A lot has changed but the basics of supply and demand are eternal. There has been an increased demand for oil and other commodities, mostly from the two emerging super powers: China and India. The populations of both countries represent close to 40 percent of the whole world. As the middle classes of these countries grow, so do their appetite for crude. These new yuppies now want to drive to their destinations instead of just walking or biking.
On the supply side, God seemed to have allocated oil to countries with the most volatile political environments. Then again, oil and its power to corrupt might have created the volatile and corrupt governments. The Iraq war, Iran’s nuclear ambitions, Nigeria’s unrest and Venezuela’s thumbing its nose at the status quo are all contributing to the uncertainty of worldwide supply.
Add hurricane Katrina, which busted some of the limited refining capacity of the US, and you have a summer price of $3 per gallon when it was only $1 per gallon three years ago.
There are two ways to lower prices: increase supply and reduce demand. Increasing supply is such a geopolitical nightmare that no single force, OPEC included, can sufficiently increase supply.
Reducing demand is something you and I can have an impact on. There are clearly two ways: conserve (which means reduce our usage) and use alternative fuels.
Conservation is just the right thing to do. (I grew up in the perfect storm of frugality: an Ilocana mom and a Chinese father. Between the two ancestries grew my DNA for my current title of Cheap Finance Officer.)
The venture capital community is now funding a lot of new startups with biodiesel as business model. According to the US National Biodiesel Board, biodiesel refers to a clean-burning, alternative fuel produced from domestic, renewable resources. Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel to create a biodiesel blend. It can be used in compression-ignition (diesel) engines with little or no modifications. Biodiesel is simple to use, biodegradable, non-toxic, and essentially free of sulfur and aromatics.
Toyota’s Prius, a hybrid car which uses a mix of normal fuel to start and battery power to maintain speed, has taken the market by storm despite its premium compared to the normal cars. Honda and the other carmakers are following suit with their own versions.
Brazil has had a national program to encourage the use of ethanol since the 70s. It has now reached a point that it has allocated 50 percent of its sugarcane production to ethanol production. There is now a strong pressure for the Brazil allocation to go up 10 percent – which could reduce the supply of sugar to the world market (assuming demand stays the same); ergo the price of sugar has doubled from a year ago. Sugar is now the new white gold. I heard that Colombian farmers are now considering ripping out their cocaine plants (sorry, don’t know the plant’s real name) and planting sugarcane.
My Two Cents: Things change. For the last 20 years, our sugar barons were busy closing their plantations; today they are busy talking to their private bankers. I just hope somehow the country reduces its need for imported fuel. Hmmm… San Miguel Biodiesel Corp… hmmm.
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Dickson Co is the CFO (C is for cheap) for Dfnn, Intelligent Wave Philippines and HatchAsia.com. For comments or suggestions, e-mail twocents88@yahoo.com.