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NOV 2007 - FEB 2008

Apimongkol Sonakul

Former Member of Parliament
The Future is Bright?

by Apimongkol Sonakul
Ever since cavemen unleashed the energy embedded in twigs in the form of fire for cooking their rations, the topic of energy has been, if somewhat subtle, a prominent force in the shaping of communal life of people the world over. In more recent times, the establishments of the industrial age as well as the advent of the oil era set about by John D Rockefeller in the early 19th century demonstrate well how wealth and welfare of nations are closely intertwined with their access to clean, cheap and efficient energy sources. Yet as crude oil prices have skyrocketed over the past few years, Thailand, which has always been a predominant energy importer struggles to wean itself away from oil dependence and to ultimately find other long term solutions to our energy needs. Whilst there are many detailed projects designed to alleviate problems, it is perhaps more fitting that in an article of such short length that one should explore the real core problems behind Thailand’s energy sector.

Export-Import Conundrum

It is, first of all, interesting to notice that as the oil price crisis rages on amongst moans and groans from both the domestic and business sectors that real oil prices are not actually at an all time high. Despite the fact that nominal crude oil prices have risen to new highs over the past few years, real prices adjusted for inflation are still significantly below those of the early 1980’s when the first oil crisis took down economies, and not to mention, governments the world over. Last year alone we imported around 90% or Baht 753,783 million worth of crude oil which accounts for around half of our total energy consumption and as the world depletes itself of oil reserves, average crude oil prices are likely to soar further particularly as new emerging markets such as India and China require huge amounts of energy for sustained double-digit growth. Some prominent forecasting houses have even predicted prices as high as US$100-110 per barrel within the next few years and thus Thailand, which predominantly relies heavily on oil imports faces a precarious proposition. It is inevitable that should we refuse to revolutionise our country’s main source of energy away from crude oil that we would eventually be trapped through our own hesitance.

Thus to ensure continuous and secure supplies of energy for our transportation and industrial sectors, it is necessary to try to rebalance the ongoing energy import-export conundrum. One long term solution to this is to turn towards the increase in production and use of biofuels such as biodiesel and gasohol which use predominantly agricultural products as raw material for production. In the case of biodiesel – diesel fuel produced from oil crops such as palm – the move has already been set in motion with the government having made B2 which is a 2% biodiesel mixture compulsory within next year. As supporting technology progresses there will gradually be a move towards higher percentage of biodiesel mixture. Further government support in the form of research and development would be required to increase palm production productivity from the current 1-2 ton/rai/year to at least 2.7 ton/rai/year. Moreover palm cultivation, particularly in the North-Eastern regions has to be encouraged through methods such as contract farming to around 5 million rais within the next few years in order to prepare sufficient raw material for biodiesel production.

In the case of Gasohol, there is currently a large oversupply of Ethanol culminating from the delay of making its use compulsory. As production capacity now reaches over one million litres/day, the government plays a great role towards the transition away from conventional additives. Current figures show that the use of E10 – a mixture of 10% ethanol with 95 Octane – is growing far more slowly than had been anticipated. This is despite the pricing structure which allows a price gap of around 3.50 Baht/litre between 95 Octane and Gasohol, which demonstrates the public hesitance towards the reliability and safety of biofuels. Past promotional campaigns have been relatively unsuccessful at gaining public confidence and thus, perhaps, it is about time the government moves towards greater financial assurance schemes. This could come in the form of a fund to be set up by law which would be used for any necessary costs of engine conversion associated with the transition to E10 fuel. Furthermore, the fund could be used to assure that any possible subsequent engine damage resulting from the use of Gasohol would be compensated for. This fund could also be used towards research and development associated with the production and use of Ethanol based biofuels thus paving the way for “Flexible Fuel Vehicles” in the future.

It is important to realise that the role of the government in the transition towards greater biofuel usage lies not only in providing public assurance as well as research and development but also in striking the right timeframe for change. As with all major policy changes, the move towards greater use of biofuels has an associated social and economic transition cost. In this case, the government must ensure that oil and Ethanol crop production is adequate to serve market needs lest crop prices rise to unacceptable levels. Furthermore, the cost of technological transition such as the necessity for engine adjustments or purchase must be taken into account. If changes are managed at a suitable pace, the next decade could certainly see Thailand turn from a net energy importer to exporter forging the way for greater energy and economic sustainability.

Energy Usage Efficiency

Aside from the consideration of how we procure our source of energy, the examination of how we consume energy is also crucial. At the moment Thailand’s energy elasticity – the change of energy consumption compared to the change of Gross Domestic Product (GDP) – stands at a relatively high level of 1.2. This means that our current energy consumption outgrows our economic expansion. Thus compared with the need for energy imports, we are gradually consuming ourselves into economic despondency. Many developed countries enjoy an index sometimes as low as 0.9 as is the case of Japan and thus it is essential that we find better ways to manage how we consume energy in order to sustain long term growth. The future goal must certainly be to reduce this index to at least 1.0 within the next few years and can be achieved through a number of means.

Inspection of Thailand’s energy consumption reveals that around 72% results from the transportation and industrial sectors. Thus significant changes must be brought about within these segments if we are to successfully reduce our energy elasticity index. Many of these changes have already been proposed such as a complete overhaul of our logistics system which would be effective when considering that the cost of transportation by water and rail is roughly 8 and 4 times lower than by road respectively. The role of the government is once again to encourage effective changes through different methodologies such as tax and investment incentives.

Energy Procurement

The issue of energy procurement in Thailand has lately been subject to great contention. We are increasing finding that whilst the need for energy consumption increases more and more rapidly, public acceptance of associated developments is gradually decreasing. Over the past decade, we have seen numerous protests particularly associated with the building and operation of power plants. As our demand for power grows at an average 1,800 MW per year, protests have raged on consistently such as the cases of the Mae Moh Lignite plant, Pak Moon Damn, Bor Nok and Hin Krud plants in Prajuabkirikan province, to name a few. In the long run we need to carefully consider means to procure energy lest our economic and social welfare are not adversely affected.

One essential role of the government is to ensure that the rights of the public are respected and up-held through processes of consultations which are widely accepted. The issue of compensation has also been relatively vague and varied. Thus the government should consider the enactment of laws which would govern the collection of energy taxes as well as provide clear guidelines of compensation. If these issues are handled in the appropriate manner, even the recent radical proposals of bringing in nuclear energy within the next decade, could become a reality. But who knows, by the time the next decade comes, we could be talking “cold fusion” and “fuel cells” instead already! •