Britain 'faces fuel shortages and dearer food by 2015'

Published on Wednesday 10 February 2010 21:55

THE UK will be hit by an "oil crunch" within five years that will push up food prices and threaten to bring transport grinding to a halt, business leaders have warned.

• Grangemouth Oil Refinery

Virgin Group founder Sir Richard Branson, Stagecoach chief executive Brian Souter and Scottish & Southern Energy boss Ian Marchant yesterday unveiled a hard-hitting report they said should be a "wake-up call" about the imminent impact of a global oil shortage.

The report predicted shortages and price spikes in crude oil as soon as 2015, and warned it could hurl the UK into another crisis in the wake of the credit crunch.

The poorest in society were most vulnerable, according to the report, "The Oil Crunch – a wake-up call for the UK economy".

The influential team of authors, whose businesses are all sensitive to the availability and price of oil, called for immediate action from the next government following the general election.

The report said: "The credit crunch of 2008 foreshadowed major economic, political and social upheaval. It stress-tested the responses of governments, policy-makers and businesses to the extreme. If only there had been greater time to prepare for its impact and a greater level of understanding about the issues.

"The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well."

The report said the UK had to prepare for a world where "oil price shocks have the potential to destabilise economic, political and social activity".

It called for urgent action, adding: "Unless we do so, we face a situation during the term of the next government where fuel price unrest could lead to shortages in consumer products and the UK's energy security will be significantly compromised.

"This has the potential to hit UK business and commerce as well as the most disadvantaged in society with yet another crisis."

The report was compiled by the Industry Taskforce for Peak Oil and Energy Security, a group of private British companies whose other members include Philip Dilley, the chairman of consultancy firm Arup.

Sir Richard said businesses and government should work together to provide alternative forms of energy. "UK competitiveness will be hampered unless we can develop viable, affordable and secure long-term sources of alternative energy," he said.

While the report did not address climate change directly, it stressed "massive areas of overlap" between the issues of depleted resources and emissions.

It recommended removing the 9 billion tax break on fuel for domestic airlines and investing the money in public transport, while also encouraging a shift away from car travel and towards electric vehicles.

"The UK's freight network, cars and public transport systems are almost entirely dependent on oil," Mr Souter said.

"The twin threats of the oil crunch and climate change make that unsustainable."

Mr Marchant warned economic growth "will be endangered", as price rises hike the cost of raw materials and deplete consumers' spending power.

He said: "There is the danger of creating a social recession as the poorest households get hit the hardest by higher prices."

The government was also urged to plan for food price hikes, as the transport costs of moving goods around increases.

Oil prices have been particularly volatile in recent years, spiking at $147 a barrel in July 2008 before plummeting to $32 a barrel in December that year amid the financial crisis and onset of the economic downturn. They climbed again, to about $70-80 late last year and have stayed relatively static as many world economies remain under pressure.

Mervyn King says it's too soon to rule out further money supply boost

The report said global economic woes had pushed the oil crunch or "peak oil" point – when global demand will use up stocks faster than they can be replaced by new production – back by two years, giving governments and companies more time to work out how to act. But it still expected the crisis to hit within five years.

Colin Howden, director of Transform Scotland, which campaigns for sustainable transport, agreed the implications of an oil crunch were "far more wide-ranging than the economic crisis experienced after the credit crunch".

He highlighted that 99 per cent of transport in the UK was fuelled by oil and said: "The Grangemouth refinery oil strike in April 2008 and the oil price spike of summer 2008 demonstrated just how exposed Scottish society is to security of oil supplies."

Richard Dodd, spokesman for the Scottish Retail Consortium, agreed oil availability would influence food prices due to the impact on the cost of manufacturing and transporting goods.

However, he insisted retailers were "alive" to the problems and trying to find alternatives.

"I think it would be wrong if customers started to panic about the prospect of sharp increases in shop prices," he added.

Dr Dan Barlow, head of policy at campaign group WWF Scotland, said the report provided "further impetus to break our addiction to oil and step up as quickly as we can our efforts on renewables and energy efficiency."

Friends of the Earth Scotland chief executive Duncan McLaren said: "Oil supplies running dry is just one more reason to invest in a clean, green energy future. Scotland has massive renewable energy potential which we must invest in."

The Department of Energy and Climate Change said it was taking action on clean coal, nuclear, renewables, energy efficiency and electric cars to "reduce our exposure to future supply risks".

However, a spokesman added: "There are many opinions on peak oil and the UK looks at a variety of sources in assessing the risks. The International Energy Agency, for example, has concluded that there are (oil] reserves to meet demand through to 2030."

WHAT IT MEANS

AN OIL crunch will strike by 2015, the report says.

The oil crunch refers to the point when "peak oil" will hit – that is when

the highest rate of global oil production has been reached, leading to a subsequent decline in availability.

This is likely to push up the price of oil, and there will be consequences in many areas that will impact on the day-to-day lives of people in the UK. These include:

&#149 TRANSPORT: Oil still turns the wheels of the transport sector in the UK. Some 97 per cent of transport relies on petroleum products. Without it, transport costs will soar.

&#149 INDUSTRY: Products such as plastics and some fabrics have oil-based ingredients. The prices of products for sale in the shops are directly affected by the cost and availability of oil.

&#149 FOOD: Food is hugely dependent on road transport for delivery. A hike in oil prices will quickly find its way to the shelves and to people's weekly shopping bills.