“Our institute is not terribly impressed by the peak oil story. But there is a question now beginning to emerge from analysts in this country and elsewhere, as to whether oil demand has reached a plateau — or is likely to,” he said in an exclusive interview with Arab News.

“It certainly has in the OECD countries and it might go further but it’s being held up by the growth of India and China.”

He opined that one lesson thoroughly learned in Saudi Arabia is that very high oil prices — even for short periods — have nonlinear effects on people’s behavior in a way that is probably irreversible.

Peak oil price — or the oil spike — combined with a second irreversible element, that of climate change, would he said feed through the commercial system and intensify. He gave the example of the efficiency of cars. Currently, some 60 percent of the world’s oil production goes to fuelling cars. If that could be reduced, it would have a serious effect on the oil market, and the increased efficiency would be nonlinear and irreversible.

“It would make a massive difference if America was just as efficient as the Europeans — but we could go much further than that in terms of current technology,” he said.

For oil, the climate change agenda is mixed up with the security agenda, which is dangerous for the oil market. However, “It’s completely different as far as climate change is concerned … coal is everywhere and is not going to run out. Neither is oil, but there is much more coal and it’s everywhere and easier to access and process — but it’s dirty.”

There have been huge swings in the price of and demand for oil. “A lot of people, and we saw them in this room, are wondering about the demand for oil.”

On the policy front, Allsopp hoped that it has been well understood that big oil price spikes are not good in the long run because of the nonlinear effects. “We have seen in the past that it triggers a nonlinear response in consumer behavior, not usually reversible, and that a stable oil price is better.”

He added that he thinks China will build up its vehicle fleet as a natural result of industrial development. “If we’re dependent on oil, as the Gulf countries are, I would be watching the question of demand extremely carefully and making sure that the right research is done. No one can predict what might happen with technology,” he said. Should cars be very fuel-efficient or indeed base their motive power on coal generated electricity, this would negatively affect oil demand.

Allsopp considers the example of Delhi a case in point. A recent high court judgment required a changeover from petrol to compressed natural gas overnight. It generated protests but it was done and now all public transport is gas powered.

“That is irreversible — they will never go back to oil and it shows that there is inter-fuel substitution when you get to high oil prices with climate change agenda and the local environment agenda,” he said. Therein lies the danger of an oil spike.

Inter-fuel competition and inter-fuel pressures are going to become more important. “We have got used to the idea that there is no substitute for oil. Increasingly, there will however be substitutes through complicated routes such as electric or gas cars.”

The key question is: When oil prices are high, will you get a lot of inter-fuel substitution?

The answer seems to be: “Yes.” However, the substitute fuel may be hidden behind the visible fuel.

Electric cars are a nice idea. Now they are very expensive but they will be much cheaper eventually. Even the best batteries in the world need to be recharged. The Chinese are developing the technologies — but the electricity is supplied by coal, and coal is a very dirty fuel and CCS (Carbon Capture and Sequestrian) has not yet reached commercial viability.

“I would be more worried of the pressure on the Chinese to move up the efficiency ladder, but they have already adopted the best European practice, not American. Oil demand will not be destroyed soon simply by growth in efficiency,” he said. It will take a serious amount of time before the world’s car fleet becomes electric and trucks and industry become bio-diesel.

“Of the two, I think the future is electric rather than hydrogen, which has a lot of problems. Scientists disagree on this. Hydrogen is a good way of storing electricity -- mix it with carbon and it comes out as diesel,” Allsopp explained.

Of particular importance, Alsopp emphasized, in Saudi Arabia and the Gulf, as it is anywhere else, is the need to price fuel — oil, natural gas and electricity — properly. He felt that the extremely low current price is a way of distributing money to people (through subsidy). It is better to find other ways to distribute revenue from oil and to charge a sensible economic price for energy.

“The Middle East expansion of the consumption of energy is one of the greatest in the world — rivaling or perhaps even beating China. In some ways, it’s one of the easiest things to do something about; just get the pricing right. This doesn’t mean you withdraw subsidies from the poor, but just that you find a better economic way of doing it. That is the big lesson.”

The key is, he said, to assume everything has a financial cost. Not to build a cost for natural gas into the pricing structure for the generation of electricity and therefore to sell it at an unreal price is not the way to go. Build in a cost, charge an economic price and allow subsidies or benefits in other areas — perhaps social schemes.

“It is even more important in the price of water — it should be very high in a desert country — but selling it almost free produces all the wrong incentives.” There is, as a result, no culture of conservation of a diminishing and expensive-to-produce resource.

The Oxford Institute for Energy Studies can be found at: www.oxfordenergy.org/about.shtml