Business leaders’ report warns Government of likely ‘oil crunch’ (From The Northern Echo)

Business leaders’ report warns Government of likely ‘oil crunch’

11:09am Tuesday 9th February 2010 in

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BRITISH companies in sectors from transport to retail could be hit by an “oil crunch” to match the present financial crisis within five years, business leaders including Sir Richard Branson are warning.

In a report to be launched tomorrow, the Virgin Group founder will say that the world is running out of oil and that the coming challenges may be more serious than the credit crunch.

Sir Richard – whose airline and rail businesses are sensitive to volatility in the cost of crude – has joined other company chiefs in warning of price spikes and shortages in the near future, unless drastic action is taken.

“The next five years will see us face another crunch – the oil crunch,” the report said.

“This time, we do have the chance to prepare. The challenge is to use that time well.”

The report is compiled by the Industry Taskforce for Peak Oil and energy Security, a group of British companies whose members include Sir Richard, Brian Souter, chief executive of Stagecoach, Scottish and Southern Energy boss Ian Marchant and Philip Dilley, chairman of consultancy firm Arup.

The group said the UK economy is particularly dependent on oil – from transport to retail – and urged any Government to produce a set of policies to enable the country to adapt to a future of high-cost oil.

‘‘Our message to government and businesses is clear.

Act now,’’ the group said.

‘‘If we don’t, we run the risk of a return to the oil price shocks of the 1970s with all the inherent uncertainty and trauma that brought.

It said fuel shortages could lead to shortages in consumer products, while the UK’s energy security “will be significantly compromised”.

Oil price shocks could also “destabilise economic, political and social activity” and have the potential to hit the most disadvantaged in society hardest.

The report comes amid general fears about future energy security and costs in the UK.

A recent report by energy watchdog Ofgem warned that electricity and gas may become unaffordable for an increasing number of households.

Oil prices have been particularly volatile in recent years, spiking at $147 (£94) a barrel in July 2008 before plummeting to $32 (£20.50) barrel that December, amid the financial crisis and onset of the economic downturn.

Chris Skrebowski, an independent oil consultant who prepared part of the report, said the recession has pushed the “oil crunch” point – when global demand will use up stocks faster than they can be replaced by new production – back by two years, giving governments and firms more time to work out how to act.

This is because shrinking economic output has suppressed demand and allowed prices to stay relatively low.