an interesting discussion about the rising costs of oil


had an interesting discussion about the rising costs of oil with Motor Trades Association executive director Peter Fitzpatrick recently.

Clearly, the MTA fears the impact on car sales and car use if oil gets much more expensive than it already is.

Mr Fitzpatrick advocated some radical approaches to the issue – such as switching all vehicles to natural gas in the short-term and turning to nuclear power in the longer term.

Ideas in this vein have been given increasing currency in recent times.

The nuclear option is part of a bigger debate that should start with the removal of bans on uranium mining, but that is not a subject I want to dig too deeply into today.

The idea of shifting Western Australia’s sizeable vehicle fleet to natural gas is a big move that would take enormous courage for any government.

Obviously there is some appeal in the concept.

While WA has abundant supplies of both oil and gas and, as it happens, is blessed with its own petroleum refinery, there are some attractions to shifting from oil to gas.

Among the benefits are: cost; reduced emissions; differentiating WA from other regions; high-lighting the value of gas; and insulating WA from oil price cycle.

On cost alone, gas is very attractive.

After conversion expenses, the running cost is around half, which is why taxis are common users of the fuel.

WA would take advantage of its under-utilised gas resources and reduce pollution. It would be an act of faith in a resource this state has plenty of … the opposite, in fact, of the signal we gave the world a few years ago when our Reserve Bank sold down its gold stocks.

We’d be looked at as a progressive society willing to challenge norms and make big decisions. We’d be a leader in a new field, attracting people and investment as well as learning new skills that could be transferred into services exports.

However, it’s a major undertaking that isn’t as clearly beneficial as it first seems.

Firstly, there is the major cost of this transition. It is not just the one-off cost associated with the conversion of vehicles; there is also the significant infrastructure required to provide adequate fuel availability around the state.

Pollution may be reduced, but are there negative ramifications to having lots of natural gas-powered vehicles? Does it work in trucks and heavy equipment as well as it does for cars? Are there long-term issues for cars using gas when they weren’t designed to be powered by this fuel? What occurs when there are accidents?

These are questions that occur to me but to which I don’t know the answers.

More importantly, there is the issue of cost. Currently gas is cheaper because, as a fuel, there is less demand for it than for oil.

That is changing as energy users seek alternatives to oil and as our very able gas producers market the benefits of this fuel.

If LNG, for example, becomes more commonly used and therefore more of a commodity, I imagine it is likely the pricing will close the current gap from oil. It is even possible gas (because of its environmental benefits) could become more expensive than oil.

That’s good news for gas producers, but could be bad news for consumers if WA drivers find themselves without a choice of fuels.

Then there’s the issue of being a captive market.

Already, consumers are wary of oil companies and worry about price manipulation in an industry where a handful of global giants operate.

How would we guarantee that a competitive market operated in gas for vehicles? Currently, I understand, there are only two gas suppliers. A gas duopoly would be even scarier than what people perceive we have with oil.

Perhaps increased consumption would drive new competition.

To further consider the security element, what would happen to our economy if the gas were suddenly cut off – due to a severe natural disaster or other disruption to the supply lines?

Oil might be expensive but a cyclone in the North-West or a bomb under the pipeline won’t stop us getting any.

Finally, if current cheaper prices and subsidies for conversion to gas aren’t working, is it really a good idea to use compulsion? Free markets exist for good reasons – many of them raised above.

These are legitimate issues to canvass regarding an idea that, while I see merits, concerns me as someone who prefers to keep regulation to a minimum.

I’d love to see this debate go beyond these pages and I’d be happy to see the argument for gas prevail – if on balance WA is going to be better off for it.

Malone certainly a deserving winner

The 2006 WA Business News 40under40 awards last week were everything we’ve come to expect, and I have to thank the business community for getting behind this program.

While I have already welcomed Michael Malone’s assumption of the role as 1st Amongst Equals, I have to say I was as floored as anybody by his amazing speech, which would have to go down as one of the most remarkable I ever heard.

Mr Malone said his address was a thank you to his wife, Beata, and was prompted by the public statement of Geoff Sewell from Amici Forever, who revealed to the audience at the Leeuwin concert this year his decision to leave the band because of his own child’s autism.

The audience at 40under40 was stunned into silence by Mr Malone’s very personal story, yet it made him all the more worthy a winner.

It was not something that had earned him the 1st Amongst Equals tag, but by sharing it with the rest of us he showed why he more than deserved the recognition of this title.