Consequences of a high oil price A scenario picturing the effects on society with an oil price at $300/barrel in the year 2015

Abstract: Since 2001 there has been an increase in oil price and unlike other times there is nothing indicating a major persistent decline. As oil is a limited resource and since current production capacity can not fully meet the growing demand the price on oil is kept high. A high oil price will not only result in higher price on fuel and thereby a higher cost of transport. It will also affect areas such as electricity, heating and oil based products. These and other indirect effects will have an impact on the private individual, companies as well as on the society as a whole. Since the products of the Volvo Group are linked to oil it is necessary for the company to have a good insight in the effects both concerning specific products as well as on a more aggregated level. Objective The objective of this master thesis was to develop a scenario based on collected and interpreted information on how a high oil price can affect the society in 2015. In order to exemplify a high oil price the fictive price of $300/barrel was used. The price was predicted to have a steady climb from today’s price of about $60/barrel up to $300/barrel. Method Since the purpose of this master thesis was to create a scenario for 2015, a predictive approach was chosen. A qualitative scenario technique has been used since it intends to clarify connections, identify key players, insecurities and potential questions which were the intent of this master thesis. A qualitative scenario technique was also appropriate as it generates descriptions on possible future developments and not predictions of the exact development. Conclusions The final conclusions of this thesis are expressed in a scenario: The oil price will have a steady increase from 2006 until it reaches the level of $300 per barrel in 2015. The decreased availability of oil will push forward an increased use of foremost natural gas and coal. However, the correlation in price between oil and natural gas will come to push even the gas prices upwards. Renewable resources of energy will also increase in importance, but due to limited production capacity these resources will not be able to reach their full potential by 2015. Still the intensified use of biomass will trigger a competition for land, and together with higher production costs, this causes an increased price on food and other bio-based commodities. The increased need for natural gas and coal limits the desired reduction in greenhouse gases. Even though there are investments made in alternative solutions the sharp increase in oil price will make it impossible to fill the gap entirely between production and demand. The resulting increase in costs for fuel, chemical feedstock as well as heat and electricity causes a decline in consumption. This leads to reduced economic activity and negative GDP development. The effect hits countries who are large importers of foremost oil but also of natural gas the hardest. The necessity for the public and the industry to invest in both alternative sources to oil as well as increased efficiency keeps up a certain level of economic activity. Before this gap between production and demand is closed once again there will be an economically unstable transition period. ! & ' ! !