Debat - Rajmi Manatunga

Oil crisis: Minimising the impact

Ever since man discovered oil as a source of energy, the importance of and the demand for oil has only increased. The emergence of oil not only saw the gradual demise of the 'coal age', but its effectiveness as a source of energy caused yet another industrial revolution, enabling mankind to improve their lives with new technological inventions powered by oil.

Consequently, almost every aspect of today's life, whether it is travelling, working, or cooking your simple meal, is inextricably linked with oil, coming in all forms like petrol, diesel and gas.

However, this dependence on oil which is an exhaustive energy source, has for years caused problems for nations across the globe, resulting in what has come to be known as the 'oil crisis'.

Over the past half a century, the world economy and the economies of most countries have experienced constant pangs owing to soaring oil prices, attributed to the gradual depletion of oil deposits worldwide and the capricious decisions of the OPEC.

The impact of the oil crisis on developing countries like Sri Lanka whose energy requirements are largely met by oil, has been severe due to its ripple effects on the cost of living, as is evident from situation we are facing after the price of oil hit the US $ 135 mark last month.

Beyond these economic repercussions, the energy crisis is also a global problem as scientists have already predicted that in decades to come, mankind will run out of all oil resources.

What measures could the Government take to address this crisis arising from the sky-rocketing oil prices ? Is it time for Sri Lanka to minimise its dependence on oil and adopt a rational energy policy that focuses on renewable energy sources like wind power or natural gas ? What is the role of the public in facing the oil crisis ? Does it require a shift from our lifestyles of motor vehicles, televisions and air conditioners and other products powered by oil and electricity ?

Have your say on the above topic as we take up the burning issue of 'oil crisis' on Daily News Debate next week. Send in your contributions (limited to 1,500 words) before June 13, 2008 to 'Daily News Debate', Daily News, Associated Newspapers of Ceylon Limited, PO Box 1217, Colombo, or via e-mail to [email protected].

Fuel crisis plagues Engineering development

Miran Perera

Today the world is pumping more oil than ever before. At 82 million barrels per day crude supply just about matches demand.

Crude prices have stubbornly stayed above the $ 40 a barrel mark thanks to a combination of factors, galloping demand in China supply disruptions in Nigeria and Venezuela slow production recovery in Iraq some years ago, speculative deals by traders and also the terror premium prompted by attacks on Saudi oil installations some years back. Many French engineers are aiming for high economy with petrol.

New entry

Renault's entry in to the frugal direct petrol injection market is a more modest and hopefully more successful version of the ideas pioneered by Mitsubishi with its GDI. (Gasoline direct injection).

India and Thailand recently made and appeal to other leaders of Asia to come on their path and follow them in establishing necessary projects to produce Ethanol as an alternative to petrol. It should be mentioned here that India has already established over 200 manufacturing plants complete with latest Engineering technology to produce fuel Ethanol to be used as an alternate fuel.

Japanese Engineers of the Mitsubishi 1.8 litre gasoline direct injection engines uses stratified charge combustion to run the engine lean with 20 or more parts of air to one of fuel during part throttle cruising.

Fuel consumption

In a Carisma Gasoline direct injection one can notice very high m.p.g. figures on the instantaneous fuel consumption read out during cruising. But the slightest pressure on the throttle pedal causes the engine to snap in to conventional stoichiometric running.

As a result overall consumption is okay but not exceptional. The prevailing fuel crisis has impeded on the development of complex machinery, vehicles and industrial machines that work on electricity and oil.

Engineering scientists have faced a backward trend in designing new machinery for industrial use where they found the challenge to minimise oil consumption in future machines.

Now new designs have to be made to comply with alternative sources of fuel. Most countries in South America the USA, the European Union and Asian regions inclusive of Australia have already ventured in to Bio solar fuel ethanol manufacturing and blending it with gasoline and diesel, which has been actively encouraged by governments, environmentalists economists and politicians in those countries for a number of reasons.

They are to reduce dependence on imports of foreign fossil fuel, saving of invaluable foreign exchange, Market opportunity for agricultural crops, rural economic development, Environmental benefits (reduced carbon Dioxide and carbon monoxide emissions, net reduction of Ozone causing gases), It displaces dangerous and environmental damaging components in gasoline and Diesel such as Benzene and Toluene, It concerns about environmental hazards associated with exploration and extraction of fossil fuels and with tanker movement of imported fuels.

Lean running

Untill oil companies offer fuel with a sufficiently low sulphur content in Europe any attempt at providing a lean burn combustion system which will meet expected Euro 4 or 5 emission levels is severely challenged because of No x problem.

Lean running increase combustion temperatures and generates extra No x. conventional petrol engines return between 10-15% of their exhaust gas back through the engine (by feeding electronically controlled amounts from exhaust to inlet manifold) to reduce combustion temperatures which reduces No x. generation. Thus the motor vehicle engineers are heavily dependent on oil for creating advance designs.

Availability of oil

Not only vehicles but engineering designers of other machinery running on liquid or other fuel has to take seriously the availability of oil and its quality of performance. Every mechanical and chemical engineer is heavily dependent on the availability of oil and currently around the world the Engineering scientists are searching for alternative methods other than oil.

On this crisis it is instructive to note that the developed countries calls for a parading shift which comes at a time when India and China the two developing nations are strenuously trying to move from non commercial sources of energy like Biomass and crop residues to hydrocarbons much of which is supplied by imports.

Similarly in our eagerness to ape Western lifestyles flood gates have been opened to automobile manufacturers locking firmly in to a spiralling fuel consumption trajectory.

Every year in India around 900,000 passenger cars and about 1,50,000 sports utility vehicles adds to this and it does not even include trucks and heavy vehicles. Everyday we are bombarded with images of the latest model sport utility vehicles and sedans in India seducing to buy bigger and better gaz guzzlers.

Apart from adverse environmental impact of the growth model India has chosen opting for more and bigger passenger cars aggravates their import dependence.

Transportation accounts for two thirds of India's oil consumption thus putting pressure on Mechanical Engineers for producing better fuel efficient machinery. It is the passenger car segment that is the biggest and growing fastest.

Fuel import bill is around an estimated $ 25 billion and it requires little imagination to guess where it might head in the next financial year if the price spiral continues as experts believe it would.

Traditional wisdom

With India's domestic oil production well past its peak dependence on imports is expected to be near total in the next 20 years. It is time that we followed traditional wisdom by fully exploiting indigenous sources of energy both commercial and non commercial to fuel the growth of our economy. The global fuel crisis has had an enormous effect on new inventions that uses oil as fuel.

The trend now is for alternative energy based innovations but sadly this transition is very slow. Hydel is a clean source of energy without recurring fuel costs and it needs to be fully exploited before we rush to add more gas based capacity. Authorities have identified 50,000 megawatts of hydel capacity that it deems feasible.

Engineering methods

Many of them are run of the river mini and micro projects that can be built speedily without involving massive relocation or rehabilitation. We must also fully harness non conventional sources of energy such as crop residues and bio mass which needs new innovative biological.

Engineering methods but while doing so we must employ technologies that will enable us to utilise these indigenous resources in a clean efficient and sustainable manner. Simultaneously we must beef up our public transport systems and provide a clean and affordable alternative to the present profligate and unsustainable quest for personalised transportation.

The fuel crisis worldwide although impeding the development of machinery designing in engineering and related sciences calls for a united effort of all learned in varied disciplines to pool their knowledge to be unaffected when developing new methods that use much oil and to invent machinery that uses a minimum of oil resources.

Oil price hike reaches 'tipping point'

Martin Khor

When the international oil price hit a new high of US$135 a barrel recently, the alarm bells went off. The oil price is now six times higher than in early 2002. However, in real terms (after adjusting for inflation and rising cost of other products), it has risen less.

It is only 15% above its peak level of 1979. Though the rising oil price has caused grumbling through the recent years, somehow, it seemed that many economies could absorb this trend quite well. Not anymore.

There are signs that at US$130 a barrel, the oil price has reached the 'tipping point' at which it is deeply affecting economies as a whole, as well as undermining not only profits but the survival of companies and sectors.

"We may finally have crossed the line where the price of crude actually matters for most companies," according to a New York-based equity specialist, Peter Boockvar, as quoted in the Los Angeles Times. "The economic outlook has been taken hostage by the relentless surge in oil price," said Robert V. DiClemente, chief US economist at Citigroup.

Oil price hike

The oil price hike affects the economy in many ways. First, many industries are hit, especially those that use a lot of oil. Airlines are one of the most affected. Profits have vanished in almost all US airlines, which are reported to be on the verge of insolvency.

American Airlines is even charging passengers US$15 for a piece of luggage. In Europe, British Airways is cutting back on flights, and warned that its operating profits would be wiped out if the oil price is above US$120 a barrel. Air France-KLM said that its profits are affected and it will raise fares soon.

The auto industry is also hit, as sales of cars that use a lot of petrol are hit in the US. With sales of sport utility vehicles plunging, Ford said that there won't be profits this year, and the situation at General Motors and Chrysler is rumoured to be even worse.

Second, the agriculture sector is also affected. Rising oil prices have increased the cost of fertiliser, the operation of agricultural machinery and transport. This has affected costs and net incomes of farmers in developing countries.

Inflation

It has contributed to the rapid rise in food prices, which in turn led to social unrest in many parts of the world. Third, the higher cost of oil is winding its way into various parts of the production and distribution chains in many other sectors, causing inflation to rise across the economy in many countries.

This hits consumers in their pockets, reducing the volume of goods and services they can buy. The real pay of many workers goes down, causing a rise in poverty and social unrest.

Fourth, the slowdown in consumer spending is in turn slowing the sales of many products and services, which will affect the growth of the economy as a whole.

Fears of recession are growing in many countries. Indeed, memories have been revived of the situation of the 1970s, when the hike in oil prices led to "stagflation" - economic stagnation combined with inflation.

Fifth, in countries where there are controls on the prices of several oil products, the amount that the Government spends on subsidies on oil products is ballooning.

The Government faces a dilemma in these countries. If they cut the subsidies, the prices of oil products go up and there will be public grumbling and protests. Moreover, costs and prices in many sectors will shoot up, for example, bus and taxi fares.

And if they maintain the controlled prices at the same level, the subsidies will keep shooting up, increasing the public sector's budget deficit, or causing the Government to cut spending in other areas. There are a number of causes of the oil price hike. First, demand is outpacing supply, especially with high economic growth in some big developing countries.

Second, oil is a depleting resource, and we have reached (or are fast reaching) the situation known as 'peak oil', in which the global output has attained its highest level, and will go downhill after that, causing supply to lag more and more behind demand.

Oil market

Moreover, as the best oil fields are exploited, more effort and costs are incurred to extract oil from fields that are of lower quality or more difficult to reach, and this contributes to higher prices.

Third, there is a frenzy of speculation in the oil market, not only because of a belief that prices will rise further but because speculative funds are searching for yield in oil and commodities after the collapse of confidence in the financial sector in particular, and the volatility in the stock markets generally.

This speculation is the immediate cause of the price jump in recent weeks and days.

The oil price trend is expected to continue. The price of long-term oil contracts at one point went up higher than the spot price ($145 a barrel for 2016 delivery versus spot price $135) "as confidence that supplies can meet demand in the next 5 to 10 years crumbled", according to a Financial Times report.

Global Warming

There are forecasts of the oil price hitting US$150 a barrel within weeks, and then the new threshold of US$200 will be in sight.

One positive point amidst the gloom is that this rising oil price is making renewable energy sources such as wind and solar more and more viable. Moreover, the high oil prices are inducing a reduction in the use of oil. Both of these have a positive effect in the fight against global warming.

What is driving high oil prices?

Ariel Cohen and Owen Graham

As oil and gasoline prices surpass $134 per barrel and $4 per gallon, respectively, it is clear that significant change is underway in global energy markets, portending major challenges for the global economy and energy security.

A perfect storm of demand and supply factors is driving the high oil prices. Goldman Sachs predicts oil will reach $200 per barrel by the end of the year. Absent significant changes, high prices are here to stay, and, a correction notwithstanding, may keep increasing in the long term.

The supply and demand equation responsible for this situation is changing quickly. Demand for oil is no longer driven by developed economies like the United States. China, India, other developing countries, and energy producers themselves are transforming global energy markets through their sheer size and pace of growth.

According to the Paris-based International Energy Agency's (IEA) "World Energy Outlook: China and India Insights", between now and 2030, China and India will account for 70 percent of the new global oil demand; their combined oil imports will skyrocket from 5.4 million barrels per day (mbd) in 2006 to 20 million barrels per day in 2030 - overtaking the current combined imports of Japan and the United States.

The energy needs of China and India will continue to grow as these countries transition from developing to developed nations.

Rising incomes, strong growth in housing and construction, and the increased use of electrical appliances will substantially increase demand. China is in the midst of an unprecedented construction boom in heavy industry that requires enormous amounts of oil.

Massive infrastructure and construction projects generate a heightened demand for oil in China and India, as they did in the United States in the last century and Germany and Japan after World War II. In terms of vehicles on the road, China will surpass the United States by 2015, becoming the largest automotive market in the world.

Rising demand, however, is not isolated to East and South Asia.

The oil thirst is mounting in the Persian Gulf and within other major oil-exporting nations due to booming construction projects, growing populations, and government fuel subsidies, which are increasing demand for gasoline.

To be continued