John Rapley - FOREIGN FOCUS

Energy consumers got a reprieve over the last couple of weeks as surging oil prices fell back towards earth. Having neared US$150 a barrel, the price of oil this week dropped below US$120. The cost of everything from gas to light should become a bit less painful.

Analysts disagree over the future course of energy prices. Some argue that the longer-term trend is still upwards. Yet, there is a growing chorus which maintains that oil prices will continue declining for a while.

Expensive oil Here to stay

The reason, they maintain, is that high oil prices are forcing reductions in con-sumption. The result will be a global economic slowdown that restores balance to supply and demand.

However, even the optimists are warning that expensive oil is here to stay. They say that the price tag on a barrel of oil might drop to US$90, or so. But they doubt we'll ever again see the glory days of the 1990s: then, oil was below US$20 a barrel, Hummers became a fashion item, and we could burn air-conditioners night and day.

The reason is that the world economy has changed profoundly since the last oil shocks, which occurred in the 1970s. Then, most energy consumption took place in the developed countries of the West. It was said that America spent more on air-conditioning alone that China did supporting its entire population.

Sit in a Beijing traffic jam today, and you'll see how far things have come. In response to high energy costs, demand has dropped noticeably in places like the United States. But over the last three decades, a great deal of added demand has come onto the world market, especially from Asia. That demand, if adjusting to high energy, will nonetheless support consumption at levels much higher than the past.

Meanwhile, supply has failed to catch up with the added demand. Some economists attribute this to cyclical factors, like the fact that energy producers benefit from leaving oil in the ground for as long as prices keep rising - they stand to make more money tomorrow than they will today.

Reducing consumption

However, some industry experts believe the world is nearing the limits of its oil-producing capacity. Abundant oil, they suspect, is a thing of the past.

So, it looks like we'll all have to learn to live with higher fuel and light bills. That's a bitter pill to swallow, but there's no avoiding it. There are ways we can all reduce our consumption. For starters, just think of how much less driving we'd do if we got used to the idea of sending our children to neighbourhood schools, rather than our old ones across town.

We'll have to think of ways of making our economy more efficient as well - improving production, and shifting into less energy-intensive sub-sectors.

However, as we make the difficult adjustments to the new regime of high energy costs, it is worth noting that there may be some opportunities for us. For one thing, rising transportation costs have already induced a move towards increased 'localisation'.

Manufacturers, who once thought nothing of outsourcing production to the other side of the world, are now looking closer to home.

Our proximity to the huge markets of the Americas may give many of our firms a new edge. Perhaps this will be most evident in the tourism industry. Tourists who once flew to Bali for holidays may start looking increasingly at Caribbean destinations.

Of course, we can't just sit back and wait for customers to come. We will need to adjust our product. But if we play our cards right, we could turn this challenge into an opportunity.

John Rapley is president of Caribbean Research Institute, an independent think-tank affiliated to University of the West Indies, Mona. Send feedback to columns@gleanerjm.com.