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Thursday, June 05, 2008

Fueling Reality

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As of midnight, coming into today, June 5th, Malaysians got a big dose of reality. 78 sen per liter's worth, to be exact.

Sure, many of us will bitch and moan about it. But hey... welcome to a taste of the real world, a world without unrealistic and economically unsound subsidies. What Walski would like to bitch about, though, is why such drastic the quantum? And as we have seen in the past, without fail, when the price of fuel goes up, so will everything else.

Starting with the electricity tariffs, which is expected to go up by about 20%. Then bus fares, then the price of goods, since diesel, too, has leaped in price.

Image hosting by PhotobucketTaken at 10:30pm last night, at the North-bound Sungai Buloh rest area

The bigger question Walski has in his mind, however, is this: what is the real cost of fuel in Malaysia?
(fueling thought processes, and more, in the full post)

Image hosting by PhotobucketFuel prices, May 2004 to-date (via )

As some of you would know, Walski is in the industrial process control business. What this means is that he deals with equipment that monitors and regulates industrial processes that deal with liquids and gases. The Oil & Gas industry happens to be one of the focus industries that the company he works for deals with.

So, what really drives the price of crude oil? Well, it's not primarily the cost to extract crude, surprise, surprise. In fact, many hydrocarbon producers are taking the opportunity of the inflated crude price to fuel further production development, which for oil, has historically been based on the economics surrounding a USD 25 - 30 per barrel price tag.

Anyone who's studied even the most rudimentary of economics can easily answer the question, though. It's demand - plain and simple. And because the demand (or anticipated demand) far exceeds supply (or the anticipated supply), the price of crude oil has skyrocketed to around USD 120 per barrel (a barrel is equivalent to just short of 159 liters). Which equates to about USD 1.33, or around RM 4.66, per liter of crude. We won't dwell too much on oil economics here - Walksi will probably do another post to look at this in more detail.

So what is the real cost to produce a liter of gasoline (or petrol as we call it here)? According to ExxonMobil, operators of the Esso and Mobil outlets, the actual pump price of a liter of RON 97 gasoline is RM 2.93 - but that's probably based on an under USD 100 per barrel crude price. Estimates that have been published in the newspapers puts it closer to RM 4.00.

Image hosting by PhotobucketThe "real" price, according to ExxonMobil

In truth, we don't really know. And perhaps the next step, once we start paying real prices for fuel (in August this year, supposedly), is to de-regulate fuel pricing. Let the fuel producers set the pricing based on real economics, and allow competition between the producers. This is something which Walski thinks should have been done a long, long time ago - and which would have avoided the sudden, almost-in-desperation crunch that we're faced with today.

Perhaps it may have been a good idea once upon a time, but unrealistic subsidizing of commodity items has only given all of us a false sense of economic wealth, which in the long run will be detrimental to everyone. This is one of the factors that caused the European communist bloc to collapse two decades ago.

Frequent commenter and friend CK asked Walski this important question earlier: what's going to happen to the 10's of billions in subsidies that the Malaysian government states it will save? Granted, part of that will be given out as rebates, to owners of cars below 2,000 cc and to motorbike riders (the Rempit Bonus Plan, as some might dub it). What Walski wonders is if the actual figures are going to be made known.

Because if they're not, there will always be the suspicion that the so-called savings will somehow be pocketted by them cronies in some way, shape or form.

CK also mentioned something else, which Walski will repeat here: carrying out such a drastic subsidy cut, so soon after the disasterous-for-BN March 8th, is synonymous to committing political suicide, on the part of the BN/UMNO-led government.

Be that as it may, as of today, June 5th 2008, Malaysians will be a step closer to the real world. And having to cope with its cruel realities. Many of these realities oil-related, since we've become so dependent on that fast-depleting natural resource. We're not alone in the world when it comes to this, of course, only that we've been unrealistically shielded for far too long.

One thing we can expect in the near future, though - more street protests, similar to those we saw in 2006, the last time we saw a fuel hike. The best (as in most entertaining) sentiment Walski has seen in the bloggerhood so far, has come from blogger Fireangel (hint: read the post title) - mirroring closest, perhaps, how most Malaysians will react.

Perhaps it won't be the fact that these subsidies are being removed that folks will be angry about - that reality is one which economies around the world are facing. The anger will stem from how the Government has chosen to unleash the economic onslaught. In a rather desparate and ill-planned manner, if you were to ask Walski. Gradually cooking a frog in a pot of water, in the end, is probably more humane than if one were to simply chop its head off in one fell swoop.

But more than that, it's the fact that just 5 days prior, the Deputy PM dismissed altogether rumors of a fuel price increase.

Okay, to be fair, Najib did tell the truth, to an extent - the fuel price increased by 78 sen, and not 40 sen as Najib had dismissed as mere speculation.

Kidding aside, the real anger stems from the fact that Malaysians now have a government that doesn't seem to have the capacity to tell the truth upfront, or for that matter, willingly, or worse, at all if it can help it. And this coming from someone slated to be the next Prime Minister (at some point) does not at all bode well for the nation.

If BN/UMNO thought March 8th was bad, well, they ain't seen nothin' yet...