Soaring oil prices - transnational deals and domestic tensions

Updated On: May 09, 2006

Against the Asian Development Bank’s (ADB) bleak forecast that increasing oil prices may shave at least 0.6 percentage points off Asia's overall economic growth, Asean’s energy leaders, Indonesia and Malaysia, have geared up for the seemingly no-holds-barred global oil and gas shopping spree.

Malaysian Prime Minister Abdullah Badawi’s recent two-day visit to Jamaica has brought new deals for offshore oil exploration and a greater supply of liquefied natural gas and major construction works in the country.

Not to be outdone, Indonesian President Susilo Bambang Yudhoyono’s maiden visit to the Middle East brought home billion dollar investment and energy deals in the bag.

Energy and Mineral Resources Minister Purnomo Yusgiantoro announced a potential agreement with the Islamic Development Bank (IDB) to create a trade financing facility for imports of up to 400,000 barrels of crude and refined oil supplied by Saudi Arabia and Kuwait. The deal will allow cash-strapped state oil and gas firm PT Pertamina to extend its payment period for its imports from one to six months, and help ease the stress on the country’s domestic fuel supplies amid increasing consumption at home.

Pertamina president Ari Sumarno also revealed a preliminary agreement with Abu Dhabi state oil firm the International Petroleum Exploration Company (IPEC) to help upgrade and modernize Indonesia's aging refineries, in turn raising Pertamina’s international profile.

Tensions from soaring oil prices – relentless at US$70.30 a barrel on May 5 – have forced transnational energy ‘deals’ to take the form of illegal fuel smuggling from Malaysia to troubled Thailand, where inflationary pressures – up 6 per cent from April last year – have adversely affected the nation’s people. 

Some 1,200 of the 4,000 fishing trawlers in Pattani for example, have already halted their operations due to rising oil prices, and in some provinces, police units have run out of money to buy gas, and forced to cut back on patrols by 70 per cent in some areas.

Currently, the Malaysian government has placed at least 75 petrol stations in four states (Kelantan, Perlis, Kedah and Perak) under scrutiny for suspected fuel smuggling to Thailand. Additionally, 13 mini petrol stations – seven in Kelantan and six in Perlis – all located within a 15km radius from the Thai border, had their licences revoked on May 1.

Transnational energy actors also play the substitute fuel trump card to capture an emerging market in the region. This week for example, the Thai government approved tax reductions for Natural Gas for Vehicles (NGV) equipment, and aimed to build more natural gas filling stations to encourage drivers to convert to natural gas.

A 200-year-old German trading company, C Melchers GmbH, has announced a new scheme to retrofit vehicles to run on compressed natural gas (CNG) inSingapore for around $2,000 with a kit from Argentina, a leading user of natural gas in vehicles. The company also claimed that car owners will make back the current petrol prices in fuel savings in 14 months.

Oil, gas deals cap Abdullah's Jamaica trip (The Straits Times/The Star, 5 May 2006)
SBY wraps up Mideast trip with bagful of deals (Jakarta Post, 5 May 2006)
High oil prices 'may impede Asian growth' (AFP/ The Straits Times, 6 May 2006)
THAILAND: Inflation set to worsen on back of high oil prices (The Straits Times, 6 May 2006)
Thirteen Mini Fuel Kiosks Lose Licence For Suspected Smuggling (Bernama, 7 May 2006)
Firm plans to sell fuel converting kit for cars (The Straits Times, 8 May 2006)
Yudhoyono brings home Mid-East oil and cash deals (The Straits Times, 8 May 2006)
Petrol stations under scrutiny (The Star, 8 May 2006)

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