Petrol prices are inexorably sneaking up on $2 a litre. If you fill your car with premium fuel you may have already experienced the curious mathematical phenomenon of watching the dollar dial spin twice as fast as the litres dial. Paying for fuel is an exercise in powerlessness. We do not control the global oil price, which is driven by factors far beyond Australia’s control.
But as they say, it is an ill wind that blows nobody good. Some people are loving the current elevated oil prices. ExxonMobil stock price is up a hefty 25% this year, with the big Texas-based oil firm reporting a whopping profit of US$8.9 billion ($12.3 billion) in the three months of October, November and December 2021.
High oil prices are pure upside for oil companies. Their costs of production barely change, and when prices rise, say due to geopolitical instability or production limits set by the Organization of the Petroleum Exporting Countries (OPEC), they pocket the difference.
ExxonMobil CEO Darren Woods said the company was working to “grow shareholder value”.
“We’ve made great progress in 2021 and our forward plans position us to lead in cash flow and earnings growth, operating performance, and the energy transition,” he said.
You might wonder if an oil company really wants to be leading an energy transition when oil prices are so high. Sticking with oil is lucrative for them; changing is risky.
But oil companies don’t only lead, they also follow. For consumers, high fuel prices make an energy transition even more urgent.
Pain at the pump
Long behind us is the brief period in 2020 when oil price rises went negative in US markets and Australian petrol fell below $1 per litre.
High petrol prices are here and they are hurting. They were the single biggest contributor to Australia’s rising consumer price index in December 2021, and prices seem to have risen further since. Petrol prices are likely to become an election issue.
What do voters do when they feel pain at the pump? Do they take out their anger on the incumbent? Do they get nervous and vote for a party with the supposed reputation for economic management? Or do they vote for a third party that has long been arguing for us to get off our fossil fuel addiction? The answers to these questions are far from certain, but you can expect to see a lot of politicians worrying about fuel prices in coming weeks. A repeat of John Howard’s panicked freezing of fuel excise in 2001 is not out of the question.
Australians use a lot of fuel, so prices matter. The next chart shows sales of petrol and diesel in Australia over the past few years. As you can see, petrol sales dipped in the pandemic and have only barely recovered. For diesel fuel though, sales were relatively steady and are now higher than pre-pandemic levels.
The primary reason diesel has grown is that it is used by machines, not just by passenger vehicles — sales of diesel vehicles have also been very strong. Our new national obsession with enormous four-by-four trucks has caused an increase in the sale numbers, after several years of decline following the Volkswagen emissions scandal.
Around 99% of sedans are now powered by fuels other than diesel, and so are 70% of SUVs. But about 95% of all light commercial vehicles are diesel powered. That includes the most popular vehicle in the country, the Ford Ranger, which sold 46,000 units in Australia last year, about 60% more than the most popular small car, the Toyota Corolla (29,000 units).
The rise of the small car is almost forgotten now. It was a phenomenon of the 2010-2014 period when petrol prices hovered at then-record levels of $1.40-1.50/L (capital city averages). The Mazda 3 and the Toyota Corolla tussled for supremacy in a brief interlude between the primacy of the Holden Commodore and the eventual triumph of the Toyota Hilux. The Hilux became the most popular car after petrol prices fell again in 2015, although it has now been usurped by the Ford Ranger (official fuel consumption, 8.9L/100km, compared to 5.5L/100km for a Mazda 3).
Top dog doesn’t stay top forever
If petrol prices stay high, our car fleet could react. I don’t think Australia will go back to hatchbacks, because the trend to SUVs is so strong. But we could move to smaller SUVs, like the two-wheel-drive RAV4, which uses 6L/100km. We will also likely see rising demand for vehicles powered by different energy sources altogether. The Hybrid RAV4 has been selling like hotcakes with a long waiting list to buy one. It gets 4.7L/100km.
Ultimately, the answer to high fuel prices will be getting off fossil fuels altogether. Electric vehicle sales in Australia are so far quite pathetic — less than 2% of all cars sold last year were pure electric, two-thirds of which were Teslas. The winning policy this election might be a big push to improve electric vehicle availability, giving voters a vision of a future free from ever having to visit a petrol pump.
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