2011 oil price rise, implications for economy and trade

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2011 oil price rise, implications for economy and trade

  1. 1. Dublin Port meeting 26 May 2011 James Nix
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  3. 3. 29 April 2011: Fatih Birol, chief economist to the International Energy Agency <ul><li>“ Oil prices are likely to rise 30 per cent over the next three years” </li></ul><ul><li>“ the age of cheap oil is over” </li></ul><ul><li>There will be “additional pressure on the financing of many governments who are oil importers” </li></ul><ul><li>“ governments around the world need to rethink their reliance on oil” </li></ul>
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  5. 5. Implications <ul><li>If oil prices average $120 a barrel this year and next then Ireland’s economy will contract 0.5% in both 2011 and 2012 – Ernst and Young (Feb 2011) </li></ul><ul><li>Current 1 year forecast for oil hovers around $115 a barrel </li></ul><ul><li>Increasing oil prices carry the risk that “our import bill may rise by more than the increase in our export earnings and the economy could shrink rather than grow” – Richard Douthwaite </li></ul>
  6. 6. Implications / the impact on our pockets <ul><li>In 2010 - a year when oil averaged $85 a barrel - Ireland spent €4 billion importing oil </li></ul><ul><li>The 2010 figure equates to an average of €1,000 per person </li></ul><ul><li>If prices average $115 in 2011, and use remains broadly the same as 2010, the average bill will be €1,350 per person </li></ul><ul><li>The average family is set to pay an oil bill €945 higher in 2011 than last year (taking 2.7 people per home) </li></ul>
  7. 7. While the science has become stronger <ul><li>The IEA’s focus has moved somewhat away from climate change to peak oil over the last two years </li></ul><ul><li>On climate the IEA has stated: </li></ul><ul><li>“ Continuing on today’s energy path, without any change in government policy, would mean rapidly increasing dependence on fossil fuels, with alarming consequences for climate change” (Nov 2009) </li></ul>
  8. 8. IEA on climate contd <ul><li>“ Saving the planet cannot wait. For every year that passes, the window for action on emissions over a given period becomes narrower – and the cost of transforming the energy sector increase. We calculate that each year of delay before moving onto the emissions path consistent with a 2⁰C temperature increase would add approximately $500 billion to the global incremental cost ... [and] a delay of just a few years would probably render that goal completely out of reach. If this were the case, the additional adaptation costs would be many times this figure. Countries attending the UN Climate Change Conference must not lose sight of this. The time has come to make the hard choices needed to turn promises into action” (IEA December 2009: 14) </li></ul>
  9. 9. Conclusions: Rises in energy, commodity and raw material prices are likely to broadly track each other
  10. 10. Conclusions: <ul><li>With oil averaging $115 per barrel: </li></ul><ul><li>The price of food, commodities and raw materials will remain high </li></ul><ul><li>Aside from tax rises, the average household will pay €945 more for oil during 2011 </li></ul><ul><li>Irish economic activity will at best be flat in 2011 </li></ul><ul><li>Exports may continue to grow but imports cannot increase given domestic income constraints </li></ul><ul><li>The more oil and other commodities/raw materials increase in price in future years the greater the likelihood of flat or even reducing global trade </li></ul>

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