The recent dramatic drop in the price of oil on the global market should provide room for Thailand to adjust its energy policy and aim for more sustainable consumption. With the lower cost of fuel, an adjustment can now be made without adversely affecting the cost of fuel and household consumption due to cheaper oil prices.
The global oil price has steadily dropped over the past few months partly due to economic growth globally, coupled with the decision by Opec, the cartel of oil producing nations, not to cut production. Brent crude oil has now dropped to about US$50 a barrel for the first time since May 2009.
The effect of this is being felt keenly around the world. The Russian economy is particularly feeling the pinch, as it depends so heavily on oil exports, with a crash in the ruble's value.
With lower global oil prices, Thai consumers have become more optimistic. There is always an immediate hope that consumers will be able to buy cheaper gasoline. While Thailand is an oil and natural gas producer, the country relies on imports to sustain its rising fuel demand and the kingdom spends a large amount of its foreign exchange reserves buying oil.
Of all the member countries of Asean, Morgan Stanley Research said Thailand would stand to gain the most from falling oil prices as its dependence on road rather than rail transport and the high proportion of oil used in its energy consumption means its reliance on oil is high. The next most reliant country on oil in Asean would be Indonesia, followed by Singapore and then the Philippines, which are also net oil importers.
Morgan Stanley estimated that all else being equal, every 10% fall in oil prices would reduce the oil trade deficit or oil burden by 0.9% of GDP in Thailand, 0.3% in Indonesia and Singapore and 0.2% in the Philippines. The global oil price drop would also mean that Malaysia's oil trade surplus would be cut by 0.03% of GDP.
The lower oil prices should also ease the pressure on monetary policy as a lower cost of oil means less pressure on inflation. The Thai economy has been in the doldrums in the past year as consumers have been reluctant to spend.
Economists expect the fall in the oil price to contribute to Thai economic activity and lead to an increase in public spending.
The falling oil price also lessens the government’s burden when it comes to subsidising oil prices for domestic consumption. Thailand’s Oil Fund has now recovered after the fund lost money subsidising the domestic oil price.
Early this month the Oil Fund, the instrument used by government to stabilise the oil price, had a net balance of 17 billion baht. Consequently, some have called for the government to stop collecting money for the Oil Fund to further lower domestic gasoline prices. However, it is still important to maintain the size of the Oil Fund to stabilise the domestic oil price, which tends to be volatile. The Oil Fund can easily run at a loss when it has to subsidise local prices when the global price rises, as was the case a few years ago.
Amid this change, the government should reconsider its energy policy. Of course, people would be happy if the price of petrol dropped. But it is too early to assume that the weak global oil price will remain at record lows for long.
Instead of expecting cheaper gasoline and other products, the Thai government and the people should instead take this opportunity to restructure the energy policy for sustainable consumption in the future to reflect the fact that Thailand is dependent on oil imports. And Thais should consume with conscience.
For instance, the government could continue to collect contributions from the Oil Fund to support alternative energy development in Thailand. A campaign for greater energy efficiency should be promoted.
In fact, the lower global oil price reflects a lower demand from countries which have been partners with Thailand, such as China and oil exporting nations in the Middle East. Thai exporters may feel the impact from weaker demand from these nations.
Meanwhile, it is essential for Thailand to continue looking for alternative and green energy sources. The weaker oil price this time simply provides some breathing space for Thailand to rethink its policy in the long term. After all, economists and other experts in world markets expect the oil exporting nations are not likely to let the weaker price continue for much longer. The Thai people should not be complacent because of the cheaper global price for oil and act now to being about a more sustainable future.