By Costis Stambolis
As international energy prices reached an all time high, earlier this month with oil being traded at more than $71 per barrel at NYMEX in New York, there is worldwide concern as to where the present rally might lead (since then prices have fallen back to 62-64 dollars per barel). Most energy analysts expect in the long term further rises, possibly up to $ 80 per barrel and beyond, as global oil supply remains tight against a fairly stable demand of 84.0 million barrels plus per day, substantially more than last year. Major natural disasters such as the recent hurricanes ‘Katrina’ and the latest ‘Rita’, which hit the Gulf of Mexico area, where approximately 25% of USA’s oil and gas is produced, have only helped to worsen the country’s delicate balance between crude supply and products. With the USA market already facing a bottleneck situation due to a chronic shortage in refining capacity the latest natural disasters, which forced several refineries in the south east to shut down completely, has created real crisis conditions.
The Paris based International Energy Agency (IEA) released some 60 million tons of crude oil and products from its emergency stockpiles, spread between USA, Japan and Europe to send to the US market in order to alleviate its current shortage of oil products. “This has helped not only to cool the markets by providing much needed liquidity, but also had an immediate effect on the price” notes a well known commodity trader in London.
Saving Oil in a Hurry
In order to meet worsening economic conditions resulting from high oil prices and also fears of possible oil shortages if the present situation continues, especially in view of anticipated rising demand in the northern hemisphere due to winter, many countries are advising motorists and households to cut down on demand while at the same time are studying the introduction of energy conservation measures. The IEA only last April published a very useful guide entitled “Saving Oil in a Hurry” with the intent of assisting governments to face the new oil crisis. There are many reasons why governments might want to save oil quickly; an obvious one is to cope with oil supply disruptions, notes IEA. “Our study shows that a number of measures could provide substantial reductions in transport oil use quickly and cheaply-if countries are well prepared and act aggressively during an emergency”, says Claude Mandil, IEA’s Executive Director.
The above book provides an assessment of the potential oil savings and implementation costs of rapid oil demand restraint measures, mainly for transport. This tool box of measures includes new approaches towards telecommuting, car-pooling, transit use and ‘ecodriving’(fuel efficient driving styles), among other measures. If implemented by many IEA countries-which include all major oil consumers-certain combinations of measures could reduce world oil demand by a significant amount, on the order of a million barrels per day or more. Such actions could be used to complement supply –side measures (such as use of strategic oil stocks) to help countries cope with oil supply disruptions, and avoid physical shortages and associated price spikes. “Some of the assessed measures may make sense for many situations, others primarily during emergencies. These measures are by no means a substitute for careful transportation planning , promoting efficicency improvements and other medium-term strategies”, notes the IEA report.
The French government has already moved ahead to implement some of IEA’ recommendations as it is trying hard to conserve more than 1.5 million metric tons per year, some 2.5 to 3.0 % of the country’s yearly oil consumption. Mr. Dominique de Villepin, the French prime minister, in late August moved to ease public concern over high oil prices and asked French motorists to “show a spirit of responsibility” by cutting their average speed by 10 kms per hour which he said would save them 140 euros a year and reduce national oil consumption. At the same time Mr de Villepin announced a major review of French energy policy to adapt to the high oil prices, which he warned ‘would remain expensive for years and decades to come”
Greece’s Oil Dependency
Compared to other European countries Greece is far more dependent on oil for its economy. According to data by Eurostat, the European Union’s statistics agency, the consumption of energy GDP did not change in Greece between 1991 and 2002, while in the 15-member EU it declined 15 percent and in the eurozone 9 percent. Moreover, energy consumption per percentage point of GDP in 2002 was 35 percent higher than the European Union average. Other Eurostat data show that Greek net oil imports represent 65.2 percent of gross energy consumption, against 44 percent in the eurozone as a whole and just 32.9 percent in the 15-member EU (the UK being an oil producing country).
As in most developed countries, Greece’s transport sector (particularly private cars) accounts for the biggest part of oil consumption and 40 percent of all energy consumption in the country. This is expected to continue rising as the standard of living improves.
Greece which consumes almost 18.0 million metric tons of oil a year imports 99.5% of it with only a small production of apprx. 3.000 barrels per day from the declining Prinos oil field off Thassos island in northern Greece. Over the last two years the price of unleaded gasoline has gone up by an average of about 43 percent, now being sold close to 1 euro per liter in most parts of the country. The rise would have been higher without Development Ministry’s close market monitoring system. In 2004, Greece spent more than 6 billion euros in importing crude oil and related products – a figure which represents 3.9 percent of gross domestic product (GDP) and nearly 20 percent of the country’s trade balance. This amount would have been much higher had the US dollar not been so weak versus the euro throughout 2004 and earlier this year.
According to analysts it is becoming increasingly clear that higher international oil prices and the government’s inability to work out – let alone implement – a national plan for the rational use of energy will make the already apparent problem for the economy even more serious. The above analysts note that, the cost of fuel imports in 2005 will be 30-40 percent higher than last year, which means that refineries and other importers will pay a total of about 8.5 billion euros (5.0% of GDP), while net oil imports (after deduction of exports of petroleum products) will be approx 6.0-6.3 billion Euro (about 3.5-3.6 percent of GDP).
Government fails to introduce Effective Measures
While the global oil crisis intensifies, with still-unforeseen consequences for the economy, the Greek government appears unable to assess effectively the immense negative effects of the new energy environment on the functioning of the market and economic growth, note experts.
In an effort to create positive impressions rather than face the situation, Development Minister Dimitris Sioufas announced in mid August ago a series of measures aiming, he said, “at reducing the country’s dependence on oil and to create a National Energy Strategy Council that will design strategies on all energy matters”. As a further PR gimmick, the measures were presented and approved by the inner cabinet, despite the fact that they had already been announced and began to be implemented at an operational level several months ago. One of those, the policy of gradually substituting natural gas for oil, is a decade-old fact.
These measures, and others announced more recently, are two-fold: First, they aim to expand the use of renewable energy sources through the implementation of investments on electricity and heat-production ventures. A new draft bill will provide significant new incentives.
Secondly, the Ministry of Development wants to promote, through another draft bill, the use of biofuels, which are expected to cover about 2 percent of the country’s needs of transportation fuel. In addition the government wants to create an institute, under the auspices of the General Secretariat on Research and Technology, which will manage exploration rights for hydrocarbons. Although, there is ample geological and geophysical evidence in both western Greece and in the Aegean suggesting substantial deposits, successive governments to date have failed to organise new concession rounds despite the fact that there is wide interest from international companies interested to carry out hydrocarbons prospecting in Greece.
Unfortunately, the measures announced do not tackle at all the immense problem of over-consumption and waste in the use of petroleum products for household and commercial consumption, as well as for transport.
Energy experts point out that the longer the government fails to act in what is fast becoming a crisis situation, the tougher will be the measures that it will be forced eventually to take. These may include a rise in the special consumption tax, in order to put a cap on oil consumption in transport, introduction of new taxes for oil guzzlers such as SUV’s, obligatory speed reduction, the banning of cars from city centres etc. On the other hand, note the above experts, greater use of renewable energy sources, desirable as it is, will never be achieved without serious financial incentives to consumers (for example, tax breaks, low-interest loans) and a nationwide campaign for energy conservation.