Low growth

We all know this from experience: the only real antidote to surges in the price of fossil fuels is a global recession.

This is a chilling thought as we watch, helplessly, the steady but uninterrupted climb of oil prices. Each week, it seems, we hit a new historic high. The past few days, oil prices hovered at the once unthinkable level of $64 per barrel.

With existing demand nearly matching existing supply, the markets will find every reason to be jittery. The most recent escalation in oil prices was attributed to political uncertainties about Saudi Arabia after the death of King Fahd as well as uncertainties following Iran’s decision to ignore warnings from the great powers about continuing with its nuclear development program.

The week before that, the possibility of production interruptions in the southern United States due to a powerful storm kicked up prices. In the months before that, the corporate crisis involving the giant oil firm Yukos as well as terrorist threats against Iraq’s oil facilities influenced the upward movement in prices.

A global economic slowdown will be painful. It will mean loss of jobs and drops in income. But it will have the effect of pushing down demand for an irreplaceable source of energy.

This time around, a global economic slowdown may not result in dramatic reductions in oil prices – unlike previous episodes when we saw prices halved. The reason for this is that the margin between supply and demand is perilously slim. Substantial economic growth rates China and India, the most populous economies, ensure a steady – and unsustainable – rise in consumer demand for oil.

The ADB has revised Asian growth projections downwards. That is recognition of the dampening effects on economic performance of high oil prices.

But while economic growth slows everywhere, there is hardly any indication that demand for oil is dropping. Since we use twice as much oil as the amount we discover in new sources of the fossil fuel, it seems we are more or less locked into the present oil prices regime regardless of how the global economy performs.

This is where the present dispensation differs from the past. Oil at $12 a barrel is very well a thing of the past.

In the past, we dealt with oil price crises by producing more fuel-efficient vehicles. We will still do that: making hybrid vehicles more economically viable.

Strategically, however, we will have to more substantially shift our energy reliance on alternative and renewable sources. We have not done that in significant scale before because oil was still cheaper than most other alternatives. But at present, alternative sources of energy have become viable.

Since the Philippines imports its oil needs, we are vulnerable to price adjustments. The rise in oil prices are magnified further by the movement in the exchange value of our currency. A strong US dollar, the currency by which oil prices are principally denominated, will magnify the adverse impact of oil prices on our economic performance.

We have not been wanting in developing alternative sources of energy. We are the second biggest producer of geothermal energy after the US. We have a comparative advantage in this, given ample geothermal sources that may be made productive.

Earlier this year, we began generating power using modern wind farms. There is much more we can do here.

We are behind in converting our public transport to condensed natural gas. In a few weeks, we will have CNG buses plying some of our routes. We could have moved more substantially in converting our buses years ago if the major bus companies were a little more far-sighted.

Again, we have a comparative advantage here. The Malampaya field has yielded natural gas instead of oil. We should develop more applications for this clean energy source, including shifting more of our power generation to gas plants.

There are new technologies that will allow us to use frictionless turbines to generate power from smaller hydroelectric plants. If we do that, we can actually shift away from diesel plants in a few years.

In the meantime, we will go through a rough period, buffeted by constantly rising oil prices. There is little we can do in the short term except to be more prudent in our consumption of energy.

But in the long term, we can convert our endowments in geothermal and natural gas energy sources into comparative advantages for our economy. We need a good plan and the political will to execute without further delay.

SALAMAT

On her fifth multiple stroke, my mother, Saciea Raymundo Magno, succumbed last Friday, August 5 – but not without putting up one last fight. She defied the odds in previous episodes, surprising her doctors by her will to live.

She was a tough woman who lived through difficult times, including seeing to her family’s survival as a young girl during the Second World War. Through all the periods of adversity, she never lost her cheerfulness and her love of life. Through periods of difficulty, she never lost her generosity of spirit.

Our home in Malabon was open house to the many friends of our large brood and to fellow travelers along the many paths that I and my siblings took. It was a place of comfort for those who sought solace and safety – or who simply wanted respite and cheer.

My family was overwhelmed by the flood of support and consolation over the past few days. That made the pain of bereavement more bearable. We are happy for the many stories we hear for the first time from those whose lives my mother touched one small way or the other.

For all who condoled with us, maraming salamat po.