Sunday, February 8, 2009

The Journey Towards Crude Oil Independence

This was an article i submitted to NST last year, but didnt get published for reasons unknown. So facts may have changed since.
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The Government lately announced that due to the drastic increase in crude oil prices of the recent past, a major revamping of the fuel subsidy structure had to be done in order to reduce the financial burden the country would otherwise have to shoulder. No doubt, there were lots of hues and cries from the public, myself including despite the fact that I positively understand and agree that there is a need for the Government to review the subsidy structure. However, I also understand that this necessary adjustment will not protect us from future oil-price volatility. What will happen when the price is unbearably high and the Government decides that they have to revoke the subsidy completely? Will that then mean that we, the public, would continue to be susceptible to the volatility of petrol prices?

The Government should realize that the restructured fuel subsidy will merely offer a temporary and short-term relieve on Malaysia’s financial stresses. It is not a solution but rather a way of passing the problem from the Government to the public. We need to address the main problem head on and not make it another elephant in the room!

Fact one: global energy demand will continue to rise in the future to come, in fact it is globally agreed that world energy demand will double in the next few decades, particularly in light of the fact that China and India are gradually moving into an energy-intensive industrialization phase.

Fact two: supply of conventional oil and gas will struggle to keep pace with the growing energy demand. Supply of easy oil is no longer easy. Oil companies will surely attest to this, and I believe that the CEO of Petronas (Tan Sri Hassan Marican) confirmed this (NSTP- 6th June) when he revealed that much bigger investment is required to extract less oil.

Fact three: Because of the fact that we will struggle to meet demand with supply in the years to come, the price of oil is subjected to greater uncertainties, and looking at the volatility of oil prices the way it is right now, I seriously doubt that it will get any better. I doubt it will drop below 100USD per barrel, and I doubt that the burden we carry around for being heavily dependent on conventional oil and gas will ease on the public’s wallet and also on the Government’s wallet. But even if does drop below 100USD, I don’t think it will be long before OPEC decides to cut production with hope of driving the prices back to its glorious days (i.e. profitable for OPEC).

The Government needs to start looking into biofuels, which could serve as an alternative for gasoline. I applaud the Government’s effort in developing and promoting the use of Palm Oil for biodiesel. Indeed this is a brilliant step towards the right direction. However, we strongly need something similar for gasoline. We should not be contented and overly focused on the development of alternatives for diesel only, particularly when diesel only represents a smaller percentage of our total transport energy consumption. There are many alternatives that we could look into. Currently, bio-ethanol is assuming a bigger role as a replacement for gasoline worldwide. Brazil is the leader, and is closely followed behind by the US. The EU too is mandating the use of ethanol as a blending component for gasoline, and even in the East, the use of ethanol is gaining popularity. For example Thailand is already currently supplying E10 (10% ethanol blend) and E20 (20% ethanol blend) at its retail stations nationwide. In the news recently, the Thai government announced their plans of introducing E85 into the market by the end of the year, despite the many objections. Philippines on the other hand, too have been offering E10 for the last few years in some of its stations. The Philippines Biofuels Act of 2006, has stipulated that 5% of their total gasoline volume in 2009 will be substituted with ethanol. In fact, many other countries in the East (Australia, India, China etc) are gradually blending ethanol into their gasoline pool. I struggle to understand why we are not jumping into the bandwagon when this is clearly beneficial for the nation. I am not suggesting that we need to have the herd mentality, but bio-ethanol is already accepted worldwide, and car manufacturers are already in the race to develop and promote their versions of ethanol-compatible vehicles. If it is already coming to us, why wait till the very last minute and only follow pace after being left a few generations behind?
Many may feel that there would be compatibility issues surrounding the use of ethanol in our conventional gasoline car parc. However, many also fail to realize that in other markets in the world where bio-ethanol is mandated, typically car manufacturers (OEMs) endorse (and extend the warranty) the use of ethanol in gasoline of up to 10% (E10) in modern (without the use of carburetor) vehicles. Western countries that are big on using bio-ethanol, particularly Brazil, have been aggressively and actively promoting the use of ethanol in their own country in order to reduce their dependence on imported oil and their vulnerability to price volatility. The gradual implementation of ethanol-blended fuel together with the radical measures taken to motivate OEMs to develop and market ethanol-compatible cars (FFVs- flexible fuel vehicles) in Brazil, as well as offering incentives to the public for the use of bio-ethanol, Brazil is now the biggest consumer and exporter of bioethanol in the world. At present, FFVs represent the biggest passenger car market share in Brazil, and they offer gasoline laced with ethanol as high as 85% (E85).

There are lots of OEMs currently producing FFVs and in fact, if my memory serves me right, Ford, not too long ago, established a plant in the Philippine specializing in the production of FFVs for the Asean market. As a matter of fact, Volvo is already offering FFVs in the Thai market.
Ethanol could generally be produced via many ways, using various feedstocks, such as sugar cane, cassava, sorghum potato, wheat, rice, molasses and many more. To avoid competition with food crops, there are technologies out there where bio-ethanol could be produced from waste agricultural products. This will indeed tie in very well with the Prime Minister’s suggestion of developing many more agricultural lands, and would also be a plus side for the environment.
Therefore, why not emulate the same initiatives taken by the Brazilians (and other countries worldwide) and maybe hopefully at some point we could be 85% less vulnerable to the volatility of oil prices ?

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