Fitzsimons Jeanette: Questions for Oral Answer — Questions to Ministers 
Fitzsimons Jeanette: Questions for Oral Answer — Questions to Ministers 
[Volume:643;Page:13063] 
1. JEANETTE FITZSIMONS (Co-Leader—Green) 
 to the  
Minister of Finance 
: Has he been advised of any central government forecasts that have more accurately predicted the trend of rising oil prices than Treasury or the Reserve Bank given his statement in the House yesterday that “there is a very very high probability that any forecasts are likely to be wrong in this area;”? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Of course a range of forecasts are prepared and no doubt departments occasionally differ internally about what the forecast should be. But both Treasury and the Reserve Bank base their forecasts on the future market for oil. I should note that over the long term of course oil prices have shown very marked upwards and downwards trends often moving quite sharply contrary to earlier forecasts. 
Jeanette Fitzsimons 
: Does the Minister agree that of the two projections in the Ministry of Economic Development’s 2006  
Energy Outlook 
 the high oil price forecast shown by the green line in this chart I am holding and described as the minority view has so far predicted the oil price trend very accurately in stark contrast to the mainstream view shown by the red line which has oil prices flat until 2030; if so will he commit to taking the minority view more seriously given the failure of the other three wildly optimistic Government forecasts to align with reality? 
Hon Dr MICHAEL CULLEN 
: It is true that in that particular case the green line is better than the red line but the member should not draw too much comfort from that fact necessarily over the long term. The realities in the past are that we have seen forecasts of long-term increasing prices for oil and then sharp downturns have occurred in those prices. For example in the 1970s after a very long period of declining real prices for oil there were sharp upturns in 1974 and 1979 but the price then fell very sharply back again in the early 1980s and tended to decline in real terms through to about 1999-2000. 
Jeanette Fitzsimons 
: When the Minister said in the House yesterday that “it is worth reminding ourselves that oil prices now are not that much more in real terms than they were when they last peaked at a very high level”—and assuming that he was referring to 1979 as he just did—does the Government have plans for any form of demand management such as was found necessary by the Government in that year leading to carless days and plans for petrol rationing? 
Hon Dr MICHAEL CULLEN 
: I think the actual peak was in 1981. It is very questionable in fact whether some of the measures taken at that time such as carless days actually had very much of an effect at all. Indeed high prices may have one of the more significant effects in terms of moderating behaviour car engine size efficiency alternative fuels use of public transport and a range of other factors on which the member and I do tend to agree. 
Jeanette Fitzsimons 
: Is the Minister aware that regional councils across the country have based transport planning decisions—and made long-term contracts with the companies supplying bus services which are indexed to oil prices at around $60 a barrel—on the basis of the forecasts by Treasury the Reserve Bank and the mainstream Ministry of Economic Development forecast and that with oil now above $90 a barrel the councils are unexpectedly scrambling to find millions of dollars to cover rises in fuel prices that the Government forecasts completely failed to predict; if so how does he think the councils will get on if the price continues to follow the Ministry of Economic Development’s high oil price scenario up to $120 a barrel? 
Hon Dr MICHAEL CULLEN 
: Obviously they will need to adjust their plans as everybody else will if very high oil prices continue and further increases occur in the short to medium term future. But there remains a great deal of uncertainty around those forecasts because of course prices of oil over recent times have been affected not only by real economic factors—strong world growth and particularly a lack of increased capacity in the refinery sector—but also by political factors. It takes a very good crystal ball to be able to see how those factors are going to unravel over the next few years. 
Jeanette Fitzsimons 
: Is the Minister then ruling out the idea that this is the start of a long-term trend of continually rising oil prices because the rate at which the world’s oil wells can produce oil is going to decline from now on regardless of the discovery of new fields and they cannot make up for the rate at which existing fields are declining? 
Hon Dr MICHAEL CULLEN 
: I am not sure that the last point is still accepted at all. There is still a great deal of argument about whether new discoveries can outpace the growth in demand over say the coming 10 years. Taking a very long-term view I think it is a very safe bet that the long-term trend in oil prices is upwards in real terms but whether that is from the current very high base or from a much lower base than that of course remains an open question. I remind the member again that we saw very sharp increases in oil prices in the 1970s peaking in 1981. By 1999 oil prices were back in real terms to only about a fifth or a quarter of what they had been in 1981. So clearly these trends can show very sharp movements over the short to medium term. Over the longer term it is a reasonably safe bet that there will be a long-term trend of rising oil prices because obviously there is a finite resource. We simply do not know how much of that finite resource there is.