Part 2

Until recently, both these nations were low-cost exporters, providing cheap manufactures to the West. In reality, their main export was low inflation as our clothing and electronic goods became ever cheaper.Now they are becoming self-sufficient economies - similar to the US. Their own economies are fuelling their growth and they are becoming less reliant on exports.Tom Albanese, the head of the mining giant Rio Tinto, doesn't exactly see eye to eye with BHP Billiton's chief executive Marius Kloppers on much.But the one thing they do agree on is China. Both see continued strong economic growth for years, and even stronger growth in the appetite for metals.Metals are one thing. The real change being wrought on us is in energy. And it is energy - or rather the cost of energy - that will determine our future.It was energy that started the Industrial Revolution 200 years ago - when we first started burning hydrocarbons in the form of coal. And it was energy, in the form of oil, that sparked the transport revolution a century ago.
You'd have to be blind not to notice what is going on now. It's all over the news, it hits you in the hip pocket every time you pull in at the petrol pump.Pfff, we've had oil price spikes before, I hear you say. But the oil price shocks of the 1970s were caused by an artificial restriction of supply. This time around, the spike is being driven by demand. And if you ask any seasoned oil explorer, even they now talk about peak oil being just a few years off.Peak oil is the point where we are on the downhill run in known supplies. There is still oil out there. But it is in ever deeper water, in more politically unstable areas or in tar sands where the cost of extraction has been so high it has been uneconomic. Some of it will be developed, which will stabilise prices and perhaps even push prices temporarily lower. But supplies are finite and demand is soaring.Think about our energy use in the West. Take an average Australian of a century ago and compare him or her with us in terms of our energy consumption. We've got electricity on tap, 24 hours a day. We ride around in fast fuel-guzzling cars. We leave home and land in Los Angeles in 16 hours.Until recently, several billion Chinese lived as we did a century ago. Imagine their energy demands rising to our levels and you'll quickly figure oil prices aren't going to return to the levels of a year ago.Add to that the damage we are doing to the environment in the form of greenhouse gas emissions and the extra costs of pricing that damage through carbon trading.So is this the ultimate disaster scenario?Not necessarily, according to a recent issue of The Economist. Higher oil prices make alternative energy sources more viable - biofuels, solar and wind power. And if money and expertise are invested in those areas, they will become more efficient, more economic and maybe, just maybe, lead to a bright future. But prepare for a lot of pain along the way. John Edwards