Friday, May 30, 2008

It's about increasing demand as well...

As incomes rise, economies use more energy for transport, heating and cooling and producing goods and services. A broad cross section of nearly 180 countries shows that doubling per capita income more than doubles per capita oil consumption (Chart 2). How much each country contributes to increases in global energy demand depends on its population and rate of income growth. Big nations moving quickly up the income ladder have huge implications for oil markets.

I am sick and tired with so many Indonesian experts and commentators that saying the recent fuel price hike should be canceled because Pertamina (Indonesia Oil Company) must be able to increase their oil production to meet domestic demand. Despite of inefficiency within Pertamina production strategy, does anybody aware that the 4th population rank in the world to some extent contribute to increasing demand of oil as well - at least at national level?

If we believe that economic activities in Indonesia still on going progress (in other words, Indonesian economy still growing), then it is quite certain that demand for energy also getting higher and higher. In addition to that fact, higher population also adding up the potential. This is the simple proof that pricing policy in oil sectors become ineffective. Why? Because higher demand for oil with wider price differential i.e. market price vis-à-vis subsidy price will creating potential greater market disequilibrium. In short, higher demand with great price differentiation will always distorting the market that cause the price constantly rising.

Then people will questioning, what should we do with such condition? There are only three solution in medium and long term. First, consume energy in efficient way. Second, please support and demand alternative energy, especially the renewable one. Third, keep consuming energy in efficient way no matter what energy source we consumed.


Berly said...

Paradoxically, the best way to increase production may be to increase price.

Higher price might pertamina to put better effort in increasing production since they will get more revenue than if the price is not raise.

fajar said...

salam kenal