I’ve received a guest post from Brett McLean which includes reference to a topic that’s been mentioned several times in comments, – the possibility that world oil output has peaked or will shortly do so. I plan to have my say on this before too long.
h3. Brett’s post.
The Treasurer, Peter Costello has repackaged and relaunched his Intergenerational Report in the last few days. The essence of Costello‚s case is that the demographic changes caused by reducing fertility will have profound economic implications as the baby boomer crest moves into retirement, and in 40 years the proportion of the population over 65 to be double that of today at 25%, thus putting an intolerable burden on Government spending programs in Health and Disability and Pensions.
Costello‚s discussion paper released on 25th February lists four choices to address this: raise taxes (to over 40% personal income tax); Cut back government spending; Run large deficits; and its preferred option increase the size of the economy through labour force participation. Hence, Costello‚s plans to modify superannuation rules and create incentives for people to retire later.
All these treasury projections are built on a series of economic growth assumptions which ultimately boil down to one single assumption. That productivity will grow at around its 30-year average of 1.75 percent per year, and this is where the Treasurer‚s planning could become seriously unstuck, because coming at us potentially in the same timeframe the world may very well start to run out of cheap oil.
There are recent suggestions that the Saudi Oilfields are becoming tired, and this would tend to confirm speculation in oil circles that global oil production may have peaked or may peak in the not to distant future. Jean Laherrère an oil industry consultant, demonstrated how the increasing world population and a potential oil production peak in the next 20 years will result in a headlong crash between demographics and the available supply resulting in a forced reduction in per capita usage of Oil and Gas.
If this is so then our standard of living is going to sustain a serious battering not just from an aging demographic but also from escalating energy prices. As the cost of extracting oil from increasingly unproductive wells rises along with demand from the huge and developing nations in Asia, the price of a barrel of oil and hence all units of energy needed to drive our economy and maintain our productivity will rise.
The Danish Technology Council and the Danish Society of Engineers at their Copenhagen conference in 2003 point out that the predominant economic growth theories of this singular historic era [the era of cheap oil] are based on the axiom that economic growth will not be constrained by limitations in the supply of the fossil fuel resources upon which the economy is based, in particular the supply of oil.
They state it is hazardous to rely unconditionally on the validity of a continued-growth axiom for which there is no empirical evidence. That’s Engineers saying this by the way, not Greenies.
The political economic, environmental and technological problems that must be solved in a very short space of time if we are to smoothly transition to alternative energy technologies and maintain our present standard of living are enormous and make the aging population problem being addressed by Peter Costello look trivial by comparison as well as casting serious doubt on the validity of Treasury‚s underlying assumptions.
It is right and proper for the Government to be looking ahead 40 years or more to address the demographic changes that this nation faces, but if they are blind to, or choose to ignore another reality that nature will impose on us within the next few decades, then it does not help us at all. Australian‚s who are asked by the Government to adopt superannuation and retirement strategies now, based on the Intergenerational Report have every right to be sceptical that the conditions that the Government foresees will necessarily hold true.
Brett McLean Ë† is a Business and IT Consultant.