel prices double? Freightways have imposed a fuel surcharge and are looking at whether they will increase it. Petrol demand is very inelastic when prices first rise because people have few other options, but over time behaviour does adjust. Our transport future will depend much more on low energy options like rail and public transport and if we don't build them now while oil is still cheap it will be much harder to build them later.

Yesterday I was at Britomart for the launching of the new Connex commuter rail service. The upgrade in Auckland commuter rail since I used to use it 12 years ago is stunning, but it still has a long way to go to meet Auckland's needs. It needs a link to the airport, which means building new track. It needs a tunnel extending the line west of Britomart and linking the southern and western lines. They will be energy intensive to build and low energy to run. Now is the brief window we have to build while oil is cheap and reap the benefits when it is expensive.

Airlines have imposed fuel surcharges too and are considering raising them. They are perhaps the most vulnerable of all, as price-cutting has raised demand for air travel and boosted growth. Is the Minister of Tourism planning to spend the $60 million we are voting him to promote NZ as a destination in the knowledge that air travel will be less affordable in the future? Are we investing in encouraging longer stay tourism which is less energy intensive? Is the Minister of Tourism thinking at all about the long-term price of oil?

It is of course a fundamental of this Government to expand trade of all kinds. How much is the fuel price factored into that? As the rest of the world reels from ever-higher oil prices, will they continue to buy dairy products the way they do now? Worse, if we allow basic industries to collapse by removing tariffs and allowing competition from sweatshops and child labour, will we ever get them back when the economics changes and fuel-intensive imports of things that we can quite well make ourselves don't seem like such a good idea?

Nothing is as important to social wellbeing as housing. Has the Minister of Housing thought about how to heat the houses the State is building? When will we have state-of-the-art solar design for, at least, all new state houses? When will the Building Code be upgraded to require more energy efficiency to keep energy bills down?

We have a Fisheries Bill before the House at present that provides for highly migratory species caught outside NZ's economic zone. At the same time we have public anger at the effects of deep-sea trawling, which is smashing marine communities to bits in the most serious biodiversity destruction of our time. Oil prices will affect both. Deep-sea distant fishing is the most energy-intensive food production in the world, even worse than grain-fed beef. There is unlikely to be a market for fish caught hundreds and thousands of miles from shore at the prices that oil depletion will dictate in a few years time. This might be in time to save deep ocean biodiversity, but only if the proposed moratorium on this highly destructive method is agreed to now.

So to the forestry industry - of all our productive sectors this one has the best chance to prosper because it is capable of producing all its own processing fuel. Waste wood, and eventually purpose-grown wood, is a particularly promising energy source for NZ in a post-oil world, but it must be planned for. Where is the planning in the Wood Processing Strategy to use the wood waste coming on stream now and to ensure we grow enough for the future? I don't see it. What I see is an assumption that the forestry industry can continue to demand more and more electricity and gas and diesel rather than becoming self-sufficient.

Farming also must change. Fertilisers and pesticides are largely oil-based. Our competitive advantage will be in turning to organic production methods which don't require them. We have the science to do it, but the Minister is lukewarm at best and there has been little budget applied to developing the science further or to helping people change.

We do have options. New Zealand can survive into the post-oil age better than most countries, but successive governments have chosen to ignore all the signs of oil depletion and the opportunities to build a more secure future. In the last few months there has been some movement. Michael Cullen has acknowledged that oil will never be cheap again and that Treasury projections should be reviewed. We have taken some big steps in transport legislation towards a less oil-dependent future, but they have yet to translate into much progress on the ground.

What we are looking for is a radical review of the fundamentals of economic management now that the short-term underpinning of our rapid economic growth has been pulled away. We don't have to continue blindly until we crash and burn. The Greens are dedicated to developing the sustainable options that will see us through.

ENDS

© Scoop Media