Rabu, 11 April 2012

Solution to fuel price dilemma: Leave oil before it leaves us


Solution to fuel price dilemma:
Leave oil before it leaves us
Wahyudi Wibowo, a lecturer at the UPH Surabaya Business School,
is pursuing his PhD degree at the International Trade and Commerce Department of Kyungsung University, South Korea
SUMBER : JAKARTA POST, 09 April 2012



The fuel price is not going to be hiked any time soon, as proposed by the government following last week’s pulsating debate at the House of Representatives. However, are we ready to face the same problem in the future?

The government has increased fuel prices several times since the reformation era, but the latest plan to do so came with exhausting social and political costs as evidenced by the long argument at the House and the widespread street protests.

More importantly, the discourses have been biased and reduced to short-term government budget adjustments and politicization. Rarely did the fuel-policy debate touch the real issue at stake: our national energy sustainability.

The government said the soaring world oil prices that exceeded the government’s projection was behind the proposal to increase fuel price. Without a price hike, the budget deficit would swell beyond the mandatory limit just for fuel subsidies.

The government insisted that the fuel-price increase or the slashing of the fuel subsidies would bring long-term improvements for the whole economy, since the savings could be used more productively, such as for infrastructure development.

The cut would also induce people to rationalize their fuel consumption, since people generally don’t voluntarily save energy but are willing to save their spending. Fuel subsidies have been criticized as unfair as it more likely goes to the “haves” rather than the “have nots”.

Nonetheless, the fuel price is a major problem in this country since it is still a determining factor to the daily costs of many households, as well as for heavy industries and the transportation sector. The external issues of this problem include high inflation that could further hamper economic growth.

All of these tell us that we will continue to be trapped in this dilemma every time the global oil price fluctuates.

Unarguably, oil is one of the most lucrative commodities in the world. It’s called black gold. However, Dr. Fatih Birol, chief economist of the International Energy Agency (IEA) warned in 2008 that: “We see a sharp decline in production from the existing oil fields ... Exactly 12.5 million barrels a day are still missing, that is about 15 percent of the global oil demand. This gap means that we could face a supply shortage and very high prices during the next years. We should leave oil before it leaves us.”

The world is facing the so-called peak-oil problem. That is when we live at the point where the amount of oil consumed exceeds the amount left in the ground. Despite the currently high geopolitical tensions in the Middle East, oil reserves are becoming extremely limited — especially for commercial production — since the costs to find and pump new reserves are skyrocketing.

That is why big oil companies are now preparing to shift strategies, even with the incentive of high
oil prices.

The oil and energy sectors have largely contributed to the Indonesian economy. That is why policy makers tend to see the oil and energy sectors as important sources of revenue.

On the other hand, the fuel subsidies are increasingly burdening the budget, as we became a net oil importer late in 2004. However, the situation could dramatically change in the next two or three decades.

The Agency for the Assessment and Application of Technology’s (BPPT) Energy Outlook 2011 warns that Indonesia will be a full-energy importer from 2027, if we continue business-as-usual.

This is because the steep increases in domestic-energy demand will not be self-fulfilled.

The report forecasts that the final energy demand in 2030 will triple that of 2009. This energy demand will mainly come from heavy industries (44.5 percent), transportation (28.1 percent) and households (14.7 percent). By fuel types, the demand will be dominated by fossil fuels (35.6 percent) and electricity (22.5 percent).

Power production in 2030, which will be primarily consumed by heavy industries and households, is predicted to be fulfilled by much less fuel consumption than today. However, most of the demand in the transportation sector will still depend on the amount of fuel. Specifically, gasoline consumption will be dominated by private vehicles: cars (59 percent) and motorcycles (31 percent).

On the other side, national crude production will continually decline from 346 million barrels in 2009 to only 82 million barrels in 2030, and oil exports are predicted to end by 2016. Since overall fuel consumption will triple in 2030, they will mostly be fulfilled from imports. This shows our heavy dependency on fossil fuels.

Good policy is about making more and better alternatives available in the society. In this case, policy makers should first shift their paradigm on oil resources.

Oil and other nonrenewable energy resources should no longer be seen as commodities for export, but more as energy sources to support national development.

Consequently, in the near future, the government should find a way to allocate most crude production for refinement and domestic use. This new paradigm has to be considered in the budgeting and energy policies.

The national-energy policy should represent a comprehensive approach that creates more sustainable alternatives on the supply side (energy diversification), while at the same time effectively influencing the demand side (consumption pattern).

In this regard, policy makers should prepare more seriously for the structural transformation of power plants into the energy-sources mix, where we have in abundance such things as coal and natural gas, together with the use of renewable energy sources, such as hydropower and geothermal. This is crucial if we want to ensure the sustainability of the industry.

In the transportation sector, alternatives could include natural gas or biofuel-driven cars, hybrid cars, electric cars and motorcycles, and putting more emphasis on public transportation.

Households are expected to consume more gas and electricity. The use of solar, wind or hydrogen energy for small-scale electric generators, especially in rural areas, need to be further explored.

The substantial lesson from the current fuel-price turmoil is not about the price level. That will be irrelevant when we are able to loosen our dependency on oil.

Again, the message for all of us and policy makers is straightforward: One day we will run out of oil. We better get prepared with some alternatives to oil. Surely, we have to leave oil before it leaves us with deeper problems. ●

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