How FALLING OIL PRICES exposed the great green lie: Saudi Arabia's battle with the US to drive down prices show we're far from reaching 'peak oil' 

 

Even though I have been reading about plunging oil prices for the past year, it still came as a pleasant surprise this week when I ordered 900 litres of heating oil.

It came to £264. Three years ago, it cost £609 to buy the same quantity.

I have already been saving money on road fuel. Over the past 18 months, the cost of filling my tank has fallen from around £70 to £53.

But for people with oil-fired central heating systems — which is most of us who live in the countryside, beyond the reach of a gas supply — the savings have been even more dramatic.

This is partly because tax makes up a smaller percentage of the retail cost of a litre of heating oil than it does of petrol and diesel.

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Fracking: Thanks to fracking— the controversial technique that involves fracturing oil-bearing rocks by pumping in water and sand at high pressure — the U.S. overtook Saudi Arabia as the world’s largest oil producer

For me, the cost of heating my home has more than halved, putting an extra £700 a year in my pocket to be spent on other things. Multiply those kind of savings across the economy and consumers, especially those in rural areas, are enjoying a huge bonus from low oil prices.

We have American oil companies and the Saudis to thank for that. For the past 15 months they have been engaged in a fight to the economic death.

Until recently, Saudi Arabia wielded enormous power in the oil markets. 

Not only was it responsible for 13 per cent of global oil production, but it headed OPEC, the Organisation of Petroleum-Exporting Countries (Opec), which accounted for 40 per cent of world oil production.

Opec is a cartel that exists for one reason alone: to try to fix world oil prices in order to maximise profits for its members, which are made up mostly of Middle Eastern countries.

If the oil price fell, Opec would meet and agree to cut production in order to push the price back up. 

If prices rose, Opec members would agree that it was safe to open the oil taps a little so that they could have more oil to sell.

In most developed economies, cartels are illegal because they work against the interests of the consumer. 

But for decades Opec has been allowed to operate with impunity, keeping the price of oil higher than it would otherwise be.

Two years ago, however, something remarkable happened. Thanks to fracking — the controversial technique that involves fracturing oil-bearing rocks by pumping in water and sand at high pressure — the U.S. overtook Saudi Arabia as the world’s largest oil producer.

Saudi Arabia felt threatened, so when the price of crude oil began to fall on world markets, Opec changed tack. 

Instead of cutting production, it increased it, hoping to drive down the price of oil and force U.S. producers out of business.

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Low: Oil prices dropped as Saudi Arabia tried to drive down the price of oil and force US producers out of business

Opec certainly succeeded in lowering crude oil prices. The price of a barrel of crude oil has collapsed from a peak of $115 in the summer of 2014 to just $31 this week.

But still neither U.S. nor Opec producers have cut oil production. They have locked horns in a price war they hope will damage the other more than themselves.

Moreover, on Friday export sanctions that have been imposed on Iran by the West since 2007 are due to be lifted.

The result could be yet more oil flooding onto world markets. That is why crude oil prices have fallen by another 20 per cent since January 1.

While the oil price war has put hundreds of pounds a year in my pocket, it could have been a very different story.

Three years ago, with the price of heating oil still surging, I nearly fell for the propaganda of the green lobby, thinking hard about taking out my oil-fired boiler to replace it with something called an air-source heat pump.

This is, in effect, a refrigerator or air-conditioning system in reverse. It would pump water through a circuit that included my radiators as well as a series of fan units in the garden.

By pressurising the water before it is pumped through the radiators, and depressurising it before the water gets outside, it is possible to pump heat from outdoors to indoors, even though the temperature is higher inside than out.

The heating system would have cost me £10,000 and sent my electricity bills soaring, but the company trying to sell it to me assured me that it would pay for itself in the longer run because oil prices were bound to rise much faster than electricity prices.

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Green protest: Demonstrators protested a fracking test drilling site in Upton, near Chester in Britain earlier this month

The world had reached ‘peak oil’, according to the theory, with the result that prices would soar ever higher as supplies dwindled.

I got as far as speaking to a couple of friends who had installed a heat pump in their own property, which was a little larger, but was brand new and much better insulated than my home.

While they had eliminated their gas bill, they were spending £2,000 a year on electricity (compared with my bill of about £500). My friends will be paying even more than that now.

While the price of heating oil has more than halved since 2013, the price of electricity has risen by 13 per cent, according to the Office of National Statistics. 

One of the reasons behind this rise is that electricity companies are being forced to buy a certain proportion of their energy from expensive renewable sources.

These so-called ‘environmental and social costs’ account for 8.4 per cent of domestic bills, according to Ofgem. In my 18th century house, which has solid walls, I hate to think how much I would be paying to keep it warm with a heat pump.

Three years on, the prediction that we had reached ‘peak oil’ and that prices could only rise as oil ran out now looks silly.

It was a case of seeing a trend line on a graph and assuming the trend would continue.

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Former Climate Secretary Chris Huhne argued for cleaner energy sources to replace oil and gas

The concept of ‘peak oil’ was just wishful thinking on the part of the green lobby, which wanted us to be forced to stop burning fossil fuels. While I didn’t quite fall for the myth, the Government did. As a result, we’ve been left with a national energy policy that assumes fossil fuel prices can only rise.

Huge subsidies — running at £3.4 billion a year — have been paid to subsidise solar, wind and other renewable energy.

All along, we have been told that showering renewable energy firms with public money — paid for through taxes and levies on consumers’ bills — was a wise investment that would save us money in the long run because it would make us less dependent on ever more expensive fossil fuels.

For example, the Coalition’s climate change secretary, Chris Huhne — remember him? — said in 2011: ‘Sticking with yesterday’s fuels could be tomorrow’s headache. 

With rising energy prices and finite supplies of fossil fuels, not many want to bet against low carbon.’

I wouldn’t mind betting against it now. Falling oil and gas prices mean that subsidies for green energy would have to rise to keep them competitive.

Last month, world leaders met in Paris to thrash out a deal to reduce carbon emissions. At the end of their marathon ten-day talks they all agreed that they were going to slash emissions.

With the exception of Britain, however, hardly any countries have legally committed themselves to reducing emissions.

When it comes to the crunch, does anyone really think they will do as we have done: force their industries to drop fossil fuels and buy much more expensive green energy, thus losing competitive advantage?

The world certainly isn’t showing any signs of reducing its reliance on oil so far. Global consumption — as well as production — has never been higher than it was in the final quarter of last year.

Ironically, the one large industrial nation that has succeeded in reducing carbon emissions — by 9 per cent over the past decade — is the U.S.

This isn’t down to green energy, however, so much as to fracking.

Cheap gas has consigned to closure much dirtier coal-fired power stations — which emit around twice as much carbon for every kilowatt-hour of electricity.

We, and the rest of the world, could be slashing carbon emissions, too, if we switched from coal to gas rather than trying to rely on expensive and intermittent wind and solar energy.

I doubt whether we have reached ‘peak oil’ or ‘peak gas’ just yet. But hopefully we might just be past the point of peak hubris from the green lobby.