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Energy: Oil Price Projections

Volume 742: debated on Monday 28 January 2013


Asked By

To ask Her Majesty’s Government what is their projection of the likely future of oil prices.

My Lords, my department has generated a set of projections for oil prices to 2030. A supply and demand model is used to estimate growth rates, which are then applied to 2012 prices, calculated using year-to-date and future prices. These are then sense-checked against external forecasts. A range is captured by three scenarios: low, central and high. In DECC’s central scenario, oil prices are projected to rise, reaching $124 per barrel in 2020 and $135 per barrel in 2030.

I thank the Minister. Despite the cold winter, we may have a future of warm weather, which could reduce demand in Europe. Although there has been an expectation in 2013, the latest prediction anticipates a slowdown in the global economy if warm weather can actually reduce demand. There can be a reasonable summer.

My Lords, while we encourage reduced use of oil in our country, the difficulty arises in emerging economies that have found greater demand for it, so it is about finding a balance between our own liberalised markets and the demand seen elsewhere. There has also been some slight uncertainty during the recent difficulties being faced in north Africa and the Middle East.

My Lords, will the Minister tell the House how the Government intend to mitigate these increased oil prices, particularly with reference to using future renewable forms of energy?

My noble friend will be aware that this Government are keen to ensure that we have a good range of energy mixes, thereby reducing our usage of oil. However, we have a realistic view that, for the foreseeable future, we will still need extra supplies of oil and therefore we cannot mitigate our usage completely. We will of course try to make sure that, through our policies and the Energy Bill, all other energy resources have an equal footing to compete on.

My Lords, have the Government taken into account the effect of shale gas in the US, which is likely to influence oil prices downwards, if anything?

My Lords, while I agree that prices in the US have come down, worldwide there is still great demand, given the emerging economies. For the foreseeable future, globally there will be a great need for oil and, by and large, prices will be seen to go up.

My Lords, the Government have been very successful in bringing electricity consumers together to use their collective muscle to switch to better tariffs. Will the Minister undertake that her department will look at similar collective switching for heating oil, as these prices will go up even more? In rural areas in particular we do not have gas supplies and dual fuel is not available to us, so we have very high tariffs. Would she promote that switching for heating oil?

My Lords, my noble friend raises an important point. We are determined to make it easier for people to club together to get a better deal on their collective energy purchasing. Switching is a new way for consumers to group together and use their market power to negotiate lower energy bills. Through the Cheaper Energy Together competition, we awarded £5 million of support for the most innovative local authorities. Of those, six schemes were provided to support oil buying groups.

My Lords, just as it seemed as though the price of petrol and diesel was stabilising, we hear predictions of increases of four to five pence a litre. What are the Government going to do about that, because, given the forecast that they have produced, there is no excuse for them saying that they have been caught on the hop?

My Lords, these reports appeared widely in the media over the weekend. I accept from the noble Lord that they are worrying, particularly in times of hardship for most consumers. Perhaps we should look—I was going to say at how we make it easier for consumers not to be ripped off at the petrol pump, but I shall not—at how we can encourage retailers to pass down a drop in price if it comes through the crude oil route. However, the Office of Fair Trading is looking at retail pricing and at how reductions in price are passed down. We hope to be able to respond once we have viewed the report.

My Lords, about 12 months ago, Shell produced a forecast for oil prices which was between $70 and $90 a barrel. That has not proved right and prices now are between $115 and $120. If Shell cannot get its forecast right, are the Government likely to?

My Lords, I thank my noble friend for that very helpful question. Of course, we do not always dictate the global scenarios that often change in front of us. While we try to make our predictions as accurate as we possibly can, scenarios will be played out on the international scene over which we have no control. Therefore, our scenarios are based on price structures that take into account the low, the central and the high. The price forecasts that we have come to were made on that basis.

My Lords, whichever way you make projections, it looks likely that oil prices will remain high. The only way of keeping transport affordable in the long term is to maximise vehicle efficiency and to develop alternatives as quickly as possible. UK motorists have benefited greatly from the introduction of Europe-wide vehicle efficiency standards. What steps are the Government taking to ensure that tougher, Europe-wide standards are set to the benefit of the UK motorist?

My Lords, as always, we are working with our European partners and manufacturers in this country. I say again that it is one of those issues on which we have to make sure that the rest of the world is working with us. We work hard at all conferences and in all fora to ensure that the UK motorist gets a good deal, not just at the petrol pump but on the vehicles that they purchase.