Matthew Simmons' book "Twilight in the Desert" discusses the concept of Peak oil. Basically, we have reached the economic sweet spot for getting oil out of the ground. No major oilfields are being discovered and older ones are getting depleted. Statistics on actual reserves of the biggest oilfield in the world, Ghawar, is a closely guarded secret. The second largest oilfield, Kuwait's Burgan field, is also past it's peak output and is in decline.
Whilst there may still be oil in the oilfield, it is getting more expensive to get remaining oil out. This will drive up prices and gone are the days of $10 per barrel.
Simmons book came out a few years ago. We are now > $130 per barrel and peak oil seems to be a reality each day. Not factored into this picture is the increased demand from China and India.
This high oil price - and it could go higher See Bloomberg's $200 projection - will decimate the travel industy. Already we are seeing airlines cut back flights, retiring aircraft and increasing ticket prices. Last week, British Airways announced a $109 surcharge for long haul flights. I still remember the days of getting a ticket from US to London for around $600.
Simmons book came out a few years ago. We are now > $130 per barrel and peak oil seems to be a reality each day. Not factored into this picture is the increased demand from China and India.
This high oil price - and it could go higher See Bloomberg's $200 projection - will decimate the travel industy. Already we are seeing airlines cut back flights, retiring aircraft and increasing ticket prices. Last week, British Airways announced a $109 surcharge for long haul flights. I still remember the days of getting a ticket from US to London for around $600.
This surcharge, was not a surprise to me. I flew to London last month and flight was ~40% full in both directions and I was wondering how long airlines can continue absorbing this without passing it on. AA are now charging you just to check in a bag.
Even industry insiders expect more blood to happen. To quote BA CEO, "I suspect that many airlines out there that struggled when fuel was less than $100 a barrel are not going to be able to take the required actions and we will see further failures," said Willie Walsh.
The list of bankrupt airlines continues. This week SilverJet - a business class only flight - went under leaving many people stranded.
In this environment, I can see no other scenario but a drop in air travel - both leisure and business. This will further add, excuse the pun, fuel to the fire.
High oil price is not only impacting air travel but road and sea travel also. In Europe, there has been protests over high diesel costs and in US, discontent on the ever increasing fuel prices become noisier. Also last week, Disney became the last cruise company to throw in the towel and add a fuel surcharge.
Add to this a totering US ecomomy, the housing bubble deflating and it's removal of one of the biggest ATM's - the Home Equity loans and Mortgage refi's - and the low value of the US dollar and we have a right old storm about to hit the travel market.
I wonder if what we have here is not just Peak oil, but Peak Travel. Gone are the days of easy travel. I wonder how industry will look in the future : Who will be around and what ticket prices will be.
There is one silver lining in this that may make Al Gore happy. A reduction in fuel consumed may be one way to the cut back on greenhouse gases.
Phileas Fogg,
Houston, Texas
June 1st 2008
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