Energy minister will hold summit to calm rising fears over peak oil

The Guardian March, 21 2010

Lord Hunt calls UK industrialists together to discuss government response to any early onset of decline in global oil production

Lord Hunt, the energy minister, is to meet industrialists in London tomorrow in a bid to calm mounting fears about the disruption that could follow a sudden shortage of oil supplies.

In a significant policy shift, the government has agreed to undertake more work on whether the UK needs to take action to avoid the massive dislocation that could be caused by the early onset of “peak oil” – the point that marks the start of terminal decline in global oil production.

Jeremy Leggett, the executive chairman of the renewable power company Solar Century and a leading figure in the UK industry taskforce on peak oil and energy security, said the meeting, to be held at the Energy Institute, showed a welcome new sense of urgency.

“Government has gone from the BP position – ‘40 years of supply left, the price mechanism works, no need to worry’ – to ‘crikey’,” he said. “BP and others are telling us that, but you lot, Virgin, Scottish and Southern, and others are telling us something completely different. We do not know who to believe. Let’s do a proper risk assessment with industry,” he said.

The meeting is expected to include executives from the taskforce members including Virgin, Arup, Stagecoach, Scottish and Southern Energy, and Solar Century as well as other industrialists.

The decision to hold the talks came after the UK industry taskforce on peak oil and energy security last month issued a provocative report, The Oil Crunch: a Wake-up Call for the UK Economy, in which it warned of the dangers of complacency.

Sir Richard Branson, founder of the Virgin Group, whose rail, airline and travel companies are sensitive to energy prices, warned then that the coming crisis could surpass the credit crunch. “The next five years will see us face another crunch: the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well,” he said.

The government had previously played down the risks arising from peak oil after the Wicks review in the summer in effect dismissed the idea that global demand for oil could soon outstrip supply.

A spokeswoman for the Department of Energy and Climate Change confirmed last night that Hunt and a range of energy-policy civil servants would be holding “private and behind-doors” talks at the Energy Institute. But she played down the significance of the session, saying the government had always taken supply issues seriously and met different parts of industry on a regular basis. “We do this all the time; it is just a normal stakeholder meeting,” she insisted, adding that there was no “marked” change in ministerial policy.

The issue of peak oil arose last November when whistleblowers inside the International Energy Agency alleged the problem had been deliberately downplayed over a long period. BP and other oil companies insist that there is little danger of the world running out of oil because new areas such as Brazil, and more recently Uganda, are always opening up to development. BP chief executive, Tony Hayward, believes demand will fall as prices move up., pushing back any major peak-oil dislocation.

But booming demand in China, India and the Middle East has pushed up the price of crude to more than $80 a barrel and UK petrol prices are close to record levels.

Amrita Sen, an oil analyst at Barclays Capital, believes the price of crude could pass $100 this year and reach nearly $140 by 2015. Francisco Blanch, of Bank of America Merrill Lynch, has speculated it could hit $150 within four years.

Leggett says all these scenarios could be much too optimistic. He is convinced that Britain must prepare as quickly as possible for a situation when oil becomes so expensive that international trade is hampered and lobalization breaks down.

Peak oil used to be the preoccupation of a small minority, but a parliamentary group has been set up to follow the issue and an increasing number of industrialists have begun to worry about it.

Ian Marchant, Scottish and Southern Energy’s chief executive, is one who now believes global demand for oil is on the brink of outstripping the ability to produce it. At the launch of the Oil Crunch report, he said: “The west has been far too profligate in its use of oil and the price is going to say: stop it now and start using your oil as a scarce commodity.”

READING COMPREHENSION 2

Crashes are generally said to be salutary reminders of the old wisdom that markets can fall as well as rise. Market commentators habitually berate investors for forgetting this “lesson” later on. But the lesson many people learnt from 1987 is not, in truth, that markets can fall. It is rather that the consequences of a crash do not need to be calamitous, and will probably be only temporary. As the folk memory of 1987 displaces the folk memory of 1929, the popular fear of shares seems therefore to be fading.

The trouble is that the apparent lesson of 1987 – that crashes can be free of pain – is not the only thing that has added to equities’ luster in the decade. That lesson has absorbed at the same time as two other big changed have helped boost demand.

One change is demographic: the large bulge in the number of affluent people in the rich world who are now between the ages of 40 and 60, and who possess a vast pool of personal savings looking for a profitable home. In the past decade, millions of people who had never before done so have invested in the stock market through mutual funds and other instruments, instead of in cash or bonds, and have profited mightily from their decision. The other change is globalization, and the opportunity this has given to the rich world’s savers to spread their risk and increase their returns by investing in the fast-growing economies of Latin America, Asia and Eastern Europe. There could hardly be a happier coincidence. Or could there be?

One reason to feel less sanguine about this week’s anniversary is the growing misunderstanding of the real benefits of globalization. Instead of being seen as an opportunity to diversify investment and therefore to spread risk, globalization has lately become muddled up with the so-called “new paradigm” in America – the seductive doctrine, verging on clap-trap, that says that inflation is dead, that old economic laws have been repealed and that America’s stock markets can therefore keep on growing indefinitely at their present rate. On this view, emerging markets are being seen less as attractive investment opportunities, more as a reason to believe that the globalization of labour and product markets can forever stop workers and firms from raising wages and prices.

It is hardly surprising that emerging markets have recently lost some of their appeal as means of diversifying risk. Since their peak in 1993, when their share prices jumped by an average of 75%, bad news has marched through most of these new markets. In 1994-95 the collapse of the Mexican peso lowered returns from most of the Latin America, and recent months have toppled one currency after another in East Asia. Several of Eastern Europe’s currencies now look vulnerable too. As a group, over the past dozen years, emerging stock markets have under-performed Wall Street. In principle, this does invalidate the case for investing in these markets in order to reduce overall risk. In practice, it is yet another reason why, having digested what they think is the lesson from a decade ago, investors are now in grave danger of driving Wall Street far too high.

For a second, bigger, reason to worry is that the apparent lesson of 1987 is wrong: crashes are hardly ever benign. It is true that the crash of 1987 did little lasting damage. But a stock market slump in Japan in 1990 knocked the stuffing out of its banks and led to a period of stagnation from which it has still to emerge. The crash of 1987 was relatively painless because, unlike the Bank of Japan, the American Fed moved quickly to reassure banks and stave off a slump in investment and demand by easing monetary policy.

At today’s valuations a similar drop in New York would destroy some $2 trillion of wealth. There is no guarantee, if this happened that the Fed would be able to repeat its damage-averting trick in the present looser monetary conditions without setting fire to inflation. In that case, history would repeat itself as tragedy, and plummeting investors would find no helpful coil of elastic wrapped around their feet.

Ex. 1. 1) What was the striking thing about the crash of 1987?

2) What are crashes generally considered to be?

3) Why are new markets not so appealing?

4) Why was the crash of 1987 relatively painless?

Ex. 2. Find the following expressions in the text and write them out. Give their definitions.

Stock market crash; interest rate; to berate somebody for…, to boost demand; a vast pool of personal savings; mutual; fund; in cash or bonds; to profit from; to increase smb’s returns; to feel less sanguine; to diversify risk; to lower returns; to topple one currency after another; to invalidate the case; to knock the stuffing out of its banks; to reassure banks; to present looser monetary conditions.

Ex. 3. Complete the sentences:

1) trouble / apparent lesson / thing / equities / lustres / decade.

2) change / globalization / opportunity / savers / risk / returns / investing / fast growing economies.

3) reason / sanguine / anniversary / misunderstanding / benefits / globalization.

4) emerging markets / appeal / diversifying risk.

5) invalidate / investing / markets / reduce risk.

6) crash of 1987 / painless / American Fed / reassure banks / stave off / easing monetary policy

7) valuations / drop / destroy / wealth.

8) Crashes / salutary reminders / wisdom / markets / fall / rise.

Ex. 4. Learn the following word combinations with financial terms:

currency – 1)…, 2)….

currency of account - …

currency of bill - …

agreement currency - …

common currency - …

convertible currency - …

counterfeit currency - …

decimal currency - …

forced paper currency - …

hand-to-hand currency - …

land based currency - …

managed currency - …

ration currency - …

Translate into Russian:

1. Many slang words have short currency. 2. The rumour soon gained currency. 3. Do not give currency to idle gossip.

Shares –

shares advanced from … to …

shares are down –

shares are stationary –

Shares of labour –

shares without par value –

share of stock –

oil share –

incentive share –

transferable shares –

wage share –

Translate the following into Russian:

1. She went shares with me in the business. 2. Let me go shares with you in the taxi fare. 3. What share did you have in their success? 4. You must take the share of the blame. 5. You are not taking much share in the conversation. 6. £1 shares are now worth £1.75. 7. The Financial Times shares index went down five points yesterday. 8. He would share his lost pound with me. 9. He hated having to share the hotel bedroom with a stranger. 10. I will share in the cost with you. 11. She shared (in) my troubles.

Match the definition in the left column with the term in the right:

invest - …

to invest a person with power of attorney - …

to invest money at interest - …

Translate the following into Russian:

1. We invested in a new washing machine. 2. The military governor has been invested with full authority. 3. The old ruins were invested with romance. 4. By careful investment of his capital he obtained a good income. 5. He has an investment of £500 in oil shares.

Interest – 1)…; 2) …

~ and interest - …

at interest - …

bearing interest - …

cum interest - …

ex-interest - …

interest in a business - …

interest in profits - …

interest on bonds - …

interest on capital -..

interest payable on delay - …

to draw interest - …

added interest - …

annual interest - …

average interest - …

insurable interest - …

nominal interest - …

monopoly interests - …

mortgage interest -…

Translate in to Russian: 1. He returned a blow with interest. 2. They paid him 6% interest on a loan. 3. When manufacturers demand higher tariffs we may suspect them of having interested motifs. 4. He shared (out) £100 among five men.

Insert prepositions where necessary:

Whether it is as tragedy or farce, the tendency [ 1 ] history to repeat itself is well documented. So it is not surprising that this tenth anniversary [ 2 ] the stock market crash of October1987 finds some investors [ 3 ] a nervous state of mind. As this newspaper noted [ 4 ] that earlier crash, the 1982-87 bull market “was driven further and faster than any before, not just [ 5 ] economic confidence and cash-rich institutional investors but also by deregulation and wider share ownership.” It was, [ 6 ] other words, very like the present bull market. What, if anything, has changed? What has been learnt?

One thing that has not changed is the world’s love affair [ 7 ] shares. That is because, [ 8 ] the benefit of a decade’s hand sight, the striking thing [ 9 ] the crash of 1987 was how little damage did. On October 19^th 1987 the Dow lost a fifth of its value [ 10 ] a single day. Those who sold [ 11 ] the crash therefore lost a lot of money. But this crash was otherwise weirdly different [ 12 ] the ones described in the history books. There was no Depression, Great or Small; there were no miserable queues outside soup kitchens. [ 13 ] the contrary, given the bounce that followed, the fall 1987 looks [ 14 ] the vantage point of 1997 more like a marvelous buying opportunity - not least because [ 15 ] the downward trend of interest rates over much of the following decade. No wonder so many of today’s investors seem almost to long [ 16 ] the next, long-overdue “correction” [ 17 ] Wall Street. Get it over quickly, is a common feeling, the sooner that we can fill our boots [ 18 ] cheap shares.

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