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Eco-nomically Friendly
Petrol at EURO 20 a gallon. Bread costing EURO 8 a loaf. Riots
erupting around the world as hyperinflation caused by soaring energy
costs sends world economies into a tailspin. No, it's not the follow-up
movie to The Day After Tomorrow - it's a scenario that's looking
increasingly plausible as world oil supplies dwindle.
Not
long ago, mentioning the environment would conjure up images of
bearded, sandal-wearing tree-huggers. Not any more. Nothing reflects
reality more than money. And these days the smart money is going into
energy-efficient stocks in anticipation of a world oil crisis that
could see prices hitting $200 a barrel. I am the latest in a long line
of hard-nosed financial experts to 'go green.'
I didn't come at
it from 'save the whale' point of view. I would't be out hugging trees
or stopping the hunt. Environmentally, I'm Mr Average.
But I looked
at it from a money angle and it kept me wide awake for two nights in a
row thinking: "Jesus, this is what we're facing into. This idea of a
soft landing is not going to happen. It's going to get very stormy
indeed, maybe a boom-and-bust scenario with riots on the streets."
The
logic behind all this is frighteningly simple. Discoveries of new oil
have been declining for 40 years. In the 60s, the total was 55 billion
new barrels a year. Today, despite enormous strides in technology, we
are down to nine billion fresh reserves. Yet the rate at which we burn
the stuff is escalating hand-over-fist. The US, with one-third of the
world's cars, is far and away the biggest gas-guzzler.
But there
are plenty of far more populous countries poised to take its place.
Booming new mega-economies such as China and India are increasing their
oil consumption voraciously. If the rest of the world develops a
US-style appetite for oil, consumption will increase five-fold to 450
million barrels per day. At that rate, it would take just seven years
for the world's pumps to run dry. We have been able to carry on as we
have because for many years we discovered more oil than we consumed.
But that situation reversed in the 1980s and since then the deficit has
grown even wider," says financial journalist David Strahan, author of a
new book, The Last Oil Shock. "We are deep into unsustainable
territory, living off the fat laid down in the years of plenty, now
long gone."
Strahan forecasts escalating conflicts over dwindling oil supplies and believes the invasion of Iraq was "all about oil."
In
2002, George Bush and Tony Blair agreed a pact whose main aim was to
secure "energy security and diversity." In the same week, Iraq was
invaded in a move designed to show other Middle Eastern leaders what
might happen should they fall out with the West, according to Strahan.
Is
it a coincidence that the next regime in their gunsights is Iran, the
world's second-richest oil state? The bloody fiasco in Iraq may
dissuade the US from invading this fiercely Islamic nation, but as oil
discoveries trickle to a halt, the stakes get ever higher and
geo-political tensions rise.
China racked it up another notch
recently by exploiting anti-US feeling in Iran to agree a 25-year deal
for supplies of the precious 'black stuff.' The fact that it was
willing to pay $70 billion highlights just how much is at stake.
There's not a shadow of a doubt that we are on the cusp on a new energy
age. Over the next few years, people will be looking at ESB and gas
bills in alarm - if they're not already doing so. We're looking at oil
prices rising up to $200 a barrel within three to five years,
compared to $66 a barrel currently.
You may think: 'So what?
I'll just drive less.' But you can't get away from an oil crisis so
easily. Oil is used to make a lot of stuff, particularly plastics. More
importantly, it fuels the transport of everything we buy by truck,
train, boat or plane. And if prices escalate as predicted, so too
will every other price. An EURO 8 loaf of bread is just one possible
outcome speculated on recently.
But it's not all doom and gloom.
New oil deposits may yet be found - there's apparently enough oil-rich
shale deposits in Canada to make it a new oil superpower. Extracting it
economically is the key. As prices rise, that equation shifts
favourably for the oil companies. New technologies will be developed to
maximise our use of existing stocks - or come up with alternative
sources of energy. State policies such as penalising petrol-thirsty
cars could also do a lot to ease the crisis. However, so far, I have
been less than impressed with the Irish Government's promotion of
alternative energy sources.
We have a fundamental problem in
that the entire energy industry is captured by ESB, which is already
resisting a report that recommends establishing the electricity grid as
a separate entity. The last thing we need is a semi-state leading the
alternative energy drive. They simply don't have the spark to become
world leaders in renewable energy.
Private operators have at least
got the ball rolling on wind power. But Airtricity, for example, is
forced to sell much of its output abroad. The energy market needs to be
liberalised and opened up.
It's seen as heresy to say it, but
nuclear power is another option that needs to be looked at. We're
currently taking the hypocritical approach and buying it over the grid
from Britain while refusing to make it ourselves!
Also in this
issue of You and Your Money, I outline how investors can make money on
the back of energy-saving trends. Oil and gas shares have done well
over the last number of years. I've moved half of my pension fund into
energy stocks.
There are also lots of things you can do at home
to save money - and the planet. I recently installed a 'capacitor'
that greatly improves electrical efficiency in my home. You simply plug
it into the mains near the socket board and it can reduce your energy
bills by up to 25 per cent.
I also intend to install my own wind
generator - and, when feasible, sell surplus electricity back into the
national grid! You don't need planning permission once the generator is
under six metres in size.
Once you start, there's no end to
the ways in which you can help the fight to save energy. We don't leave
devices on in the house. And we're moving away from old light bulbs to
energy-efficient ones. The kids are great - largely because schools are
really getting the green message across. We've just moved into a
modern house, which is more energy efficient than the last one. But
I'll be looking at solar and geo-thermal power in any extension that I
build.
Geo-thermal sounds very high tech. But it's no big deal.
You simply drill trenches running away from your house and run copper
wiring down a few feet to harness the heat embedded deep underground.
An even less hi-tech energy saver is probably lying upstairs in your
chest of drawers - the good old woolly jumper. You have a choice: put
on the central heating or your jumper. The end result is the same - you
get warm.
No-one can say for sure exactly what lies ahead of
us, or if all this will even make a huge difference. But all we can do
is try.