COMMENTARY
BOONSONG KOSITCHOTETHANA
Consumers of subsidised fuels like liquefied petroleum gas (LPG), compressed natural gas (CNG) and diesel fuel deserve, to a certain extent, some scorn for their role in driving up fuel prices.
But politicians should receive more blame in the first place for favouring a plan by making oil and gas prices in Thailand artificially lower than actual cost, in an unsustainable policy aimed at making easy political gains.
The reality is that when prices are capped or subsidised - occurring mostly in developing countries like ours - consumers don't feel the same pressure to conserve than their counterparts elsewhere do. Because of distorted prices, petroleum consumption keeps rising in subsidised nations while oil use elsewhere is falling.
Figures from the International Energy Agency (IEA) clearly show what is happening: oil use in industrialised countries represented by the Organisation for Economic Cooperation and Development was down in March by 2.8% year-on-year in the OECD's American and Pacific region and down 2.3% in Europe.
In sharp contrast, petroleum consumption in non-OECD was projected to rise 3.7% this year, reflecting the rise spurred partly by strong economic performance in Asia and the Middle East, and also by the price protection for consumers in several developing states.
The consumption growth in the non-OECD group, which represents 44% of global use, is enough to offset the OECD decline and leave a net projected worldwide oil consumption of 1.2%.
In Thailand, for instance, we see that consumption of LPG, which is priced 170% below cost, is jumping, especially in the transport and industrial sectors which are aggressively taking advantage of the subsided fuel. The two sectors now account for nearly 35% of Thailand's total LPG consumption and have recorded growth of 12-17% over the first five months of this year, according to the Department of Energy Business.
At 18.13 baht a kilogramme, LPG in Thailand is lower than the actual market price by 30 baht/kg and about 4-5 times cheaper than petrol; thus more vehicle owners will switch to using LPG, and smuggling of LPG into neighbouring countries where it is more expensive, will continue.
Exploitation of the subsidy regime by these sectors turned Thailand, which has been a net LPG exporter, to become an importer in April. The LPG import volume is conservatively estimated to top 300,000 tonnes for 2008 and nearly one million tonnes next year if the subsidy remains in force.
Basic economics states that demand and supply are normally correlated. Prices will increase when demand is high and supply is limited. With demand continuing to surge like this, it is highly unlikely that we will see oil prices being tamed, let alone reduced.
And chances are that oil prices could rise to as high as $170/bbl in the coming months, from above $140 a barrel now, as Chakib Khelil, president of the Organisation of Petroleum Exporting Countries (Opec) has warned.
Or worse, oil prices could test the $200/bbl level over the next five years and is most unlikely to sink below $100, as analysts have envisaged. Keeping subsidies or cutting fuel taxes counters the bid to improve energy efficiency and reduce consumption which eventually would lead to lower fuel prices.
By any measure, Thailand's energy efficiency has been poor. Our primary energy consumption per GDP has been rising, while the general global trend has been flat to decreasing.
The ratio of energy use to GDP in the last five years was 1.1:1, a sharp contrast to other countries where the GDP numbers are higher than energy consumption proportion.
Policy-makers must dare to risk public discontent in a proper way and stop spoiling the consumers, and consider reforms to subsidies that are draining their coffers and inflating demand despite record price increases. The government should not intervene politically on oil prices.
Alternatively, authorities may consider using the tax surplus from higher oil prices to help selected vulnerable consumers - fishermen, farmers and truckers.
It's not enough to point the finger at big oil, Opec and speculative traders or the skyrocketing oil prices; consumers need to do their part and economise on their energy use, and learn to appreciate and pay for the true value of oil.
Boonsong Kositchotethana is Deputy Assignment Editor (Business), Bangkok Post.
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