Australian infrastructure expert warns of fresh oil crunch

One of the Australian Government's top infrastructure advisers is warning of an oil crunch, which could send the global economy spiralling back toward recession. Curtin University's Professor Peter Newman is on the Government's Infrastructure Australia council. He says peak oil when demand outstrips dwindling supply - has already hit, but the global downturn has kept prices low . Professor Newman even blames oil for causing the global recession in the first place, and he's not alone.

Presenter: Jeff Waters
Speakers: Professor Peter Newman, Infrastructure Australia Council member; Professor Kjell Aleklett, Swedish-based President of the Association for the study of Peak Oil and Gas

WATERS: It was a theory which emerged in the 1990's. Proponents of the peak oil scenario said the cost of oil, and therefore petrol, would rise exponentially in the first decade of the new century when increasing demand outstripped finite supply. With oil now hovering at about 85 US dollars a barrel it doesn't seem to have happened at least in the original timeframe.

But Curtin University Professor Peter Newman, who's a federal government adviser on the Infrastructure Australia Council says we've already reached peak oil back in 2008 when it spiked at around 140 dollars a barrel and sent petrol prices soaring.

NEWMAN: Peak oil did happen i believe in 2008. 140 dollars a barrel was a massive increase and it didn't happen because some oil exporting country had a revolution or something. it just happened because we couldn't produce enough to meet demand

WATERS: Professor Newman largely blames the global financial crisis on oil.

NEWMAN: The reality was that subprime mortgages were largely out on the urban fringes miles away from work people had to drive and when the price of fuel tripled in american cities they couldn't pay their mortgages so that's what caused the damage to the economy and it just rippled around the world. The oil price is hanging around the 80 dollar mark but as the demand increases again the supply crunch will happen and the price will go up so there's no question that most oil company people are now saying the era of cheap oil is over.

WATERS: As the global economy has strengthened in recent months, so has the oil price. It's still fluctuating, and fell at the end of last week. But just before that fall, some observers watched nervously as oil futures approached 90 dollars a barrel. Professor Newman says it doesn't bode well for recovery.

NEWMAN: The recovery would very quickly unravel, we'd go into the w rather than the v and that w would have a very shaky last part of the letter as well and coming out of it would be not as easy to predict. All of the old formulae would be unravelling and there are people who are beginning to understand that this is a fundamental change not just a quick turnaround that we can do but easily just propping up banks and things we've actually got to do things differently and that means less oil.

WATERS: Professor Kjell Aleklett is the Swedish-based president of the Association for the study of Peak Oil and Gas. He's in agreement with his Australian counterpart.

ALEKLETT: The fact is we are producing less oil now than we did in 2008 so just now we have 2008 as the peak year for peak oil because oil is so related to the global economy and the global economy is just weak now and that is why the price of oil is not jumping high.

WATERS: Professor Aleklett says he thinks the world will find away around the problem, simply because it'll grind to a halt if it doesn't.

ALEKLETT: I'm one of those people that believe that it's not very possible to have a high price of oil because that would mean the end of globalisation and the fact is that a price of $200 a barrel then there will not exist an airline industry any longer and we will see problems with airlines in the future.

WATERS: On the other side of the debate are academics like the University of South Australia's Doctor Vlado Vivoda.

VIVODA: I disagree with that assertion and for a number of reasons. one is what peak oil theorists miss out on is the fact that with improvements in our technologies and improvements in a drop in oil production costs what it is considered oil is changing as well i see the definition changing of what is exploitable oil changes in levels in technological efficiency and with the changes in the exploration or the production of oil.

WATERS: The question is whether we'll adopt new technologies fast enough. Some Australian municipal councils have already drawn up peak oil strategies and Professor Peter Newman welcomes big recent federal spending on public transport. But he says he'd like to see a full national plan.

NEWMAN: We need a complete plan, we really do need a national peak oil strategy that can take us through the next two decades of change in our infrastructure requirements. I think that's something infra australia can do it will need political assistance and so it need the public to get be hind it and say yes this is an issue that's going to need that is now going to become just as important as global warming

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