Low oil prices and
opportunities for energy development in
South Asia
Low world oil prices are seen as “negative” by many
analysts because they pull down stocks and equity values of many energy
companies and contribute to deflationary pressure. But in the perspective of
ordinary oil and energy consumers, they are good and positive news.
Whether people move and transport themselves, their family or
other people, or they move various commodities, oil is a very important
raw material for such large-scale transportation of goods and people.
As of August 24, 2015, West Texas Intermediate (WTI) prices
were trading at $38-$39 a barrel. These
are lower than the levels reached during
the sub-prime and housing prices turmoil in the US that spread to the
rest of the world in 2008-2009. And these are prices that were seen in 2004 and
earlier years.
Oil companies and oil-exporting countries are fighting
for world market share and care less about the price, whether they are OPEC or non-OPEC member-countries. With
the revolution in drilling technology
and shale oil fracking, it seems that the average break even price for many
companies could be $30-$35 a barrel, so that at $38, they can still make
marginal profit.
Continuous innovation and development in drilling
technology using big data and robotics have significantly reduced the
cost and time of drilling and finding oil. From a Forbes report last August 23,
an article said that “Faster drilling
means cheaper drilling, which makes marginal oilfields economical at lower oil
prices. It costs about $20,000 a day to contract an onshore drilling rig, so
shaving four days off a well yields an immediate $80,000 in savings. If smarter
computers can reduce a rig’s head count by one, cut another $200,000 a year in
salary, benefits and accommodations."
Many developing countries in South and South East Asia
can take advantage of this to hasten
their growth and development. Below are some basic data on their total primary energy supply
(TPES) in tonne of oil equivalent (toe) and electricity consumption. High TPES
means higher energy input for growth and development.
In South Asia, Nepal and Bangladesh are producing energy
at very low levels. In South East Asia, the Philipines, Cambodia and Myanmar
need further expansion in energy production.
At below $40 a barrel, diesel oil power plants that are used as peaking plants (used only during
peak hours) may be used for baseload power (capable of running 24/7)
production.
The cost of air, land
and sea transportation should
decline significantly and hence, more people and goods can be transported at
lower costs. Minus the effects of currency depreciation, tourism and related
sectors (airlines, hotels, restaurants and other shops) should benefit from cheap oil.
For Nepal, Bangladesh, Cambodia and Myanmar, today are good days to expand
productive capacities, from fishing to farming to trucking and air/sea cargos.
Their governments should
resist temptations to raise oil and energy taxes because this will
negate or cancel out the gains from low
oil prices.
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See also:
Business 360 17: Electricity and GDP Growth, April 15, 2014
Business 360 21: Cheap Oil and Nepal, February 20, 2015
Business 360 23: Electricity and Development, March 07, 2015
Business 360-24: Reducing Construction and Electricity Permits, April 08, 2015
Business 360--26, Nepal earthquake and lessons from it, July 12, 2015
Business 360-27, Public health in Asia, July 18, 2015
Business 360-27, Public health in Asia, July 18, 2015
Business 360-28, FDIs in South and East Asia, August 22, 2015
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