Peak Oil and Tourism

The supply and price of oil is a constant source of discussion and scrutiny across the world. Our forthcoming title, Tourism and Oil by Susanne Becken, out later this month, is the first book to examine oil constraints and tourism. Here, Susanne discusses the current low oil prices and what this means for the world.

Oil prices have plummeted to a 5-year low. In the last six months since June 2014, the price of Brent crude has fallen from about $115 per barrel to less than $60. So, why worry about Peak Oil?

Tourism and OilAs detailed in the new book on Tourism and Oil, the supply of oil is a highly political matter, and consumer prices reflect a complex mix of actual production costs, geopolitical interests, speculation and economic policies. The fact that oil prices are presently comparatively low confirms the extreme volatility of recent years but does not mean that Peak Oil is not an issue any more. Oil resources are finite, and exploitation is getting more expensive. These are the two key messages discussed in great depth in the book in Chapter 4.

But why is oil so cheap then? The high prices – consistently over $100 per barrel for the last few years – made it economical to drill for harder-to-get resources. America in particular, through its shale gas and shale oil revolution, has increased domestic oil production substantially. At the same time, demand has slowed down due to ongoing economic weakening in a range of countries and easing growth in China. Political conflict in Libya has eased as well with positive effects on production. In sum, by the end of 2014 supply outstripped demand, leading to plummeting oil prices. In the past, and as elaborated on in the book, Saudi Arabia acted as a so-called swing state and adjusted production to maintain stable prices. However, this time Saudi Arabia decided to continue current production to maintain its market shares. Some interpret this decision as an open ‘price war’ with the USA.

One can be forgiving to think that this is all good news. In fact, the cheap oil prices provide advantages for some countries and consumers. Tourism activity is certainly a short term beneficiary for reduced transportation costs. However, Kjell Aleklett and other experts point out that undervalued oil prices are more likely to be a sign of problems to come. Most immediately, oil producing countries are feeling the pressures of reduced income. Social unrest, for example in Venezuela, is an expected consequence. Russia is in a similar position and observed carefully by the global community. Furthermore, if oil prices continue to be in the order of $60 per barrel, technologies such as fracking are simply not viable and production in the USA is likely to decrease. But more broadly, oil consumption closely correlated to economic growth, and the fact that energy demand is decreasing is a strong indication of an economic contraction. Recession and consequences such as reduced income and employment are major factors for tourism activity. People’s travel propensity is tightly tied to their economic wealth and Chapter 6 in the book discusses how oil prices interfere with travel behaviours and business profitability.

It appears that given the uncertainties around oil prices, the insights compiled in Chapter 7 of the book on low-carbon tourism are as relevant as ever, if not more. Tourism that depends less on fossil fuels is more resilient, more environmentally responsible, and cheaper in the long run.

Tourism and Climate ChangeFor more information on this book please see our website. You might also be interested in Susanne’s previous book with John E. Hay Tourism and Climate Change.

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