Fuel prices remain high—this could affect road and tunnel construction projects

Illustration: GesturGis/Bigstock

Higher fuel prices could change both driving and living habits as well as undermine the profitability and investments in major infrastructure projects, a few leading researchers in the field of transport assess.

Currently, a litre of petrol costs more than DKK 17. This is far above the usual price of DKK 12–13 per litre, and everything points to the fact that we will have to get used to it.

An analysis from Danmarks Nationalbank predicts that we should not expect fuel prices to fall back to the pre-inflation level, at least not any time soon.

According to the analysis, Outlooks for the Danish Economy—March 2022, the price of oil, which is a decisive factor in fuel prices, will reach USD 105 per barrel this year. In 2023 and 2024, the price will fall to USD 91 and 83 per barrel respectively, Danmarks Nationalbank estimates.

If a worsening of the Russia-Ukraine war or other factors further reduce supply, oil prices risk reaching a record USD 148 per barrel in 2022. The highest price a barrel of oil has been at is USD 141 per barrel. That was in 2008.

The worst case scenario is USD 125 per barrel in 2023 and USD 95 per barrel in 2024 if the war escalates or restrictions/demand for oil grow, Danmarks Nationalbank’s analysis shows.

In comparison, a statement from Drivkraft Danmark, industry and employers’ association for fuel companies, shows that the price has not exceeded USD 85 per barrel at any point within the past five years.

In other words, we find ourselves in a new situation in which it seems that fuel prices will not fall back down to the previous levels.

Drivers are changing their habits

“We can already see that people are driving slower,” says Mogens Fosgerau, professor of economics at the University of Copenhagen, who researches transport and economics.

According to him, one can now measure changes in drivers’ habits. Rising fuel prices have caused people to slow down and drive their cars a little less.

However, the biggest traffic changes are yet to come. This will happen when the price of fuel has been at the new, higher level for some years, the researcher says.

“The adjustment to the higher prices will be two to three times as significant in the long run. For example, saying no to a job if it’s too far away. Or not moving as far away because commuting costs will be too high.”

Changes in the profitability of infrastructure

According to Mogens Fosgerau, the new driving and living habits may have an effect on the profitability of certain infrastructure projects.

This is partly due to the fact that the continued high fuel prices mean that traffic will either decrease or will not increase as much as it would otherwise have done.

“In the long run, the effect will be smaller due to electric cars, but the volume of traffic will not be as large in any case. This means that the profit from building roads will not be as high as it otherwise would have been. The profitability of infrastructure projects will decline. If there are fewer people using the new roads, the profit will be lower.”

New Limfjord Connection may no longer make sense

In relation to infrastructure projects, this will lead to less growth in congestion and transport operations for car traffic, while the increase in energy prices and raw materials will also increase construction costs.

“So everything else being equal, it will reduce the benefits of the approved road projects,” says Otto Anker Nielsen, professor at DTU, who researches transport and economics.

According to him, the Third Limfjord Connection is an example of a project that may be threatened due to its profitability in the long run.

“It’s clear that for projects that are already only just balancing socio-economically—e.g. the Third Limfjord Connection in particular—it will probably lead to them having a negative social profitability in the future.”