Energy prices set to rise indefinitely

ANXIETY over supplies from producer countries Iran and Nigeria pushed oil prices towards $68 (€56.08) a barrel last week.

Analysts, who seem incapable of making up their minds about the state of the oil market, are currently warning prices will stay high indefinitely.

Events of the past months suggest those of us who had become sceptical about the state of oil and gas supplies look to have taken too grim a view of the situation.

For the record those who fear for the future of oil have argued supplies are running down as the world now burns more oil than it is finding on a daily basis.

This, the experts argue, is a turning point as well as a point of no return for a globe determined to consume more and more.

Most of what we use requires energy to produce it and the long-term prognosis is that a mammoth crisis is approaching.

Sceptics swear the world as we know it is coming to an end. Some were predicting a long protracted period of economic recession as the world scrambled to find an alternative to black gold.

But it may not all be gloom and doom. Recent soundings form Iran suggest the level of oil reserves may not be as low as feared.

Twilight in the Dessert by Matthew Simmons argues the Saudis are on the brink of running out of oil.

He is not the first to accuse the Saudis and other OPEC countries of grossly exaggerating their reserves. That alleged overestimation goes back to the mid-1980s when the world’s leading oil producer is said to have inflated reserves in order to sell off more of the world’s vital energy supplies.

Some are beginning to believe the situation in the Middle East may not be as critical as has been claimed.

But Iran is a flash point due to its drive to create nuclear capability. Nigeria, the fourth-largest exporter of oil, is under pressure from terrorists as the tarnished reputation of Shell there catches up with it.

Oil prices are close to all time highs once again and US crude oil is just a few dollars short of the all-time highs hit late last year.

In Nigeria, militants have warned they will resume attacks on oil producers.

There is also no sign of an easy solution to the West’s dispute with Iran.

Iran faces referral to the UN Security Council over concerns it is seeking to build an atomic bomb. Iran has denied the charge and analysts fear it might hold back crude exports in response to any punishment from the West. On Friday, Iran’s central bank governor was quoted as saying the country had begun transferring assets held in foreign accounts.

That suggests the country may be preparing to turn itself into a fortress if the UN starts to get heavy. As the second-largest producer in OPEC any further aggravation of that situation could push oil prices well beyond $70 (€57.75).

OPEC has forecast worldwide demand for crude will rise 1.9% in 2006 to 84.8 million barrels per day. This slightly revised down a previous estimate, but it shows the thirst for energy remains very real.

While the implications for the global economy in the short term may be serious the reality is consumers are looking at prices rising indefinitely.

Bord Gáis could hit the consumer with another 25% hike in prices next year while the ESB, which produces an increasing amount of electricity from gas, is facing price hike demands from two directions.

The global economy looks to be in no danger in the short term, economists argue.

But with this country at the tail end of the supply chain for oil and gas we could find ourselves out in the cold in more ways than one, if things get really bad.