Sharp rises in oil prices predicted

Press, Volume CXIV, Issue 33460, 15 February 1974, Page 10

Sharp rises in oil prices predicted

Further sharp increases in the prices of all petroleumbased products, plus shortages and restrictions, have been predicted by a leading oil company in a letter on the oil situation that it has sent to its customers.

The letter says that oil will never again be cheap, nor will it be available in unrestricted quantities, but in the long term New Zealand is likely to be less aft'ected by shortages of imported oil than most countries.

The five-page letter, sent out by Shell Oil New Zealand, Ltd, over the signature of the company’s consumer markets manager (Mr G. M. Davidson), says that oil production is certain to be regulated by producing countries to preserve a wasting asset, and to maintain top prices. This, the letter says, underlines the need to use oil as a complement to other sources of energy, rather, than as a replacement for them. Exploration in politically, stable areas is receiving more attention, and alternative sources of energy will undoubtedly be developed, but

before these new resources can be developed and the world adjust to a much higher value of basic energy, there will be a period of considerable disruption, “which could last for a number of years.”

Burden spread During this period, most consuming countries will find their economies squeezed. In New Zealand, fuel shortages and higher prices will cause ■ a slow-down in industrial and economic activity. “Steps have already been taken to reduce the consumption of petroleum products J throughout the country, and (the oil industry is in continuous contact with the Gov;emment to ensure that as | stock levels deteriorate, the (burden of reduced availability is spread in the best interests of the country as a i whole.” In comparison with many overseas countries, New Zealand is relatively fortunate, the letter says. It has large

hydro-electric and geothermal generating capacity, significant coal reserves, and the substantial natural gas and condensate reserves of the Kapuni and Maui fields.

“The prospects of discovering more natural gas. or even oil, cannot be discounted.”

Wool's future Another advantage is that the New Zealand economy is based on agriculture rather than industry, with about 70 per cent of overseas earnings coming from farming and forestry. “Unless there is a very severe overseas recession, food must always be in demand, and with oil-based synthetic fibres in short supply and becoming much more expensive, the future for wool seems assured.” The letter gives a warning that changes must occur in the pattern of petroleum use in New Zealand, and there must be a further sharp rise in the price of all petroleumbased products. It would be prudent for industry to look at the use of indigenous products such as coal and natural gas. “Obviously New Zealand’s energy requirements will, for many years yet. continue to be met by a combinaion of local and imported fuels. ■

‘Cut out waste’ "However, the relative : price and availability of each I type of fuel has changed very ' significantly in recent months, and we must all ensure that we make the most efficient use of the energy resources available to us.” Wastage must be eliminted, efficiency increased, and the most suitable fuels selected for various purposes. The interruption to crude oil supplies will affect virtually all products derived from crude oil. the letter says. “Industrial chemicals, plastics, synthetic rubbers, greases, bitumen, waxes and lubricating oils and many other products have already been affected by the supply restrictions and cost escalations now applying to the oil industry world-wide.” Heavy lax Restrictions in the supply of fuels and other products appear likely for some time to come. “Within the restrictions and directives issued by the Government we shall do our utmost to ensure that all products in short supply are distributed on an equitable basis.”

The letter also traces the background to the oil situation, and points out that many countries tax oil products very heavily. In New Zealand, for example, the tax is SUSIO.7B a barrel, whereas in 1971 Arab Governments were getting about SUSI a barrel from the oil they exported.