First real hardship in the UK?

[snow hope]

Interesting post. Thanks for your thoughts TB. Are you in the money markets as you seem to have a good grasp of macro-economics?

[clv101]

When do people think we might feel the first hardships in the UK as a result?

Q1 2006 is when I think the UK and US with have front page-news-item energy problems.

[Totally_Baffled]

Interesting post. Thanks for your thoughts TB. Are you in the money markets as you seem to have a good grasp of macro-economics?

No, I work in horticulture!

But I did do a degree in Bsc Applied Economics at University

TB

[Totally_Baffled]

When do people think we might feel the first hardships in the UK as a result?

Q1 2006 is when I think the UK and US with have front page-news-item energy problems.

You could well be right Chris.

I think you are brave to make time predictions though , (especially one so close). They have a habit of biting people in the bum!

If we are talking 'real' hardship from energy/economic related issues I would say 2015 onwards.

The odd blackout doesn't count

TB

[zceb90]

I suspect you are correct in that we will have to pay market prices. I think the LNG is under a 25 year contract , so I presume although we pay the market rate, it cannot be hijacked by the US.

http://www.hydrocarbons-technology.com/ ... laffanref/


I think to get in perspective, France , Spain ,Italy , Germany etc all use more oil than the UK and import the whole lot!! Its a similiar story for natural gas , we are a bigger consumer , but we will not be importing the same proportions as these countries for another 15 years ( 75%+)

I think there are still implications though. The trade deficit would double if we had to import 100% right now.

The implication of this would be higher interest rates to prevent the pound from collapsing. Unfortunately , higher interest rates will without a doubt cause a big recession as we are already on the edge of one at 4.5%.

If rates go 6-8%+, then you will see the housing market crash and millions with negative equity.

Unemployment would rise as consumer spending was squeezed by inflation (from energy prices) and interest rate rises.

So a recession is inevitable.

Its not all bad though, there are some self correcting mechanisms at work, these could in theory prevent total economic collapse:

1) A higher trade deficit would weaken the pound. Imports would become more expensive and so demand would fall. A weaker pound also makes UK good cheaper to foreign buyers, so this could correct the deficit.

2) Higher energy Prices passed onto factory gate prices could be offset by a weaker pound. It also could be argued that all nations have to pay the higher prices so the net competitive difference is negated.

3) Housing market correction would reduce reduce new builds and leave a lot of property empty. There is your imported energy "demand destruction". This would help correct the deficit, but people would pay the price through having to live in with family (ie occupancy rates would increase again per household, ie from 2 to 3 like it used to be)

4) Higher Energy prices will make imports from the far east less competitve as they have the extra cost of moving the goods 8000 miles.

5) A recession in the western world (we will all face it at the same time IMO) would reduce drastically the demand for Chinese/Asian goods. This would reduce there demand for energy. This would restrict how high prices could go.

6) Higher Unemployment causes demand destruction of imported goods first (as key priority goods like food etc are produced at home). This again will correct the deficit.

7) Higher unemployment should self correct as wages would fall(as people become more competitive for jobs). This would improve the UK's export prices.

None of the above is very pleasant, but it is just examples of how perhaps that even though standards of living will slip the economy will still exist and we wont have a total collapse.

Remember the early 80's recession caused energy demand to fall 14% over 4 years and unemployment/trade deficits corrected over time.

We dont have cheap oil to help us this time, that is perhaps why the sacrifice will be wages and our standard of living?

TB

From what I understand, UK trade balance is already in deficit by some ?3bn per month....and that's at a time when we are either roughly in balance for oil / gas (combined) or a slight exporter. I've not looked at numbers for France, Germany etc but I suspect their tourism trade deficit is nowhere near that of UK which in a recent article I read was reported to be over ?1.2bn per month. If the N Sea declines are really as steep as has recently been reported i.e. 10% for oil and 9% for NG then UK really is facing some ugly economic effects as rapidly rising imports for fossil fuels increasingly take their toll.

Already there have been reports that 'spot rates' for importing NG this winter have exceeded $100/BOE. Whether these numbers are correct or not NG has risen sharply on Nymex Henry Hub today and at one time hit $14.60/mmbtu which I've converted to $83/BOE. Assuming we hit $100/BOE for oil and gas by 2010 simply applying the production forecasts from DTI's 2004 plot (on the ASPO site) would lead to oil / gas imports of ?25bn pa by 2010 and ?50bn pa by 2015. These estimates assume demand stays constant at a combined 3.4m BOE /day; probably unrealistic if Gov't really does intend to retire some ageing NP plant and dirtier coal plant and replace same with more LNG.

I think you are quite correct - UK consumers will be faced with a deep recession at best in view of rising energy import costs and resultant interest rate hikes to support the currency. We need to question whether imports on this scale are even affordable or sustainable (given that US and others are headed the same way or already there). Of course recession would mitigate the problem in that those without work tend not to drive or fly very much nor holiday abroad thus helping to reduce both energy consumption and trade deficit.

I suspect some of the resulting unemployed will be able to find work (at lower wage rates) re-establishing tasks which have been outsourced to Asia over the past 2 decades but shortly will need to be re-localised as rising energy costs make the shipping of such goods 8000 miles no longer economic. UK consumers aren't going to like it....but I don't think they are going to have an awful lot of options. I still feel outside of the PO forums most 'people in the street' have no idea just what is headed their way (and even if they have an inkling they still think 'they'll come up with something'). As you say it's not pretty but at least some of us will be prepared.

[clv101]

When do people think we might feel the first hardships in the UK as a result?

Q1 2006 is when I think the UK and US with have front page-news-item energy problems.

You could well be right Chris.

I think you are brave to make time predictions though , (especially one so close). They have a habit of biting people in the bum!

If we are talking 'real' hardship from energy/economic related issues I would say 2015 onwards.

The odd blackout doesn't count

TB

Yeah, calling close events is risky, but hey it's not as if I've got a reputation to protect or anything. I'm not calling end of life as we know it this winter! Just a significant energy shortage, it made the news last year with ICI having to take chlorine manufacture off-line in March due to gas shortages. This winter I'm expecting much more of those industry related problems and yeah, the odd blackout. I think the odd (gas supply related not tree blown over the cable to your street) blackout is highly significant since we don't get them in the UK.

[fishertrop]

... but hey it's not as if I've got a reputation to protect or anything.

Hey now you get quoted in the national press you have standards to keep up!

[snow hope]

TB said,

"If we are talking 'real' hardship from energy/economic related issues I would say 2015 onwards. "

This time I completely disagree. I will be stunned if it isn't happening big time by 2010. I think by next winter, ie in one year, the stock markets will have crashed badly and all that goes with it. Once confidence goes, the cards will collapse - oh so fast.

I really hope I am wrong because I can't clear my debt and I have 2 bloody endowment policys that don't help. Oh, plus a pension that will become worthless as the cards fall down..... In fact I pray for 2015!

[Blue Peter]

This time I completely disagree. I will be stunned if it isn't happening big time by 2010. I think by next winter, ie in one year, the stock markets will have crashed badly and all that goes with it. Once confidence goes, the cards will collapse - oh so fast.

I really hope I am wrong because I can't clear my debt and I have 2 bloody endowment policys that don't help. Oh, plus a pension that will become worthless as the cards fall down..... In fact I pray for 2015!

Snow Hope, I'm certainly no expert, but I think that the coming recession is not particularly peak oil related, but rather more debt and housing bubbles. That isn't to say it won't be bad, but it means that fossil fuel use will decrease, pushing the peak out for a bit (didn't the recessions of the 70s reduce fossil fuel demand a lot?). So, there should be enough fossil fuel for one last splurge when we come out of it


Peter.