Rising fuel cost making forward planning difficult The government wants to promote market-driven development of the CNG industry
rather than achieve the objective through administrative directives
By Aftab Ahmad
The rise in international crude prices from about $20 a barrel, nearly four years ago, to about $80 a barrel at present has created serious difficulties for Pakistan which meets only 20 per cent of its total oil requirement from local production while the remaining 80 per cent comes through imports. As a result of higher international oil prices, the country’s oil import bill has gone up to $5-6 billion in 2005-06 while trade deficit has surpassed the figure of $12 billion.
All possible efforts had been made in recent years to contain the demand for imported oil. As a result, the share of oil in the country’s total energy consumption had gone down from 40 per cent in the mid-1990s to about 29 per cent at present.
The household consumption of petroleum products had declined from about 0.6 million tones in 1995-96 to 0.19 million tones in 2004-05. Consumption in industry had gone down from 2.4 million tones in 1995-96 to 1.5 million tones in 2004-05.
In agriculture, consumption of petroleum products had registered a decline from 0.25 million tones in 1995-96 to 0.14 million tones in 2004-05, whereas in the power sector the consumption of petroleum products had gone down from 4.8 million tones in 1995-96 to 3.5 million tones in 2004-05.
However, in the transport sector, consumption of petroleum products has shown an increase from 7.1 million tones in 1995-96 to 9.0 million tones in 2004-05.
The aforesaid increase in the use of petroleum products in the transport sector can be attributed to the manifold increase in the production of automobiles (including motor cars, jeeps and station wagons, motor cabs and taxis, buses, trucks, motor cycles and others) in recent years. Liberal car financing and consumer financing facilities, together with an upsurge in the income from home remittances have no doubt played an important role in pushing up the number of motor vehicles in the country in recent years.
Increase in the consumption of petroleum products in the transport sector in recent years has taken place despite the fact that hundreds of thousands of car owners in the country have switched to compressed natural gas (CNG) in order to reduce their transport bill and save their hard-earned money. The government is also promoting the use of CNG to reduce the pollution caused by vehicles using motor gasoline.
As reported in the Economic Survey 2005-06, nearly 930 CNG stations were operating through the country in May 2006 while 200 more CNG stations were under construction.
By the end of April 2006, about one million vehicles had been converted on CNG. As a result of the rapid increase in the use of CNG, Pakistan had reportedly become the leading country in Asia using this source. At the same time, it had become the third largest user of CNG in the world, after Argentine and Brazil.
In a bid to keep their conveyance bill within reasonable limits, automobile owners also switched over to diesel. Pakistan had imported about 4.2 million tones of diesel oil at a cost of around $1.7 billion in 2004-05. However, the use of diesel reportedly causes severe pollution, due to which the government is considering to replace diesel with CNG.
Unfortunately, the techno-economics of converting diesel engine to CNG is not attractive because of the high conversion costs plus only a nominal differential between the price of diesel oil and CNG. Therefore, it may be difficult to persuade diesel users to switch over to CNG.
The government is reported to be working on a plan, at present, under which CNG buses will be put on roads initially in selected cities. Later on, the programme will be extended to other cities. The policy of the government includes infrastructure development as well as manufacturing of CNG buses.
However, the government wants to promote market-driven development of the CNG industry rather than achieve the objective through administrative directives. The policy is expected to have a major favourable impact on air quality in urban areas besides helping in containing the use of petroleum products in the transport sector.
While users in Pakistan have generally switched over to CNG or diesel, those in the West are tackling the problem in their own way. In the United States, where price of gasoline has already shot up to $3 a barrel from $2 a gallon last year, sales of large-size vehicles are reportedly slowing, while demand for more fuel-efficient four-cylinder models is on the increase. Analysts expect that if international crude prices stay at their higher level, more diesels, hybrids and other alternative fuel vehicles will join the flow.
In the coming days, America’s highways may gradually look like Europe’s roads. Sports Utility Vehicles (SUV’s) would still be there but more vehicles might be of a smaller size, having greater fuel efficiency.
According to some observers in the US, “hybrid cars can provide an innovative solution to help reduce the thirst for gasoline,” while the US President is reported to have observed that “the more ethanol we use, the less crude oil we consume.”
However, the dilemma being faced by car companies in formulating a manufacturing plan, at present, is due to the knowledge that in order to be successful, new vehicles must save drivers’ money at the pump, satisfy their driving preferences and still let car companies earn a profit.
There is no doubt that hybrid cars save fuel. But, for the time being, their higher costs eat up any savings in fuel. This situation is likely to continue until the hybrid premium falls or the price of oil rises further. The higher cost of hybrids is attributable to the fact that onboard computers, electric components and nickel metal hybrid batteries cost too much.
In fact, according to engineers, batteries alone account for about 60 per cent of the roughly $3,000 in added costs for a hybrid, making them economically unfeasible.
So far as ethanol is concerned, some automobile companies consider it the best ways to cut oil imports and clean up emissions. At the same time, it costs only about $200 per vehicle to make the engine ethanol-friendly.
However, fuel made from 85 per cent ethanol and 15 per cent gas presently costs more than gasoline in many markets. In addition, it is considered less efficient than gasoline. The technology, therefore, obviously does not stand much of a chance of gaining popularity with consumers.
Efforts are, however, being made to remove the aforesaid problems and it is hoped that within the next few years ethanol-run cars may be acceptable to consumers and the same may enter the market in sufficiently large number.
Work on other alternative transport fuel technologies such as cellulose ethanol, cleaner diesel and hydrogen is, also, in progress. However, it is estimated that a period of 5 to 25 years may be required to bring these technologies to the market.
Given the circumstances, it appears that the option of switching over to CNG and diesel adopted by Pakistan is perhaps the best in the given circumstances.
At the same time, the government should consider restricting the import of cars to contain the country’s oil import bill. This will also help in bringing down the ballooning trade deficit.
In addition, action can be taken to expedite the decision on gas pipelines from Iran and Turkmenistan. At the same time, oil and gas exploration efforts need to be redoubled.
After all, Pakistan has an estimated potential of 27 billion barrels of oil and 282 trillion cubic feet of gas. With such massive reserves, efforts to find out oil and gas within the country must continue.