Journal #2: Why Canada needs an energy strategy now (Aug. 14 ’04)
Summary
 Klaus Rehaag, head of the oil markets group at the International Energy Agency
(IEA) asks “Is the world facing a third oil shock?”
 First shock occurred in 1973-74 when OPEC quadrupled world price of oil
leading to stagflation in the global economy
 Second shock came in 1979-80 when Islamic militants took over Iran causing a
doubling of the global price of oil and again a global recession resulted
 Third shock could occur because of a lack of supplies coming from Middle East
and Russia which have pushed oil up to $45 US a barrel
 Higher price of oil similar to a tax increase with every $10 increase costing the
global economy $255 billion per year in lost output (e.g. higher driving costs,
trucking costs, airline fares, manufacturing costs)
 IEA estimates world consumption is 82.2 billion barrels per day and will rise to
100 billion by 2020 and 120 billion by 2030
 Rehaag believes challenge is to increase the oil supply through reversing the
under investment in oil producing areas which has led to shortages & high prices
 Real source of third oil shock is excess demand in rich countries like Canada
where people insist on driving gas guzzling SUVs instead of more efficient cars
 Canadian gov’t needs a demand strategy that focuses on fuel efficiency, new
technology to replace oil and investment in smart urban planning & public transit
Cause - Effect Prediction
1. If the Canadian gov’t increases taxes on SUVs and decreases taxes on gas efficient
cars then the quantity demanded of SUVs and gas efficient cars will increase and
decrease respectively and the demand and price for gas will decrease, lowering the
cost of all goods that are transported.
2. If the Canadian gov’t implements smarter urban planning such as greater urban
density and less suburban sprawl then public transit becomes more financially
viable, decreasing the demand for cars and gasoline (e.g. Europe, Singapore),
leaving more disposable income for the purchase food, clothing and shelter.
3. If the Canadian gov’t increased funding to universities for research on alternative
sources of energy (e.g. hydrogen) then the improvements in these technologies
will decrease the demand & price for oil leading to less inflation, more prosperity
and create high paying jobs for Canadians in these new fields.
Opinion
1. Canadians should be less selfish in their attitudes towards oil by driving more gas
efficient cars to help the economy and the environment be more self-sustaining,
so that future generations will enjoy prosperous times.
2. The Canadian government should implement a demand focused plan on the
consumption of oil that reduces our dependency on this non-renewable resource,
so that as the price rises it will have less of an impact on our economy.
Questions
1. Why has the world price of oil risen so rapidly over the past few years?
2. What is the most affective way to deal with the problem of rising oil prices?