What do high oil prices mean for clean energy in Southeast Asia? – Diplomat

The price of oil has has risen sharply in recent months. In March, crude oil hit levels last seen a decade ago, trading on the European spot market at around $117 a barrel, much higher than $18.38 in April 2020. the cost of energy around the world and especially the price of gasoline (although crude oil has already begun to decline slightly since March).

High oil prices have several side effects. Most important politically, they make people angry because no one likes to pay higher prices for a necessary commodity like gasoline, which they have to use every day. For this reason, many political leaders have a vested interest in keeping gasoline prices stable and affordable and will go to any lengths to achieve this through subsidies, price caps, tax holidays, rationing and other market interventions.

But high prices may also serve another purpose, which is to move people away from fossil fuels towards more renewable forms of energy faster than they might otherwise. Because high prices really piss people off, if they stay high long enough, people will move away from gas-guzzling cars and switch to public transport or electric cars. I realize this may not be a very realistic alternative for many consumers in Southeast Asia at this point, but that’s the point: if prices stay high long enough, governments will be forced to take them more seriously.

In other words, managing the impact of high oil prices requires trade-offs. In some cases, prices may be lowered in the interest of political stability. But they can also be passed on to consumers, likely to speed up the transition to cleaner and more sustainable ways of consuming energy. This will entail some short to medium term pain and disruption, but may ultimately lead to a more desirable long term outcome.

In Southeast Asia, we are seeing both as individual governments weigh their comparative advantages against the trade-offs involved in managing rising oil prices. We can learn a little about these trade-offs by looking at how high oil prices have affected retail gasoline markets in Thailand and Indonesia.

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Gas in Thailand is sold by several different companies, including the state-owned PTT, as well as companies such as Shell and ExxonMobil. There are subsidies and price caps, but some of the higher oil prices are usually passed on to consumers. As a result, the price of premium unleaded gasoline in Thailand almost doubled from THB26.56 per liter in May 2020 to THB49.51 two years later.

In contrast, Indonesian premium unleaded petrol Pertamax has only seen one-time price increase in April, when it rose by about 30 percent. The price of pertalite, a lower-octane gasoline, has not risen at all. Keeping those prices steady in the face of soaring oil prices is costing Pertamina, the state-owned oil and gas company, which has a virtual monopoly on gasoline retail sales, billions of dollars as they eat up the price difference. Some of these losses are covered by subsidies, but the real reason Pertamina is willing to take them is because it is politically beneficial to its sole owner, the Indonesian government.

Indonesia has chosen to keep prices low and stable and is better placed to do so than Thailand because Indonesia has historically been a major oil producing country. (Its oil reserves are falling, but that’s a topic for another time.) Thailand, meanwhile, passes on some of these higher costs to consumers and is generally less able to keep high prices down as it is not an energy importer and does not like running large budget deficits.

This was, in my opinion, the key reason why Thailand make good progress transition to cleaner forms of energy consumption: they really have no choice. The current wave of high oil prices is likely to simply accelerate this trend, reinforcing the strategic need to act faster. And this is true for other net energy importers such as Vietnam and the Philippines.

Countries with more oil and gas at their disposal, such as Malaysia and Indonesia, operate according to a different political economy calculation and therefore have different incentives. Because they can control prices to some extent during oil market volatility, they tend to do so in the interest of political stability. This does not mean that such countries are incapable of phasing out fossil fuel consumption. Just the high price of oil, set by market forces, is unlikely to be the catalyst.