14 November 2007
Cullen Assumes NZ Will Escape Fallout From Rising Oil Prices
Green Party Co-Leader Jeanette Fitzsimons today criticised the lack of concern being shown by Finance Minister Michael
Cullen about the chronic inability of Treasury, the Reserve Bank and MED to accurately forecast the price of oil, or
even whether it is likely to rise or fall.
"While oil prices have been soaring inexorably over the last four years Treasury, the Reserve Bank and the MED have just
as consistently been predicting that oil prices have reached a plateau, or will soon fall. In similar vein, Dr Cullen
has expressed his confidence in the House this week that current oil prices will soon decline, just as they did after
the 1970s oil shocks ," Ms Fitzsimons says.
"Today's oil prices bear little or no relation to solutions possible in the 1970s. OPEC is no longer dominated by a
Saudi Arabia willing and able to meet the low cost energy needs of the West by boosting production. Increasingly, the
price of oil is being driven by production problems in the large traditional fields, by the extraction costs due to
political uncertainty and weather challenges posed by new fields and by the inexorable rise in demand from developing
countries such as China and India.
"Dr Cullen needs to stop looking in the rear view mirror for re-assurance. There is a peak oil crisis unfolding right in
front of him. To plan for it properly, he needs to address the failings in his key Government forecasting agencies. If
the Reserve Bank is so regularly wrong about the price of oil, how can it properly judge the likely level of inflation -
and choose where to properly pitch its responses?
"When Treasury also can't even come close to accurately forecasting oil prices, we have to ask what contribution this
has made to its inability to correctly forecast the size of the surplus. If the true price of oil was being incorporated
into transport planning, it is also unlikely that the recent massive investments in new large roads would have been
sanctioned. For graphs of Government oil price forecasts compared to reality see www.greens.org.nz
"Both Government and the private sector look for and need certainty on which to base their planning. The entrenched
inability of key Government agencies to forecast the true price of oil has implications far beyond what Dr Cullen has so
far been prepared to concede - in the House, he was only willing to admit that monetary policy may have been looser than
it should have been thanks to inaccurate oil price forecasts.
"New Zealand is sleepwalking into peak oil - with little acceptance or planning for the social and economic changes it
will entail. Dr Cullen has to instruct his key forecasting agencies to jettison their optimistic assumptions about low
and declining oil prices, so that Government can begin to plan realistically for the combined consequences of peak oil
and climate change," Ms Fitzsimons says.
ENDS