The Oil Crunch - A wake-up call for the UK economy

• Taskforce warns Britain is unprepared for significant risk to companies and consumers
• Poorest to be hit hardest by price rises for travel, food, heating and consumer goods
• New policies must be priority for whoever wins the General Election
• Recommended packages include legislation, new technologies and behaviour-change incentives
• Fundamental change in demand patterns triggered by emerging economy countries

London, 10 February, 2010: A group of leading business people today call for urgent action to prepare the UK for Peak Oil. The second report of the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) finds that oil shortages, insecurity of supply and price volatility will destabilise economic, political and social activity potentially by 2015. Peak Oil refers to the point where the highest practicable rate of global oil production has been achieved and from which future levels of production will either plateau, or begin to diminish. This means an end to the era of cheap oil.

The report, “The Oil Crunch - a wake-up call for the UK economy”, urges the formation of a coalition of government, business and consumers to address the issue.

The Taskforce states the impact of Peak Oil will include sharp increases in the cost of travel, food, heating and retail goods. It finds that the transport sector will be particularly hard hit, with more vulnerable members of society the first to feel the impact. The Taskforce warns that the UK must not be caught out by the oil crunch in the same way it was with the credit crunch and states that policies to address Peak Oil must be a priority for the new government formed after the election.

Having assessed the systemic changes caused by the global economic recession, coupled with the projected growth from non-OECD countries, ITPOES predicts Peak Oil will occur within the next decade, potentially by 2015 at less than 95 million barrels per day. (In 2008, production levels were 85 million barrels per day.) The study finds that the recession has delayed the oil crunch by two years. This provides invaluable time to plan for a future which will see structural increases in oil prices coupled with shortages and increased market volatility. The UK will be particularly badly hit by these factors with a tightening of supply leading to greater oil import dependency, rising and volatile prices, inflationary pressures and the risk of disruption to the transport system.

Key recommendations from the report include the acceleration of the “green transport revolution” to see the ongoing introduction of lower carbon technology and trials of sustainable bio fuels. This would cover private vehicles, but also extend to the general transport network, with the government urged not to cut investment in public transport. A focus on new clean technologies should be combined with wide scale behavioural change promoted through incentives and education to produce a modal shift to greener modes of transport.

ITPOES’ membership includes Arup, Foster + Partners, Scottish and Southern Energy, Solar Century, Stagecoach Group and Virgin Group. The report will be launched at an event at the Royal Society with presentations from Richard Branson, Founder of Virgin Group; Philip Dilley, Chairman of Arup; Ian Marchant, CEO of Scottish and Southern Energy; Jeremy Leggett, Chairman of Solarcentury; Brian Souter, CEO of Stagecoach Group; and Will Whitehorn, President of Virgin Galactic.

The Taskforce recognises that oil demand in the OECD area (developed countries) is now flat or declining but also recognises that demand in non-OECD (developing countries) continues to expand rapidly, having already recovered from the recession. Demand in the non-OECD areas already accounts for 45% of global oil demand and is expected to reach 50% by the middle of the decade.

The report issues a range of recommendations including:

General policies:

• Government, local authorities and business must face up to the Peak Oil threat and put contingency plans in place
• A package of policies are required to deal with the economic, financial and social impact of potential high oil prices
• There is a need to accelerate the green industrial revolution

Transport:

• Government support should be boosted for alternative technological solutions and associated infrastructure, such as electric vehicles
• Policies and fiscal measures to support and incentivise a shift from the traditional car to more fuel- and carbon-efficient modes of transport to be established
• Government investment in public transport must be maintained

Power generation and distribution policies:

• Government must provide a stable pro-investment regulatory and political climate
• The nation’s power generation and transmission distribution infrastructure must be changed to adapt to new demand patterns, price spikes and supply interruption

Retail and agriculture:

• Measures must be taken to protect the public, particularly the most disadvantaged, from the impact of rising fuel costs on food and other consumer goods prices