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Politics : Rat's Nest - Chronicles of Collapse -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (6842)	12/27/2007 8:13:07 AM
From: SG	Read Replies (1) \| Respond to of 24225

I guess those guys are prepared for everything. SG

To: Wharf Rat who wrote (6842)	12/27/2007 10:53:56 AM
From: Wharf Rat	Respond to of 24225

The energy crisis Published on: 12/27/07. by PROFESSOR AVINASH D. PERSAUD THE WORLD is in an energy crisis. Over the past two years that crisis has spilled over into a global food crisis. Since 2002 the price of crude oil on the international markets has risen more than threefold from US$29 per barrel to almost US$100. Natural gas prices have risen fourfold. Barbadians have been fortunate that the country's strong macro-economic position has allowed Government to actively absorb some of these price rises both at the oil terminal and by lowering excise duty on fuel. This has cushioned the full impact of the energy crisis on the average motorist. Petrol pump prices have risen, but not threefold. But these measures could not cushion the indirect impact of energy prices on imported food prices. The strong link between oil and food prices is unappreciated. Today, natural gas is the feedstock in the nitrogen fertilizers used to grow crops and animal feed worldwide. Higher energy prices have diverted the global supply of maize (corn), sugar and other crops into ethanol production, pushing up prices. Maize prices are up 50 per cent this year alone. Higher energy prices have also raised the cost of transporting food to its final destination. The Baltic Dry Index, a key international indicator of shipping costs, is up 50 per cent since March of this year. Other reasons, less directly related to energy prices, have also pushed up food prices. The IMF Food Price Index is up 200 per cent since 2002 and 25 per cent higher than it was during the oil price shock and commodity booms of the late 1970s. Higher food prices have pushed inflation in the United States and Europe to seven-year highs and have prevented monetary authorities from fully responding to the housing-related credit crisis that erupted in August of this year. This is in contrast to Barbados where interest rates fell from 5.25 per cent to 4.75 per cent on November 19. But to be fair, the Barbados Government's willingness to directly intervene to lower certain food prices gives Government greater flexibility than the American and European administrations. Global dilemma The causes of the global energy crisis are varied. The most dramatic has been the disastrous intervention by the United States and Britain in Iraq. Iraq has the third-largest proven reserves of conventional oil in the world (second only to Saudi Arabia and Canada). No surprise then that supply disruptions before, during and after the military intervention has put a bid on prices. The hatred that this intervention fathered with its many thousands dead or severely hurt has also contributed to security-of-supply issues beyond Iraq's borders. There are daily plots to disrupt Saudi oil pipelines. Energy-rich countries like Russia, Venezuela and Iran have threatened supply disruptions in opposition to the exercise of American power. But arguably the most important and durable reasons for higher oil prices has been the rapid economic growth of the world's two most populous countries, neither of which have many energy resources of their own: China and India. According to the International Energy Agency (IEA), China and India have accounted for 70 per cent of the increase in oil demand over the past two years and their demand for oil will rise by a further 55 per cent by 2030. High oil prices are here to stay. The IEA, a cautious forecaster, estimates that a barrel of oil will cost $150 by 2030. I estimate this target to be reached within the next seven years. Maintaining macro-economic stability and safeguarding the more vulnerable amid a global energy and food crisis requires strong and effective management by the Barbados Government. The strategy appears to be first to protect Barbadians from the full effect of higher energy prices by absorbing part of the increase at the terminal, by lowering fuel taxes and by negotiating cheaper sources of oil from neighbouring Trinidad. But if oil and gas prices are to remain at these levels and press higher, these measures will only buy time for longer term initiatives. Governments seldom invest in long-term initiatives as their benefits come beyond the electoral calendar; I know this is a politically sensitive time, but it has to be recognised that this Government has invested meaningfully in a number of major long-term energy projects. Viability studies for the building of a gas pipeline between a Trinidad gas hub and Barbados and on to Martinique have been carried out and negotiations are under way on the price of gas. A viability study on a sugar cane power generation project is being conducted. Government has also made the necessary preparations to attract interest from the oil and gas majors in exploring Barbadian territorial waters – now that the dispute with Trinidad has been favourably settled. My understanding is that offshore oil and gas has already produced an income for Barbados via the strong interest from oil majors to buy from Government the geophysical data they need to consider whether to make a bid for exploration licences. I cannot fault this strategy. My own preference for the longterm is for further initiatives to support the development of solar and wind power. Germany became the world's largest user of solar power because of a simple fiscal measure I would like Barbados to follow. Individual households can reduce their electricity bills – to zero – by supplying to the national grid any surplus electricity they have generated themselves using wind and solar devices. Self-generation has the capacity to sharply reduce our oil-import bill. Lower taxes Government has been moving in this direction with incentives to change individual behaviour. Hybrid and small-engine cars and fluorescent light bulbs bear lower import taxes. Home conservation measures now receive tax relief. The next step would be to extend this Government's energy conservation allowance to include household solar and wind devices and to negotiate a fair rate from Barbados Light & Power for supplying the national grid with self-generated electricity. My understanding is that Government is weighing up these ideas. So far Government strategy has cushioned Barbados from the worst effects of the global energy and food crises. Indeed this has been so effective that many Barbadians are unaware of the global nature of rising prices and have looked to heap all of the blame on inefficient but long established distribution arrangements. These arrangements should be made more competitive, but efficient distribution will not protect us from a 200 per cent rise in global food prices, a 300 per cent rise in oil prices and a 400 per cent rise in gas prices. Barbados has had more than its fair share of visionary leaders from both sides of the political fence, but we cannot be complacent; our capacity for vision and leadership will be sorely tested by the global energy and food crisis swirling around us. Whoever takes up the reins of Government on January 16, I wish them strong leadership, wise judgement and good luck. * Professor Avinash D. Persaud is the Barbados-born Chairman of Intelligence Capital Limited, a London based firm of financial advisors, deputy chair of the Overseas Development Institute, a Royal Economics Society council member, and Professor Emeritus of Gresham College. nationnews.com