Ensuring energy security for transportation

K. C. Somaratna

Energy Security is receiving reasonable attention these days and one could think of three reasons for Sri Lanka to get interested in Energy security at this particular moment.

First is the recent embargo which was thrust upon us by USA in respect of purchasing oil from Iran while the second is the ever increasing price of oil which in a deregulated exchange regime could lead to the depreciation of the rupee and inflation resulting there from.

The third is the ruling given by the British High Courts in respect of hedging arrangement in which the court ruled that the Sri Lankans pay $ 162 million + interest as damages to the Standard Chartered Bank in respect of the Hedging Agreements we have signed with the Bank.

This is exactly the time when most of the countries are looking at the status of their own energy supply and demand situations. USA, the country which was importing the highest amount of petroleum, itself is readily and speedily working on enhancing their own energy security level.

They realised the significant impact this oil import bill was making on their trade deficits, balance of payments and external debt which reached alarming levels only a year ago. While the whole world was watching how USA had to take a tough decision as to whether they would enhance the ceiling or not, they decided to enhance the ceiling. But they did not stop there.

They implemented a tough action plan to keep on reducing their oil import bill and increasing the local oil production. They have been well into this programme and all indications are that they will keep on enhancing their oil and gas production.

This US initiative is not an initiative which sprung up all of a sudden. Several retired military personnel and corporate leaders formed an organisation called SAFE – the acronym for Securing America’s Future Energy and this entity has been emphasising the America’s Energy Security as an urgent need as the country was spending huge amounts of money on defending major shipping routes and bottlenecks through which imported oil was flowing to USA.

This group was strong enough to convince USA Administration and Corporate USA that they should do something to reverse the trend of increasing oil imports into USA.

In fact the International Energy Agency started their document Energy Outlook – 2009 by emphasising the significance of energy security on a global scale.

It started its Executive Summary as follows: “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, and socially. But that can – and must – be altered; there‘s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.”

Why I mentioned all this is to emphasize the significance of achieving energy security; it is equally important for the larger countries as well as for smaller countries and the most important thing is that in another, say five years time, we should be able to talk about the tangible hard core achievements rather than about a policy framework which was put in place to be a policy framework only.

It was in about 2008, all of us were talking about energy security when our own President made that bold statement the effect that we, in Sri Lanka would not compromise food security for the sake of energy security. He was making reference to some countries or regions utilising agricultural land to cultivate energy crops and the food prices going up as a result.

That was a time when oil prices reached record high levels and oil producing/exporting countries started referring to oil being available only at greater depths thereby escalating exploration costs, production costs and refining costs and at the end of the day the price of oil at the pump. It is not only this supply side which will put pressure on oil prices; demand side pressures are far more alarming.

In 2006 USA with 300 million people, China with 1.6 billion people and India with 1.3 billion people were consuming oil at the rates of 68, 5 and 4 British barrels per 1000 people per day respectively.

If China and India too start consuming oil even at half the USA’s rate, with their large populations they could exert a significant pressure on global oil demand.

It is estimated that China will consume in 2035 what the whole world consumes to-day.

As could be estimated from both these supply side pressures and demand side pressures, it is imperative that oil prices will definitely go up and times like this when oil prices are temporarily at lower levels, we should not try to enjoy the lower prices and consume more, but use the available funds to build up a suitable infrastructure to be ready to face the higher oil prices when they eventually come.

If we plot crude oil imports to Sri Lanka, one could see a downward trend from year 2000 to 2009 as per the data given in Central Bank Annual Report of 2009. But both the value of imports of crude oil and the trade deficit followed the increasing trend, of the crude oil price almost exactly and the external debt followed the upward trend even when the oil price came down subsequently in 2009.

I believe when we think about energy security policy framework, we should be considering the framework from all the three perspectives, short-term, medium term and long term. In to-day’s world international energy related organisations generally go up to 2050 in their long term frameworks.

For example World Energy Council in their transportation related frameworks formulated in 2009, they considered 2020 as the short term, 2035 as the medium term and 2050 as the long term framework.

Any person or group looking at energy security in transportation should necessarily consider the options which are been considered, studied and pursued globally for the simple reason that energy security in transportation, unlike in respect of power generation or domestic usages – will involve both a source of energy as well as a vehicle to work on that source and Sri Lanka does not still manufacture vehicles.

We assemble vehicles; but they use drive systems manufactured elsewhere and it is these drive systems and not the body work or the brand name which would determine the source of energy to be used.

Another aspect to be considered in preparing this policy framework is what and what characteristics would yield energy security. Although the term energy security is very widely used, it is seldom defined.

The term in its normal usage is a relative term. Energy security in USA might have some specific characteristics which might not yield energy security in Sri Lanka. If all energy needs could be fulfilled using coal or gas, it might mean that USA has adequate energy security because they have large resources of coal and gas in USA.

But energy needs been fulfilled using coal does not mean Energy Security in Sri Lanka. Someone else might say that sustainability with its three mutually reinforcing, interdependent pillars, Economic Development, Social Development, and Environmental Protection also need to be brought into the equation for a country to pronounce that they have energy security. Yet another person might say that if any energy security framework in one country jeopardizes energy security in another country, that framework also does not mean energy security as it might lead to warfare between the two countries. I strongly believe that the concerned committees have already identified these characteristics, so that they could evaluate the proposed options for an energy security framework more methodically.

Talking about the environmental protection aspect, transportation sector in Sri Lanka emits the highest amount of greenhouse gases leading to climate change.

This aspect has already received the attention of world leaders and United Nation’s Environmental Programme published their document “Green Economy” in July 2011.

In this document, they mentioned that the world nations need to spends $1.3 trillions on Green Economy projects out of which about $ 400 billions should be spent on energy and $ 300 billions be spent on transportation.

It also says that if a country spends 0.34% of its GDP on green economy projects in transportation for the next 40 years, the country should be able to penetrate 80% of the vehicle population and convert them into greenhouse gas free modes of transportation while enhancing employment by 10%.

In our studies on energy in transportation we have come across only one solution which could yield this outcome if pursued relentlessly.

And this solution also has all the six characteristics the International Energy Agency was talking about in their Energy Outlook – 2009 document mentioned above.

It will also have more than ten of the attributes one could assign to a state of satisfactory energy security in a country.