Rhein on Energy and Climate

On April 22, 2008 oil prices have reached a new record. For a moment, the barrel of 159 litres of crude oil traded in New York at $ 120! That is 10 times the oil price 10 years ago and twice as high as nine months ago.

The price trend is clearly upward, not because of speculation but because the fundamentals of the market have changed. Rising world demand, especially in Asia, encounters increasingly costly production and the prospect of depleting reserves. The days when oil will cost $ 200/barrel may be less distant than many of us think, maybe in 2012, maybe even sooner. Nobody is able to forecast with certainty when, but we all better prepare for it.

Rising oil prices will have a bearing for our household budgets. When the litre of gasoline cost € 0.75, back in the 1990s, few people cared about fuel efficiency when buying a new car. But tomorrow we will, and the industry anticipates changing consumer patterns. Companies will compete on fuel efficiency, rather than on additional superfluous accessories. Today, the most efficient cars in the market consume no more than 4 litres per 100 km, on long distance rides, the least efficient still consume up to 10 litres.

Assuming an average annual mileage of 30 000 km and an average price of petrol of € 2.50 during 2009-13, a prudent assumption, the running costs of a 10-litre car will go up to € 10 000 annually, for a 4-litre car only to € 3000. At future prices for petrol, running costs will matter.

There is therefore little point for German car makers balking at the future EU emission standard of 120 CO2 g per km, corresponding to roughly to 4 litres/100 km petrol consumption. Customers may no longer want to buy any “gas guzzlers” anyhow.

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