Posted by: Christian Verstraete | November 13, 2009

The Price of Oil changes Behavior


Last year, the price of oil was discussed every day in the news, these days it’s all about the A H1N1 flew, there is barely a word being said about the cost of the barril. Have we for good forgotten about it, or will it come back? Well, if we look at this figure, we may be confronted by the same issues in the near future. I found a text I wrote a while ago back, and would like to share it with you as it reflects interesting implications of oil price increases.

About one year ago I was traveling through Asia, which gave me ample time to look at CNN. One morning the TV in my hotel room was providing background noise as usual, when I got attracted by an interesting piece of information. There was a Thai farmer plowing his land using buffalos and explaining to the camera he had to do this because of the price of oil. He could no longer afford the cost of running his tractor as this would make his whole operation unprofitable. I remembered two other pieces of data I heard a couple weeks before. One morning on a local radio, the commentator was reporting that French monks were getting a lot of publicity because they used the fermentation gasses from their cheese factory to heat the water for their abbey. This simple fact was receiving national and international publicity.

It also reminded me of a discussion I had with a friend who spent his whole active life working for a petroleum company. He was pointing out to me how much petroleum based products were at the center of our lives and told me that our hospitals would be empty if we did not have petroleum any more. Syringes, tubes, Baxter bags, and many other consumables used by hospitals are using plastics from the petrochemical industry. That also applies to clothing, and too many other areas of our life.

The question I am asking myself, thinking about all of this, is what we are doing today to replace the petroleum industry with other sources. Yes many people are discussing about energy, using biofuel, wind, solar etc. to generate electricity, and far from me to say this is not important, but there is a completely different area in all of this, and that is the use of petroleum to make substances that are going into our products.

Do we actually know how much our products are dependent on petrol? It is actually getting important to gain that understanding and knowledge as the price of petrol will sooner or later affect the cost of our product. As oil reserves get smaller, which may not be tomorrow, companies will increasingly look at other types of substances and sources of energy. Yes, we may still have time, but developing new technologies takes a long time, so we better get started quickly. Up to a certain extent, the high price of the barrel of oil is a wake-up call for our industry. Let’s borrow a page out of the history of Brazil, who after the 1973 oil crisis developed alternative sources of energy, in their particular case biofuel. It took them nearly 20 years to get the technology fully mature and price competitive. But they were ready well in time for the present crisis.

Not only did this allow them to be prepared, it also fueled their industry, as there is currently a lot of interest in these “new” technologies. Similarly, Denmark has become an expert in wind turbines. Let’s hope the current oil price is the trigger of more innovation, to fuel our economies moving forward.

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