Running On Empty

Courtesy of NZ Today magazine.

The world is changing & rapidly,  and it may not necessarily all be for the best. One of the most worrying aspects of life over the past 18 months has been the non-stop rise in the price of petrol.
 
What can you do about it? Allan Dick, Editor of both NZ TODAY and DRIVER magazines, and Radio Talkshow host, says there is plenty & and the first thing is not to panic. 

The price of petrol, and now diesel as well, is an emotional issue that clouds rational thinking and logic. Right now carmakers, engineers, scientists and backyard boffins are in overdrive developing technology that would have been available 60 or 70 years ago had petrol been valued at what it was worth, rather than simply a commodity that we felt we had a right to expect to be as cheap as chips for eternity.

How cheap and value-packed is a litre of petrol? As I have said many times, just compare the price of a litre of petrol with a litre of mineral water. Or a litre of Coca Cola.  It's not just petrol engined cars that use 2.5 litres per 100 kilometres that we should be driving today, but also electric cars. But we're not.  

There's a frighteningly widely held belief among non-car people that because the government has decreed we should be driving electric cars, that electric cars are just around the corner and going to save us all. The reality is that today's electric cars are very little advanced from the electric cars of 80 and 90 years ago because there's been no pressing need to develop them & petrol was that cheap that the world didn't need electric cars, so development just stayed in limbo. The electric car became an automotive curiosity and a very minor distraction. But that is changing as scientists and engineers finally get down to what they should have been doinmg 50 years ago.  Many feel a sense of impending doom over the seemingly non-stop increases in the price of petrol and diesel and misinformation is rife. Conspiracy theories are common over what's behind the increases in the prices of petrol and diesel that are almost beyond belief.

For many, the bottom line remains, and always will be, that the oil companies are ripping us off and they are ruthless, greedy, anti-social conglomerates who will deserve everything they get when electric cars become a reality and nobody buys any more petrol.  

Here is the reality of the situation. It's only a few years ago that crude oil was US$10 a barrel. Today it is US$135. That has got to have a catastrophic affect on the prices of all products that are derived from oil.

Changing now to NZ currency, the price of petrol is, say, $2.20 a litre of petrol, the crude oil component is now a massive $1.12 per litre and the government take in taxes and duties is about 80 cents. Do the maths yourself & that's $1.92 and leaves just 28 cents a litre to cover the cost of refining, global shipping, distribution around NZ, massive infrastructure costs as well as oil company and retail profits.

Continue to do the maths based on the days when crude oil was half the price it is today and you'll see that the retail price of petrol is directly proportionate to the price of crude oil.   

So, who are the villains? The government? Possibly, but our successive governments have been able to get away with what appears to be massive racketeering on the tax take of petrol for so long because the stuff has been so cheap. It's only now, that the tax component on petrol has come under scrutiny.

And the tax take from petrol has been a fundamental cornerstone of government revenue for so long that it's there forever. While the tax take remains at the flat rate of 55 cents a litre, with each increase in the price the government's GST take increase.

There is no way that anyone could have predicted the savage rise in the price of petrol in the past two years and so the government is reaping several small GST fortunes daily, over and above the revenue from petrol that was projected. And that certainly makes the government one of the two major villains in the price of petrol/diesel crisis.  What's missing from this equation is what has happened to drive the global price of crude oil up through the ceiling, with prediction it will hit outer space before it stops.

Surprisingly, there is no clear answer to that. Previous hikes, blips and sudden changes in the price of crude have generally been directly attributable to a traceable and obvious event & like the invasion of Iraq or something else that threatens the supply of the stuff.

But there seems to be no obvious disaster to create the steady increases of the past year. There is some suggestion that “speculators” are responsible. There is another suggestion that refinery capacity around the world can no longer keep up with the demand for petrol and diesel. The most likely scenario is simply one of a demand for petrol/diesel and all other oil-based products due to China, India and Russia all joining the world of consumerism.  

The global effect on base products like crude oil, along with cement and steel appears to have not been considered by the industrialised nations in their rush to join the gold rush as these countries emerged from Third World status.

China actually subsidises the cost of petrol to motorists as part of the modernisation plan for the huge country. Recently China announced a reduction in the subsidy and that immediately saw the price of crude oil drop US$4 a barrel.  What can you do in the face of petrol at $2.20 a litre with no end to the increases really in sight? The first thing to do is not panic and to understand that we are not alone. Most similar countries are going through the same pain. In fact, countries like Japan, the EC and the UK are worse off because their government's tax take on petrol/diesel is greedier than ours.

Of course, there are many people to whom the increase in the price of petrol is simply a small, extra expense in their weekly budget. It's low and middle income New Zealanders who are the worst affected. Young people tend to roll a bit more with the punches & along with business folk, it was the younger people who embraced cellphones when their mums, dads and grandparents mostly said they were too expensive. It's young people who mostly pay the $6 and $7 for a bottle of $4 beer at a fancy bar & and it's the younger folk who are the biggest consumers of fancy bottled water.

So, after not getting into a state of panic, the next thing you need to do is accept that even at $2.20 a litre, or even $3.50 a litre, petrol still delivers more value for money than most other stuff you buy. It's up to you to make the most of that value and that means walking those 500 metre trips you often take the car, then so be it. This requires a massive shift in attitude and it won't be easy for many who will remain locked into the cheap petrol days of the past.

You also need to grasp the reality of the situation. The only areas in the price of petrol where there is any real room for a significant reduction in price is in the government's tax take and the price for crude that goes to oil producers like Saudi Arabia. Fat chance of Saudi Arabia and its cohorts slashing oil prices by half, but we should be able to place enough pressure on our government to look seriously at a significant cut in its windfall from the increased tax take & say 20 cents a litre. This is not money that was budgeted for.

The other grasping of reality you need to come face to face with is how much you save by shopping around. You don't like BP because they have the image of being the price leaders, but you like Gull. There's a BP near you, but a Gull in the next suburb & say 10km away and it's a cent a litre cheaper at Gull. If the average sized tank in your average sized car holds 60 litres and it's as dry as a John Key speech, you are going to save 60 cents by going to the next neighbourhood and filling up. That may give you some perverse pleasure at beating the bastards, but its false economy. 60 cents is only half the cost of the Herald newspaper.

I won't insult you by going through the “handy hints for getting the most from each litre” by turning off aircon, winding the windows up, keeping tyre pressures right, using light accelerator pressure and so on, you will already know all of that basic “consumer” stuff.  I WORRY ABOUT TELEVISION EXPOSURE GIVE TO THE back yard boffins who take their old large cars and tinker with them, adding homemade hydrogen converters in a bid to cut fuel costs. This is a refusal to accept the reality of the situation and cling to the past. Get rid of the big old cars, those older cars with the outmoded technology and buy something new and small if you really want to reduce your fuel bill.

There is nothing new or revolutionary about the technology that allows hydrogen to be taken out of water and the reason it's not been done before is the original argument that petrol was so cheap you didn't need to bother.

If you really want to save on the fuel bill, get rid of the old or big car and buy something, new, fuel-efficient and small.

New Zealand, like Australia and the USA, is a land of Big Cars, even though we don't really need them & again, another throw back to the fact that petrol was cheap. You don't need that 10 year old Big Aussie, a new small car offers only marginally less interior space, better performance and twice the efficiency, thereby at least halving your fuel bill.  This may not be what you have wanted to hear. It's fashionable to attack the oil companies and to start protesting and demanding some sort of action. The email-based campaign where we were all urged to stop buying petrol on one day was an exercise in total futility.

And consider diesel. Even though the price of diesel has increased proportionately faster than petrol there is still a worthwhile saving. It is still a cheaper fuel and most diesel vehicles use 10-15% less fuel than their petrol equivalents.

If you are concerned about the price of petrol, think laterally, shift your attitude, come to grips with it and buy a new small car. If you don't, you are going to drown in an ocean of angst.    

Previously published in issue 26 of NZ TODAY. To subscribe phone 0800 611 911 or e-mail .

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