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Issues relating to the Fuel and Energy Industry

CHAIR —Welcome, Mr Robinson. I invite you to make a brief opening statement and then the committee will ask you some questions. For the benefit of members of the committee, Mr Robinson has a presentation and has asked that we perhaps interact with him as he goes through it.

Mr Robinson —Thank you very much. To explain, I am National Convenor of ASPO Australia, a volunteer non-government organisation. We are a network of professionals trying to work to reduce world vulnerability, and I might go into that term later. I have a handicap in life—I am trained as a scientist, which gives me a different perspective. I think Senator Bushby has an economics qualification, which I envy.

Senator BUSHBY —I did a year of engineering. I passed physics and chemistry at university.

Mr Robinson —Tremendous! Margaret Thatcher was a chemist—that is one of the reasons I have admired her. The reason for mentioning science is that I will be largely talking about only one of the terms of reference—global oil supplies. I will be concentrating on item (h)(iv), ‘securing Australia’s future domestic energy supply’, which I am interested in. People talk about ‘energy’ and that gets confusing—as to whether they are talking about electricity or grids et cetera. I am interested in transport energy not stationary energy. If we have an energy white paper without the distinctions everyone gets confused about energy security, so I am addressing just that particular area. But, from my understanding of the hearings in Canberra last week, the global oil situation was not discussed very much at all. As a scientist, I worked in a mineral laboratory at CSIRO, on scientific instrumentation, X-ray diffraction, electron microscopes et cetera, so I have a micron-sized view of the world in some areas. I was on the council of the Royal Automobile Club at the time of the second oil shock in the 70s, so I have some sympathy for the motoring people.

ASPO Australia has a whole range of different working groups: a finance sector working group, a health sector working group and a social services sector working group. We have groups in the states—in Melbourne, Brisbane, Sydney et cetera. So the topic of peak oil is, I think, very important. There are some analogies—and working from analogies is risky—and I will run through three, at the risk of them being inappropriate. The analogies are examples of things that could have been avoided if people had done some things in advance. The first one might be exaggerated: for instance, 100 years ago the Titanic sank and that was because a whole lot of marine economists, or marine engineers, said: ‘No worries. That cannot possibly sink—there are not enough icebergs. And you do not need all these lifeboats, because they take up too much space.’ That is a pretty tenuous one. Closer to home, Hurricane Katrina hit New Orleans in 2005, and for all sorts of reasons—they knew that the city was below sea level, they knew that in a 100-year storm the levy-banks were not high enough and so on—the United States was shown to be pretty disorganised beforehand and in the immediate aftermath. The third analogy is the current one, the financial crunch, with lots of things that could have been done.

The problem that I face here is that people have been talking about peak oil—there have been Senate inquiries and it has been in the media and so on—but it looks like ASPO Australia has not done very well at all, and the media has not done very well, in bringing this to the attention of decision makers like you and the public. So I will try and run briefly through these slides. Please feel free to ask questions.

Slides were then shown—

There is a title slide. I gave a talk at Murdoch once, and I was riding my bike out there, and some guy said, ‘Look at the weather radar,’ and I got seriously wet because I took his view of the weather radar. I was coming here by train, so I was looking at the radar. If we look at the oil or the petrol ‘sky’, the petrol sky looks pretty blue. There is lots of petrol in petrol stations. It is cheap. Our taxes are a lot lower than in Europe, and whatever. It looks pretty good.

If we look at the oil or petrol radar, then we see some oil storms coming. We do not know how big they are or when they are going to strike. With the oil radar, it looks like the storms coming behind the ones we can see on the radar now are going to be bigger and bigger. It might not be a very good analogy, but I was standing there drenched talking to students, and my feet were squelching!

In summary, I want to talk about oil not energy. I think it is very unfortunate when people use the term ‘energy’ when they could be talking about (a) electricity or (b) oil or transport energy and stationary energy. I think it is a cause of some confusion about global oil supply, because currently oil is a ‘fungible commodity’—that is a term I had; it flows everywhere and it goes around the world—so a supply problem somewhere just reflects through the world.

Peak oil is the time when global oil supply, which has been rising for the last 100 years, broadly, reaches a final maximum and then starts a decline, with perhaps a plateau on the top and bumps going down. But, broadly, peak oil is the time when the global oil supply stops rising and starts trending downwards. Anyone who says we are running out of oil either works for ExxonMobil or is ill informed or is being deliberately misleading and deceptive, or all three. And the reason is that peak oil people are talking about a rate of change from an increase to a decrease. Peak oil people never talk about running out of oil, because this curve going down will go on for hundreds and hundreds of years. Related to that, when BP says, ‘We have got 42 years of reserves left at the current production rate,’ that implies that instead of a decline curve—smooth like this—it is flat. For ‘42 years’: in year 43 there is no oil left in the world. That is physically impossible and seriously unlikely. So we are talking about a curve. So terms like ‘running out of oil’ or, ‘We’ve got 42 years of reserves left,’ and so on can be misleading.

Just broadly, because I am a scientist and talk about things with error bars, peak oil is likely to be—and I have been using this for a while—in 2012 plus or minus five years. There is quite good evidence that the world’s production last year in July might turn out to have been the maximum that the world will ever produce. That may well be proven wrong in the short term, but, just broadly, we are quite close to the peak.

Oil vulnerability assessment and risk management is crucial to all sorts of policies, be it in transport or health or whatever. The analogy is—I am on the second page of this, at slide 3—the Hurricane Katrina analogy and the financial crisis. With Hurricane Katrina, the American government at the federal level, the state level and the local government level were shown to be short sighted, ill prepared, incompetent and whatever in a range of ways.

Senator HUTCHINS —And termed corrupt, I think, too.

Mr Robinson —I am not close enough to know about that, but they were pretty disorganised. The bad news is that Australian state, federal and local governments are no better prepared—probably worse prepared—for peak oil than the US was for Hurricane Katrina.

There is the analogy with the financial crisis suggesting that with the financial crunch, if people had seen it coming—and Jeremy Leggett chaired a peak oil task force, an industry task force. He is saying: ‘There is an oil crunch coming. We’ve got five years to prepare, and there are things that can be done.’ Analogies are drawn with the financial crisis by Matt Simmons, who was an adviser to President Bush. He is a very serious energy investment banker and advising people at $57,000 million or something. He has been involved with this company. But he is always relatively outspoken and has written books on it.

There are a series of things here. I am presenting information not giving my opinion—just giving snippets of what other people have said. CSIRO’s energy people had a future fuels forum; I think CSIRO presented a submission to the inquiry. In one of their models—these are not forecasts; these are just modelling scenarios—a suggestion was that petrol could rise to $8 a litre and that was if peak oil is relatively soon and if all of these magical alternatives do not come in as forecast. Chatham House, the Royal Institute of International Affairs, produced a report in August last year suggesting an oil supply crunch was coming. The UK Industry Taskforce on Peak Oil and Energy Security that Jeremy Leggett headed suggested, with the analogy of the financial crunch and with all the things now being done—such as nationalising banks and taking over General Motors et cetera—there are things we could do in advance to help prepare for peak oil. We have five years notice, they say, but it is pretty clear that no-one is taking any of these things very seriously.

The International Energy Agency released a report in November last year saying that there are some serious supply-side problems. Senator Hutchins was in Canberra when Professor Aleklett gave a talk—which I will go into. The International Energy Agency is a cartel set up by the oil-consuming countries, the OECD, to counterbalance OPEC, so they are not a particularly international group like the IPCC. They can be seen to be biased to the point of view of Europe, the US et cetera and trying to put pressure on OPEC to provide oil for the oil-consuming countries. One of the things they say, on slide 9, is that the production from existing fields is declining at around six per cent to seven per cent per annum. That is even after there has been lots of infill drilling and things.

In their scenario they suggest, in slide 10, that the oil supply from existing fields is likely to decline quite sharply from now on because a lot of fields—like the North Sea, Mexico’s Cantarell and Bass Strait—are in decline. They see a gap from the existing fields of about 45 million barrels a day; that is, more than half the world’s current consumption. They see that gap being filled by fields that have been found now but have yet to be developed, and by fields that will be found in the future.

Professor Aleklett, who heads the Global Energy Systems group at the University of Uppsala, was in Australia earlier this month. He toured and gave lectures around Australia. He spoke to the people in the Bureau of Infrastructure, Transport and Regional Economics, BITRE, in Canberra and to the energy white paper people. He also appeared before the Senate committee inquiring into public transport at a special hearing. He has done some very interesting work looking at the International Energy Agency data on their reserves. There is no dispute about this decline from existing fields, the ones that are past peak. There is no real dispute about the fields that have been discovered or even the ones that are yet to be discovered. The dispute is one of arithmetic—the rate at which you can get oil out of the fields that the IEA is talking about.

Professor Aleklett, from a physics perspective, suggests that the rate of extraction from the North Sea, for instance, is a yardstick for producing very, very quickly and we cannot exceed that sort of level. The International Energy Agency is assuming physically impossible production rates from the existing reserves. We are talking about a rate of production, not reserves in the ground. Professor Aleklett was suggesting that there would be a smooth decline, not a catastrophic decline, nothing to be really concerned about, over 20 to 30 years, whereas the International Energy Agency, on the same data, is suggesting there will be a business as usual rise. That is very important.

I can give some examples of oil fields at peak. The most obvious one, which does not show up well on the slide, is Mexico’s big Cantarell field, one of the biggest fields in the world, producing two million barrels a day. It is in quite sharp decline and Mexico might cease exporting oil in the next five to 10 years. Most of Mexico’s oil goes to the US.

There is the big US field at Prudhoe Bay on the North Slope of Alaska and the North Sea. All these fields tend to go up and then down and that is the shape of oil fields. The US production did the same sort of thing. There was a very interesting quote from Brian Fisher, who was then head of ABARE, to a Senate inquiry into Australia’s future oil supply, quoting, in fairness to him, an analogy that when the price of eggs is high enough even the roosters will start to lay. That was meant to be an analogy that economic factors are important. I always get a laugh at oil conferences when I say that I think that ABARE at that stage knew no more about petroleum geology than they do about avian reproduction biology and that, regardless of how high the price of eggs goes, roosters will not lay. There is the same sort of thing with oil. Regardless of how high the price goes, you cannot produce more, in some areas. Will there be some interaction? I am on slide 15 and at a graph. A lot of oil executives, when they are working for a big oil company—BP or Saudi Aramco—say there is a party line: when they retire they are more free to give their own opinion. Sadad Al Husseini from Saudi Aramco, for instance, was pointing out over 18 months ago that the oil price had been rising quite sharply and the production since 2004-2005 has been relatively flat. The economists say that, if the oil price rises, more oil will be produced. It has not necessarily been the case. The oil supply has been relatively flat for five or six years and there are wiggles in it. I do not think we should read too much into it. There are a whole range of different estimates—

Senator HUTCHINS —Mr Robinson, I will just ask you something there. One sort of theory is that they have been reducing supply to push up prices, and you are saying that is not the case—that that is just not there.

Mr Robinson —Well, probably both. There are physical constraints. People are selling used cars or TV screens or whatever it is and set the price to try and match what the market will bear. The oil companies, particularly the national oil companies, are at liberty to work out if they will take a short-term profit or, as the king of Saudi Arabia had suggested, leave the next oil fields they find for their grandchildren. That is their decision. But yes. Dr Roger Bezdek, who gave a briefing in Parliament House a couple of years ago—I thought it was mixed up with question time; there were not a lot of people there—said he is an economist and he spends half his time explaining economics to geologists and the other half explaining geology to economists. This is the reason I started out with science. These things are interdisciplinary and the economists have had a fair proportion of the running. The Energy Watch Group, for instance—Jorg Schindler and Werner Zittel—set up, I think, by a think tank in Germany, suggest a steeper decline. There is a graph here. The International Energy Agency and World Energy Outlook suggest a lot of increasing things, business as usual and no worries. They have been reducing the rate of their slope, but they are suggesting that we are close to or at peak now and they are suggesting quite a steep decline—much steeper than Professor Aleklett suggested from the IEA figures.

Chris Skrebowski, who is the editor of Petroleum Review at the Institute of Energy in London, gave some talks in Sydney, Melbourne and Perth. The question is one about the rate of flow of the delivery—how much is coming each day into the petrol stations. It is not about how much is in the ground, although they are related, but they are not that closely related.

Senator HUTCHINS —But if you go back to, say, January 2004 then you may find the price of unleaded petrol is probably about 80c or something like that. It is probably 40c to 45c a litre less than it is now.

Mr Robinson —Yes.

Senator HUTCHINS —But demand has not been affected by supply.

Senator BUSHBY —Inelastic.

Senator HUTCHINS —Yes.

Mr Robinson —There are various guesses. I am actually talking about global oil supplies. European people are sheltered from oil price rises because they have much higher taxes. Higher taxes actually insulate you from the fluctuations of world oil supply, and that is one of the reasons for my admiration of Margaret Thatcher. She put Britain on a fuel tax escalator in 1988, although perhaps for assorted other reasons. Australia is not as well off as European countries because we are not buffered as much by taxation. We are better off than the US, for instance, because their taxation is lower, so their prices rise, but I am really talking about the global supplies. What happens at the pump is due to a range of economic and other things, but we can go into that later.

Senator BUSHBY —That is partly because there are a lot of barriers to entry and tightly controlled sources of supply where, if the prices go up, they can just enjoy superprofits.

Mr Robinson —Yes. Conversely, when the prices go down they do not do so well. But there are a lot of delays. If you find an oil field now and decide to put it into production you probably will not get any oil for six years.

Senator BUSHBY —In which time prices can do all sorts of things.

Mr Robinson —Yes. That is one of the reasons that the investment is a bit iffy. The oil price was $140-something last year, but the oil companies were not rushing out and doing anything dramatic because they have seen things—

Senator BUSHBY —That happened in the early eighties. A lot of people went out and invested an awful lot of money in alternatives and other aspects of energy production, and then the price collapsed and they all did their dough.

Mr Robinson —Yes. That illustrates the problem of believing the economists. As the oil price was falling the Gulf States—particularly the Middle East people—had been used to X amount of income, which they were using to support their population and to keep all the Saudi princes happy and whatever, and then the oil price fell, so they had to produce twice as much oil to get the same income. The economists say if the oil price falls we will get less oil produced, but it went the other way and there was a glut. So it is not all that simple and there are a whole lot of time delays.

Senator BUSHBY —What you are saying there is really the nub of it: they are seeking to produce an income stream rather than a certain amount of oil and they will make their decisions based on achieving that income stream rather than—

CHAIR —A cash flow target.

Senator BUSHBY —Yes, it is a cash flow target rather than a—

Mr Robinson —There are a whole range of things. For oil producers like Venezuela and Saudi Arabia there are political and economic factors, but there are also physical factors.

Senator BUSHBY —It does not come back to a pure market.

Mr Robinson —No, I think it is far from a pure market. The question is one of deliverability, the rate of production. If you have an oilwell that is producing, you can turn it down a bit but you cannot kick it up any more than its design capacity. Skreboswki was very clever in the way he produced this seesaw analogy, which is on slide 19. There are a whole lot of oil countries and fields where there is more production coming on-stream and there are a whole lot of countries and fields where the production is declining—for instance, Bass Strait, Mexico’s Cantarell or the North Sea. At the moment the seesaw is balancing. The new fields coming on in Brazil and so on are balancing the fields going down. It does not take very much to tip the seesaw the other way, where the decline starts to exceed the rate of increase. It is not that we are not finding more oil and not developing new oilfields; it is just if the decline rate in the existing giant oilfields like those of Mexico is very steep then you need a lot of new oilfields.

CHAIR —Do you think we are doing enough in Australia to find new fields?

Mr Robinson —I would prefer to talk about global situations, because I think what we are doing in Australia is inconsequential on a world scale.

CHAIR —But isn’t there a domestic demand? To some extent we can only directly influence what happens here.

Mr Robinson —No, I think that is not right. If we are aware of peak oil then a whole lot of policy options, like exploring more for oil in the short term, come up. My recommendation for the Australian system, seeing that you have raised it, would be that we stop producing oil in Australia and import it while it is still cheap.

Senator BUSHBY —And keep our reserves?

Mr Robinson —And keep the reserves. But that runs contrary to all sorts of policies.

Senator BUSHBY —As a simple statement, though, it makes a lot of sense.

CHAIR —And then flog it when it gets really expensive.

Mr Robinson —We would not actually be flogging it. We would not be importing oil at very high values.

Senator BUSHBY —It would enable us to be self-sufficient for longer, effectively.

Mr Robinson —It would be nice to be less exposed. The discovery rate of oil globally reached a maximum in the 1960s. Since 1980 the world has been using more oil every year than was discovered, although there is some ambiguity. If you look at the curve on slide 20, broadly, we can work out how much oil is going to be discovered in the future just from the smooth curves and those various estimates—the International Energy Agency has suggested 114 gigabarrels. Those sorts of estimates are pretty reliable. On slide 21 there are all sorts of different estimates of when peak oil might be. The slide shows people who have been to Australia to talk about it. You could sort of run a book on it. My guess is that a weighted average is still 2012 plus or minus five years. Within decision-making time for things like investments of superannuation and tunnels under Brisbane, that is quite a short time frame and, regardless of whether it was last year, 2005 or 2012, we do not have a lot of time. The forecasts that ASPO provides—I am on slide 22—are in line broadly with everyone else’s. This is quite useful. The bulk of the world’s oil comes from conventional oil from ordinary oilfields such as the Middle East, Prudhoe Bay or the North Sea. There is heavy oil from tar sands in Canada or from Venezuela and there is oil from very deep water, which is the same sort of stuff but is harder to get out and is often handled differently. We have oil from Arctic regions, such as the North Slope of Alaska and the north of Russia, which is hard to get out as well. Australia is important to the world for the liquids that come from gas production. The natural gas liquids play quite a big role for us all. Just in passing, when Senator Hutchins was there he explained that the International Energy Agency had made a couple of arithmetic errors in their forecasts of the oil from natural gas liquids, which is likely to be lower than they estimate.

One of the problems that I face in talking to decision makers or to the media, if I get the chance, is that people do not realise the magnitude of this problem. On slide 23 I have drawn a cube on the skyline of Perth. I have included the Eiffel Tower for people, unlike you, who do not come to Perth very often—there are people in Canberra who are more familiar with the Eiffel Tower than they are with the Perth skyline. That is unkind, but it gets a parochial laugh here from the Western Australians.

Senator HUTCHINS —I have never been to Paris; I know some people have.

Mr Robinson —There is an awful lot of oil. You can run cars on ethanol. If we took all of Australia’s wheat crop and turned it into ethanol we would get some nine or 10 per cent of our oil usage, but there would be no bread in Woolies and no bickies on the tea tray.

CHAIR —What about sugar cane?

Mr Robinson —Yes, you can do that. All of these things, like running cars on fish and chip shop oil, are relatively small on that scale of things. Professor Aleklett, when he spoke in Canberra, pointed out that 100 millilitres of petrol has enough energy—a kilowatt hour of energy—to take one car up to the top of the Eiffel Tower. So, if you fill your petrol tank at the service station with, say, 50 litres of petrol, that represents enough energy to take 500 cars up to the top of the Eiffel Tower. It is very valuable stuff and often we do not realise that when we see the 50 litres going into the tank. Because one man-day’s worth of work is about half a kilowatt hour, filling your tank with 50 litres is equivalent to having 1,000 people towing your car around for a day. Professor Aleklett used that analogy and I had not heard it before.

We are trying to get an idea of the magnitude of the thing. Australia’s consumption is quite small by world standards, as shown on slide 26. China’s is bigger, of course, and the US uses a cubic kilometre of oil every year. This is big and there are all sorts of things we can do, but we need to keep the magnitude there. Dr Bezdek spoke at Parliament House in Canberra a couple of years ago. An important study co-authored by Bezdek, Hirsch and Wendling suggests that if peak oil is coming—they did not put a date on it; they said people have various estimates—things like enhanced oil recovery, coal to liquids and more efficient vehicles have to be started 20 years earlier, with a crash program, if they are going to have any impact at all.

It is not very likely that we have 20 years and it is not very likely that anyone in Australia will put a lot of money into coal to liquids, for instance. Those things are not very likely. Look at the graph on slide 28. If you start a little too early, before peak oil—let us say we enhance public transport in Australian cities with tramlines, buses and trains—in economic terms it will cost too much. If you start doing it too late, there is the Noah analogy as raised by Dr Samsam Bakhtiari from the National Iranian Oil Company, when he appeared before the Senate inquiry. Noah was told to look at the weather, he was tapped on the shoulder and told there was a storm or a flood coming. He got his ark finished on time and on budget, got it through OH&S and the local council or whatever. The analogy is that it is actually very hard to build an ark under water.

It is really important that a lot of these things happen before it is too late. We have seen this with the financial crunch, New Orleans—all sorts of things could have been done in advance. It is inordinately cheaper to do things in advance. If we wait until there is a serious depression from an oil crunch, which might happen, then there will not be the funds to put in public transport to help the outer suburbs or whatever.

If we look at slide 29, Australia’s oil production has made us self-sufficient except for couple of times. Note that Geoscience Australia forecast a 50 per cent probability that Australia’s oil production will be falling, unlike Britain. There Margaret Thatcher, or someone else, had arranged that Britain’s oil consumption should be relatively flat since 1988, partly because of the fuel tax escalator. Ours has been rising since then. We have a rising demand curve, a reducing indigenous supply curve and we have to import the rest.

In 2006-07, there was over $12 billion of net imports. Last year—if I have done the sums right—it was around $18 billion. If we look down that curve we might be importing two or three times as much oil and the price might be two or three times higher. We could have some very serious import issues. We cannot just rely on importing the oil even if it is there.

In conclusion, our recommendations for the governments as a whole are not related to electric cars, sugar cane or whatever. The first priority is for awareness and engagement. I think it is very important that we realise that the term ‘energy security’ certainly does not apply to transport fuels. The community and decision makers should be (a) aware of the problem and (b) engaged, because there are lots and lots of ways that individual people, individual corporations, local government, state government, federal government, whatever can help.

We should be suggesting that people should be more frugal in their use of petrol. A hundred millilitres of petrol has two man-days worth of work. We should use it more sparingly. Everyone should try and be more efficient. For example, I was able to come by train and walk up the hill. There are all sorts of ways we can be more efficient, such as taking a smaller car and things like that. I think that energy efficiency, in the case of oil and petrol conservation in Australia, for example, is not managed nearly as well as we manage water.

Alternative fuels and technologies, electric cars or hydrogen-powered cars or whatever, are a very low priority, although they tend to be focused on. Looking at the Noah analogy, we should get organised now, and particularly oil vulnerability assessment and risk management should be a very important part, a central part, of a whole lot of policy decisions. I am sorry that took so long. That is a rush through the way I try and present this story.

CHAIR —Thank you very much, Mr Robinson. You have scoped a problem for us. You told us at the end what you think should happen—being aware, being frugal and efficient. What is it specifically that you think government needs to do to address this issue, prepare, be engaged?

Mr Robinson —Firstly, if you look at, say, the energy white paper process, you can read scads of documents, and they selectively quote from the International Energy Agency when it suits them. All sorts of people appear to be dodging the issue. A whole lot of people, like Lord Nelson or whatever, are putting a telescope up to a blind eye and not seeing the problem. I just wanted to reiterate that our prime recommendation is for people to start talking seriously about peak oil when talking about oil vulnerability assessment. The economists who say, ‘No worries; oil grows on trees,’ or ‘Roosters will lay eggs,’ and things are a big worry. We should be looking at the science behind that in addition to the economic forces. I think in this case geological forces are much stronger than market forces, because the oil was produced—

CHAIR —But we are aware now, so what should we be doing?

Mr Robinson —I would like to see it discussed as part of things in the major and minor parties. The opposition, for instance, should have an oil vulnerability policy. I think you will find the politicians of the major parties do not mention oil vulnerability. For instance, there is a probability, whether it is 10 or 20 or 50 per cent, that we will have an oil crunch at least as bad as the financial crunch within the term of the next parliament. It is very awkward for politicians to start warning people about a problem because we do not have an immediate issue. It is a bit like climate change—there is no solution. It is partly just going to happen. There are all sorts of ways we can minimise it.

CHAIR —But do you have some ideas as to what governments should be doing? We are talking—

Mr Robinson —I do not want to be pedantic. It is really important that governments are honest and start discussing it. If that happens—if there is open discussion—then there are a whole range of policy-level things that can be done. If you look at—

CHAIR —Such as?

Mr Robinson —The most obvious one would be to follow Margaret Thatcher and put Australia on a fuel tax escalator. That is contrary to all the political things. But, if you look at the water situation in most of Australia, there were water shortages two or three years ago. Governments did not fall. The community were behind it. We could see there was a problem. There were water restrictions, allocations, pricing things and rational pricing policies. In Western Australia, for instance, there has been a sliding scale of water for domestic houses. The first amount of water for a house is relatively cheap. As you use more in your household then the marginal cost rises. There are all sorts of things we could do. We should prepare a petrol allocation system. On eBay you can buy ration tickets from the war period, when petrol was rationed up until 1950. We should have a rationing system available—a smart card-based system that would be equitable. People who live in the outer suburbs of Australian cities should get a higher allocation than people like me who are fortunate enough to live by a train station, or whatever. People who are not fit enough to run for a bus should get more allocation. I can ride a bike into town in 35 minutes from where I live. There are all sorts of things that can be done. If the opposition, for instance, went to the government and said, ‘There should be a petrol-rationing scheme, an equitable, tradeable—’

Senator BUSHBY —That is the best way not to have one. If we go and tell the government—

Mr Robinson —I was just using—

Senator BUSHBY —Yes, I know. If we raise it, it’s not going to happen!

Mr Robinson —No, but that is the question. I think these things, a myriad of little things, could be done. If we look at our preparation for cyclones, bushfires or whatever, there is a hierarchy of federal, state and local government and individual things. What is your bushfire plan? A bushfire plan is topical. What do you do? And that depends on what the local bushfire brigade is doing. If we look at our preparation for sudden fuel shortages then there is a conspiracy of silence. There is a Liquid Fuel Emergency Act at a federal level. The Western Australian government is the only one that has made public any liquid fuel emergency planning. It is incredibly ineffective and obsolete, and whatever. An individual firm, an individual person cannot work out what to do if there is petrol rationing. Western Australia had a 30 per cent natural gas shortage last year. If there is, say, a sudden 30 per cent petrol and diesel shortage in Australian cities then currently it would be very hard for people to cope. If we prepared them in advance, it would be a lot easier. I have been talking about a global oil supply in a long-term slow decline, but there would be blips on it. There have been sudden oil shortages in the past and we should be preparing for, say, a 30 per cent reduction in petrol and diesel in Australian cities with, say, two weeks or six weeks notice.

Senator HUTCHINS —You have argued that there are severe constraints to the introduction of alternative transport fuels. Do you want to outline for the committee what you see as those constraints.

Mr Robinson —It is related to the scale of how much oil we use. If we took a unilateral decision to make all of our wheat crop into ethanol then we would still only get nine or 10 per cent. Yes, you can run cars on oil from fish and chips shops, but there are not enough fish and chip shops—we do not have enough Pauline Hansons. You can put ethanol made from sugar cane into petrol or you can make biodiesel from canola, but it is just physically impossible to make any significant amount of these things in any significant time, not even coal to liquids.

People only do coal to liquids when absolutely necessary, as South Africa did under apartheid sanctions or the Germans did during the war. With all of these things you can say in the same sentence that, yes, they are alternatives and, no, they are not alternatives. Yes, you can make a small amount of them and, no, you cannot make any significant amount. The same goes for the hydrogen economy and electric cars—there is a lot of snake oil being sold around the place. It is the magnitude and the timing that is the question. All the alternatives are most unlikely to have any impact on that very big gap between what Australia uses and what we are producing from indigenous oil supplies.

Senator McEWEN —I notice your submission was, I think, prepared in 2004 so it is a little bit out of date but anyway it has some useful suggestions about what governments could do, including in terms of FBT, which currently rewards car use, and things like planning bikeways et cetera when we are planning roads. I thought a very interesting one was about salary packaging vehicles, which by and large are provided to decision makers, who then have an unrealistic understanding of the use of fuel because they do not have to pay for it themselves. If we did all of those things—which I think is sometimes called addressing the low-hanging fruit—would that actually extend the period of time that we have to address the critical fuel shortages that are coming, according to you?

Mr Robinson —Yes, but I think—

Senator McEWEN —By how much?

Mr Robinson —You can wave your hands in the air, whether it is economic modelling or whatever, but I think a lot of these things would send signals to people about this inevitable growth. We have seen get-rich-quick people saying this will go up forever. There are still a lot of graphs of airline travel or car usage and things and a whole range of perverse policies at federal, state and local government levels, fringe benefits tax being the most iniquitous one, the most obvious one.

There are a range of things but some of them, like putting the price of petrol up, would be an incredibly useful signal. If you put the petrol tax up by, for instance, 5c a litre every year then that money could go into schools, hospitals and all the sorts of things that the community wants done. It could go into public transport and things but it sends the signal—as Margaret Thatcher must have been very well advised—that, if it is a fuel tax escalator, the price is going to go up. That then raises the awareness but it is almost a chicken and egg situation; no government that wants to stay in office is going to find it very easy to put the petrol tax up. We had suggested to the public transport inquiry that the Queensland government should incrementally phase out their fuel tax subsidy. But one should not waste a good recession, and the Premier of Queensland just removed it. It was a silly subsidy. I think it is quite possible.

If we wait for OPEC to put prices up then all that money is exported; if we put the prices up by raising the fuel tax then we have all sorts of options. Whether we pay off debt or whether we put it into schools, hospitals or whatever is a decision for government. Awareness is recursive: you cannot do these things unless there is more awareness and some of the options—like raising the petrol tax, or just abolishing the FBT or the tariff subsidy to big four-wheel drive vehicles—are stupid. That is something out of the 1950s. There are all these options and apparently no-one is taking it seriously. There are all these economists in ABARE and the Department of Resources, Energy and Tourism saying, ‘No worries.’ We cannot forecast what will happen, but there is a serious probability that we are facing a global oil crunch very soon.

Senator BUSHBY —Regarding the global oil crunch, you have some estimates of when peak oil will occur. Is that based on a simple economic analysis of how much is being produced and how much is being used, or is it taking into account the factors that you were talking about earlier, whereby you have Middle Eastern countries that are looking to keep reserves for their grandchildren and things like that? Is it an actual physical peak or is it a peak that is influenced by decisions of oil-producing countries?

Mr Robinson —Both. But my impression is that it is very largely a geological thing. The guy from Saudi Aramco said that he was predicting a 10-year plateau. We might be halfway through that. His suggestion of the plateau or the peak was from geological constraints.

Senator BUSHBY —So what you are saying is that, no matter what decisions are made by those controlling oil reserves and no matter how many future oil reserves may be discovered, this is still likely to happen in the very near future.

Mr Robinson —There is a very high probability, yes. The people exporting a lot are currently Russia and the Middle East—Saudi Arabia and Iraq and so on—where there are a whole lot of political things happening. No market is fully informed and free, and the oil market is no different from anything else. But my suggestion is that it is largely physics and geology that are controlling it, and the economic aspects are relatively small.

Senator BUSHBY —As if they are playing at the edges.

Mr Robinson —Broadly. Whereas the economists think that it is nearly all economics and very minor—

Senator BUSHBY —It is obvious that oil is a finite resource. Everybody would have to acknowledge that.

Mr Robinson —It is actually not the end of oil; we are talking about the rate of change.

Senator BUSHBY —I appreciated that when you said that. That is something which I have always thought as well. We are not just going to run out—smack bang!—but it might become a scarcer resource.

Mr Robinson —It will be increasingly scarce.

Senator BUSHBY —Therefore it will be a more expensive one to access, with consequences for who can use it and how it can be used, which I think is where you are coming from.

Mr Robinson —Yes.

Senator BUSHBY —Your suggestion of an escalating excise tax—

Mr Robinson —That is one suggestion.

Senator BUSHBY —What is the actual outcome that you are seeking to achieve by making that recommendation?

Mr Robinson —Predominantly to raise awareness. The Western Australian government in the paper today said that there is a ban on sprinklers in winter. That is very straightforward—people can recognise there is a water shortage. With water shortages around Australia we know it is going to bloody rain next year, but it is not raining oil and oil does not grow on trees. So it is partly about awareness and resources. The petrol price in Perth fluctuates 20c a litre, so a 5c per litre increase per year is not going to be noticed.

Senator BUSHBY —No, but it will be noticed politically.

Mr Robinson —Yes.

Senator BUSHBY —Regarding the first point of the outcome that you are seeking, I would suggest that, politically, you are probably going to need to raise awareness before you could actually start doing that in a country like Australia.

Mr Robinson —Sure.

Senator BUSHBY —Australia has a lot of differences to the UK, which is a far more compact place with better public transport. We are far more spread out and people are far more dependant on—

Mr Robinson —Yes.

Senator BUSHBY —I think you might need to try and raise awareness in other ways before you could actually get away with it.

Mr Robinson —Sure, but the chair was asking, ‘What do we do?’ and I said, ‘Start with awareness.’

Senator BUSHBY —That is fine. I am not challenging you. I am just trying to test it out.

Mr Robinson —Even discussing, say, a 5c per litre thing would be a good way of raising awareness, even though all hell would break loose. If you look at the water situation, there were all sorts of water restrictions accepted in Melbourne, Sydney and Brisbane.

Senator BUSHBY —Which probably would not have been 20 years ago.

Mr Robinson —I think Australian people have always been aware.

Senator BUSHBY —I think there is a development of awareness on water which is yet to happen with petrol.

Mr Robinson —I would like to see the opposition recommending consideration of a 5c per litre—

CHAIR —Why do you focus on us? Why don’t you focus on the government? They are in charge. The government are running the shop. That is your best chance.

Mr Robinson —You are the chair. That is why I said that.

CHAIR —Fair enough. Thank you for your contribution to the committee this morning.

Mr Robinson —There is a lot of detail behind this and ASPO Australia would be very happy to provide details to the committee or the research staff. However, this is more about perception than actuality.

CHAIR —The secretary, on behalf of the committee, would be very pleased to receive any further documentation you would care to share with us.

Mr Robinson —Certainly if she wants information we can provide it. Thank you very much.

[9.50 am]