A new report, The Oil Crunch, persuasively argues that constraints in oil supplies are developing and that attention must be paid to the implications.   There is no shortage of oil, but there is a shortage of cheap oil ($20-30/barrel). The remaining oil is located in extreme environments, is technically challenging to exploit, and difficult to refine.  Moreover, 80% of world oil and gas reserves are controlled by governments, through national oil companies, who could legitimately take a longer term view of the rate of exploitation than would the international oil companies.   All this means that oil production is likely to remain flat, or even decline, while demand is expected to continue to rise (tempered in the near term by the recession), hence the expectation of upward pressures on prices.

One source of the upward demand for oil is the practice of subsidising fuel in producer countries, where cheap oil is seen as a birthright.  The price of gasoline varies around the world, from 20-40 cents/US gallon in the Middle East and Venezuela, to nearly $4 in the US and up to $8 in Europe.  As a consequence, oil demand has fallen for the past three years in OECD countries, while growing at 5-7% a year in the Middle East, India, China and the Far East, the result also of economic development.

The Canadian tar sands are attracting substantial investment from the major oil companies, a consequence of their lack of access to lower cost reserves.   This investment requires an oil price of over $80/b, implies that this is the effective floor price for oil. 

The prospect of high future oil prices, together with carbon emissions priced to reflect their damage to the planet, means that there are clear incentives to decarbonise the transport system.