Sovereign oil pricing in Asia: a comparative study

Abstract

The Oil prices have been rising consistently and this has been a cause of concern for the countries around the world. Both the oil exporting and importing countries have their shown share of concerns in this. As the focus of the worlds is increasingly shifting to the fantastic growth of developing Asia, questions are being raised how the energy security of Asia and how much dependency it has on oil for meeting its energy needs. There are mainly 3 measures one can use to gauge the dependence of a country on oil - Oil Self Sufficiency (how much the country depends on exports for its oil needs),Intensity of Oil in Energy needs (how much oil is used in energy consumption), Energy intensity (how much is the energy consumption per GDP). From these, we see that although Asia is diverse in terms of its dependence on oil, many of the developing countries in Asia are net importers and are inefficient in terms of their energy usage when compared to the G7 countries. As this challenge is becoming increasingly alarming, the governments are faced with questions related to sharing of burden amongst the key stakeholders (Government itself, Refining Companies, the Public), how to reduce the supply of costs, how to encourage reduction of petroleum usage and how to achieve buy-in from the public. Most of the Asian countries are subsidizing Diesel and LPG and the options they have are in terms of Price based policies and Quantity based policies. In terms of policy responses, the Asian Governments have been adopting different methods. There have been some strategies which have worked really well for a particular country. Bangladesh has been facing the brunt of oil subsidies for years. However, one positive thing which happened in Bangladesh was the use of Compressed Natural Gas (CNG) and their net oil import reduced in the year FY2007-08 which is an achievement. Nepal has a Government run monopoly as the oil corporation and they faced a huge shortage crisis because of the ailing oil corporation. China has been enjoying a great amount of fiscal surplus and hence they have been able to heavily subsidize the oil. Although up to 1994, China was a net exporter of oil, from then on, the consumption has been drastically increasing making it a net importer. A key point to be noted here is that 60% of the import of China is used for export oriented activities which in turn brings Foreign Exchange for the country. However, China has a subsidy bill amount to around USD 40 billion. Indonesia which recently quit as a member of the Organization of Petroleum Exporting Countries (OPEC)gets a significant chunk of its export revenue through its oil and natural gas sector and has one the lowest oil prices in the world. Indonesian oil production averaged 1.1 million barrels per day (bbl/d), of which, 81 per-cent was crude oil. However, in 2004, Indonesia became net importer of oil as a result of red tape, legal uncertainty and past political turmoil and as companies shy away from investing in new oil wells or refineries. Recently Indonesia had to raise prices and before that they had a targeted cash transfer program for the poor which helped get buy-in for the price rise. Thailand produces enough oil and condensates to match one-quarter of its consumption. It imports crude oil to be refined domestically there are four refineries as well as some heavy fuel oil. Thailand used State Oil Fund for provision of subsidies, in order to smoothen out the effect of the fluctuations in the global oil market.