Price shivers

Crude oil hit another milestone last on April 19. Its closing rose to a new high, $72.17, and it is expected to touch the $80 mark in the coming weeks if geopolitical problems in Iraq, Iran and Nigeria persist. China and India are causal factors in this problem but more on a positive note - their fast economic development demands more fuel to meet their energy requirements.

What prompted this rise was the fact that US crude oil inventories fell by 0.8 million barrels when the Energy Information Administration predicted that inventories should actually rise by 1.9 million dollars. The May futures contract has expired and traders have already started keying for the June contract. This fact is also expected to cause further oil price rises.

Expectations of price rises tend to create inflationary tendencies and there are real possibilities that land and air transport, the manufacturing industry and oil dependent operations will reflect the prevailing atmosphere of price increases.

These will certainly be indicated by consumer price indices that are likely to fuel further people's expectations of higher inflationary rates. A situation is arising that is causing shivers in many countries, Malta included.

The implications of such oil price hikes is that oil- producing countries are experiencing substantial economic advantages while industrialised and developing countries are perceiving their economic independence increasingly declining as costs of production rise further. It also means that oil technology is intensified to wring oil from old and damaged reservoirs and to explore other fields for the possibility of finding oil. The limiting factors for the further extraction of oil are that oil engineers are not easily found and there is not enough exploration and drilling equipment to go round. In fact, energy service companies, which cut back their investment in equipment and laid off staff during the 1990s, have been caught short by this boom.

Many countries are investing in alternative sources of energy. Solar, ethanol, biodiesel, wind, nuclear and conservation are all possible items for the future energy mix. Apparently, Malta is only limited to biodiesel and conservation of energy. Much talk was made about other sources of energy but, so far, nothing tangible has resulted.

In 2003, Germany overtook Japan to become the world's largest market for photovoltaics. It is expected that, according to EU Commission reports, 12.5 per cent of Germany's, 29 per cent of Denmark's and 31.5 per cent of Finland's energy needs will not be oil dependent. A Spanish firm, Iberdrola, is now the world's largest owner of wind farms. The Spanish government projects that by 2010, a good 29 per cent of the country's power needs will come from renewable energy sources such as hydro and wind power.

The Spanish government is endeavouring to push further this target with a combination of rate premiums for electricity generated by alternative sources, tax incentives and, in common with other European governments, it has enforced a cap on carbon emissions. The German Commerzbank believes that Spain is on the verge of a solar-power generation boom.

Spain mostly enjoys the same climatic conditions as Malta. It is now about time that alternative sources of energy be seriously considered in our country because the people cannot be squeezed any further with higher energy costs. The solution is not unions' demand for further wage increases to compensate workers, thereby making Malta less competitive and more likely to cause hardship.

This is a question which requires the government's immediate action. The private-public partnership should be invoked to invest in alternative sources of energy as the country cannot experience more price shivers than presently being endured.