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Soaring oil prices - tensions and theatrics

Updated On: May 02, 2006

The new global energy race of recent months is likely to heighten as oil prices soar to a record high of above US$75 per barrel at the New York Mercantile Exchange on April 28.

The world oil price hike can be largely attributed by industry analysts to political uncertainties in the oil-rich nations of Iran and Venezuela, an imbalance in demand and supply spiked in part by the summer driving season in America, and the slow-down in production due to refinery maintenance.

An impending oil crisis of sorts appears to be catching up with the momentum set by the preemptive energy diplomacies of the major oil consuming nations, and that saw Asia’s two rising industrial giants – China and India – upsetting the traditional oil consuming strongholds of America.

America is now attempting to cure its “addiction to oil” by compromising its call for global democracy as it cozies up the presidents of AzerbaijanKazakhstan andEquatorial Guinea for potentially new oil and gas supplies.

Russia’s President Vladimir Putin has threatened last week to shift its supply away from the European Union to Asia’s energy markets, as the former attempts to curb the entry of Russian companies into the European market. Putin’s threat should carry weight, if the recent cutting of Russian gas supplies to Ukraine can be used as a guidepost.

China and India’s energy run has been affected by the reality of unpredictable oil prices as well.

The Beijing News reported on April 28 a crisis in the south, especially across the southern province of Guangdong, where drivers have to queue for hours to fill their tanks and highways have been turned into parking lots by those waiting in line.

China’s efforts to raise fuel prices since late last month – the first in eight months – remain insufficient to satisfy refiners serving the domestic market.

The Asian Development Bank (ADB) may soon revise India’s projected growth of 7.5 per cent - based on oil prices at US$62 a barrel – downwards for the current 2006-7 financial year, if oil prices continue to spike. A 10-dollar rise in crude prices, according to an ADB official, could mean a 1.2 per cent reduction in growth measured in gross domestic product (GDP).

How has Asean been coping with new tensions elicited by the oil price hike?

Indonesia’s President Susilo Bambang Yudhoyono and Singapore’s Minister Mentor Lee Kuan Yew have made public statements last week warning of a world recession should oil prices continue to escalate.

Indonesia faces the prospect of its fuel subsidy spending exceeding its budget this year by 38 per cent to an estimated 75.839 trillion rupiah if world oil prices remain at US$72 per barrel, according to National Development Planning Minister Paskah Suzetta. The latter has announced on April 27, new plans (as part of a nationwide energy-conservation drive) for fuel-efficiency legislation that will enforce fuel quotas and higher taxes on large-capacity (above 1,300 cc) engine cars, albeit with mixed public acceptance, especially in the wake of the May 1 labour law demonstrations.

The Malaysian government has braced itself for a wipe-out of the RM4.4 billion savings (made from the 30 sen hike last February amid public protest) by the world oil price hike, and would be forced to pay an additional subsidy of RM3.5 billion according to Second Finance Minister Tan Sri Nor Mohamed Yakcop.

Thailand, in response, has approved new economic guidelines that encourage the public to rely more on the less costly options of Natural Gas for Vehicles (NGV), gasohol and biodiesel. The government has also reached a compromise with five major oil companies on April 25 to cut the diesel price by one baht per litre for bus and boat operators.

The current alternatives of bio-fuels and perhaps even nuclear energy are attractive options on the table for Asean as a whole, to offer calm to the unstable geopolitics of oil prices and diplomacies. 

Indonesia, for example, will soon build its first bio-diesel (jatropa oil) factory, with an annual production of 200 million tons. Thailand, a long-time champion of alternative fuels, will speed up its plan to replace oil imports with biodiesel by next year. Malaysia, the world's largest producer of palm oil, launched a locally-produced biodiesel in March, and has issued ten licences for plants to produce biodiesel for export. Elsewhere, llinois-based Archer Daniels Midland announced plans last year to build a US$29 million (S$46 million) biodiesel facility in Singapore.

Sources:

Biodiesel the way to go (New Straits Times, 22 March 2006)

Govt Forced To Pay RM3.5 Bln Subsidy Due To Oil Price Hike (Bernama, 10 April 2006)

Cabinet endorses plans to ease oil price impact (Bangkok Post, 26 April 2006)ADB to revise India’s growth projection if oil prices keep rising (Antara, 27 April 2006)

Fuel-price crisis: Govt urged to form viable oil strategies (The Nation, 27 April 2006)High oil prices can hold us hostage: MM Lee (The Straits Times, 27 April 2006)

Gorontalo to build first bio-diesel factory in RI (Antara, 27 April 2006)

RI’s President hopes oil price to drop soon (Antara, 27 April 2006)

Fuel subsidies may rise 38 pct if crude price stays high – Minister (Antara, 27 April 2006)

Pump prices up by 10¢ a litre (The Straits Times, 28 April 2006)

Indonesia plans to ration fuel as oil prices skyrocket (The Straits Times, 28 April 2006)

Gas rationing mooted in drive to save energy (Jakarta Post, 28 April 2006)

Energy crisis? Nuke it (The Straits Times, 29 April 2006)

Russia warns EU it may seek energy buyers elsewhere (AFP/AP, 29 April 2006)

US courts countries rich in oil and gas (AP, 29 April 2006)

Fuel supplies run low in China's south (Reuters, 29 April 2006)

Push for biofuels (AP, 1 May 2006)