"Power to the people" from the Economist free Edition

SIR – The real answer to worries about energy security throughout the developing world lies not just in global oil markets but equally in energy conservation (“The real trouble with oil”, April 30th). For too long, there has been a presumption that an increase in demand for energy services must lead to an increase in energy consumption. This is nonsense. I have never met anybody who wanted to buy a litre of oil or a kilowatt of natural gas or electricity. What they want to buy is light, heat, motive power. They can have all of these using a fraction of the fuel currently burnt, but only if the most efficient technologies, buildings and vehicles are used. By doing so, societies save both economically and ecologically. Why doesn't such common sense prevail? Why not ask those whose entire business rationale is to sell us more oil, more natural gas, more electricity?

Andrew Warren
Association for the
Conservation of Energy
London

SIR – Your survey on oil focuses partly on the well-known proposition that supply-and-demand factors determine the price of crude oil (April 30th). You recognise that a new complication has arisen, namely that of the institutional pension managers investing in commodity indices, heavily weighted to crude oil, as an asset class. In the United States alone, they invested an estimated $50 billion in 2004, with $100 billion expected in 2005. This is a radical change from the past use of such funds and explains the otherwise paradoxical co-existence of rising inventories and increasing crude oil prices.

It is our own pension funds that are buying millions of barrels of crude oil, holding them in storage “forever”, driving up prices, disrupting monetary policy and sending more and more wealth to oil producers. It could indeed lead to steep oil price hikes, reminiscent of the experience of the 1970s and early 1980s. Until this failure of institutional structure is addressed by government, matters will continue to deteriorate.

Philip Arestis
John McCombie
Warren Mosler
Cambridge, Cambridgeshire