The Manila Times (09/01/2019) - LAST week we briefly discussed the low commodity prices, especially that of palm oil, which have been going on for quite some time, and would likely see no improvement in this new year. For a state like Sabah that depends on oil palm as its main cash crop, that spells bad news. And at least some streams of the tough headwinds that palm oil is facing are perhaps what could be called “non-market oriented” in nature, with concerns about health, environment and labor standards popping up ubiquitously.

Well, another commodity that is hitting its mid to low ends is petroleum. Malaysia is one of the medium-sized petroleum-producing countries of the world. It exports sizable amounts of crude oil and gas, but also imports a considerable amount of refined petrol for its domestic energy consumption, to the extent that, according to some accounts, and in monetary terms, Malaysia’s imports of refined petrol exceed that of its crude oil exports, making it at least on paper a net petroleum-importing country. A large portion of Malaysia’s oil and gas extraction and reserves can be found off the coast of Sabah (and also neighboring Sarawak), but only a small fraction of the resulting tax revenues is reverted to Sabah, as the petroleum industry in Malaysia is an exclusively federal economic concern.

Petroleum is often considered a strategic commodity in many countries, as it is often the main source of energy generation, which is needed for both economic development and even the basic functioning of a modern society. There are many sometimes mutually contradictory factors which affect the worldwide prices of petroleum. In colonial days, the mainly Western oil conglomerates which came to be called the “Seven Sisters,” conducted oil exploration and extraction in many parts of the world that were either still Western colonies or effectively puppet regimes or “banana republics” controlled by the Western powers. The Seven Sisters thus called the shots on petroleum prices, too.

With colonialism coming to an end, some of the major petroleum-producing countries began to see the collective global economic and political clout they could have, if only they could team up together essentially as a glorified cartel. Thus, the Organization of Petroleum Exporting Countries (OPEC) was born more than half a century ago. Grouping together the major Middle Eastern producers and a few of their counterparts in South America and Africa, OPEC, now as in former days, encompasses up to half the world’s oil production and an even higher percentage of proven global oil reserve. In the 1970s, when the political situation in the Middle East was reaching crisis point, oil prices shot up partly due to OPEC flexing its then powerful muscle, and the United States (US) in particular, which was then a major oil importer, suffered tremendously as rising oil prices led to overall inflation and also long lines at the gasoline station.

Since then, and especially in recent years, the US has revved up its own oil production and developed advanced fracking technologies that could extract oil from corners previously deemed too difficult or economically viable to do so. The US has recently turned the tables and become a net oil exporter itself. And Russia, too, has become a major oil and gas producer, supplying to large parts of Europe. But these two superpowers, together with scores of other medium-sized producers, are notably not OPEC members, so OPEC nowadays perhaps does not enjoy the same level of political and economic clout as it used to.

Nevertheless, the political situation in the Middle East continues to affect market sentiments on oil supply, as major disturbances there are likely to disrupt oil production. Oil prices shot up during the two Gulf Wars, for example. Looking at the deteriorating relations between the US and Iran, I am pointedly not ruling out the prospect of war in the Middle East taking place some time this year, as the mutual posturing over Iran’s supposed nuclear armaments climbs ever higher as to reach a crescendo soon. If and when war does break out, the current low-lying oil prices would make a rapid ascendance in no time at all.

For a country like Malaysia, rising oil prices would be both good and bad news. On the one hand, higher prices for its crude exports would earn more for the national oil company which could then channel the earnings into national development. On the other hand, higher oil prices also spell higher prices for imported refined petrol that is used for both industrial and transport purposes. The government would then be hard pressed to provide subsidies for both industrial players and motor vehicle users to help then defray higher energy costs, which would of course drain the already strained national coffers. It is, perhaps, nowadays too late and too expensive for a medium producer like Malaysia to build up a sizable petroleum refining industry, what with the worldwide shifting trends toward renewable energy sources, such as solar, wind and hydraulic.

Tropical countries, Malaysia and the Philippines included, with their almost year-round exposure to hot sun and often breezy winds, should do a serious job of mapping out the most suitable locations for extracting solar and wind energy, not to mention harnessing geothermal and even wave energy. It is fortunate that some of us are blessed with oil and gas reserves, but all of us here in the tropics should cast our eyes far and wide and make our baby steps toward decoupling ourselves from the yoke of oil and perhaps also coal, and start taking energy nourishment directly from the sun, to name but one alternative energy source.

Read more at https://www.manilatimes.net/shifting-from-oil-to-sun/493805/