Deceleration

All the agitation about the elevated inflation rate and the price of oil products, including patently ruinous proposals to dramatically raise a “national” minimum wage and scuttle the tax reforms, will probably decompress in the next few weeks.

Although local pump prices were raised this week, international prices for crude oil have been decelerating rapidly the past few days. The collapsing global oil prices should soon reflect in our pump prices.

Oil prices rose to rather abnormal highs the past few months because of production caps imposed by the OPEC cartel. Those production cuts were supported by Russia, a major oil supplier not formally affiliated with the cartel. They peaked the past few weeks after the US threatened more economic sanctions on oil-producing Iran. 

Over the past week, however, both Russia and Iran signaled they might increase production of the vital fuel. Representatives for the two countries are due to meet on June 22. The signals sent out by the two giant oil exporters were enough to send prices dropping dramatically in the oil futures markets.

Any decision to increase oil production will not be animated by charity. History has proven that beyond a certain threshold, high oil prices induce a global economic slowdown. Such a slowdown, in turn, will reflect in a decline in demand for the commodity as well as a more urgent search for substitutes. Recall how, in past episodes of oil price escalation, diesel-powered power plants simply became obsolete.

The major oil exporters are as concerned with maintaining demand as they are with extracting the most per barrel of the commodity. Greed can be counterproductive at times.

The emerging consensus among oil exporters is that the “sweet spot” for oil prices is between $60 and $70 per barrel. Over the next few weeks, it is expected that the oil exporters will calibrate their output to achieve pricing at that ideal range.

Oil importing countries might prefer the commodity priced under $50. At that lower price range, many economies boomed in the past few years. But importers have no way of influencing the pricing mechanisms.

Should oil move closer to $60, all the inflationary pressure the commodity brought about should ease dramatically. All the nonsense about striking out the excise tax of the highly polluting product (which is much lower than what is imposed elsewhere) should likewise ease.

We could actually bring down our annualized inflation rate to well within the target range set by our economic managers. More important, we could grow our economy at a faster rate.

Coal

We have to take a more sympathetic look at the new “clean” coal technologies. Short of building a string of nuclear plants down the archipelago’s spine, coal remains our best option.

By the DOE’s calculation, the country will need 43,765 MW of additional power over the next two decades. We will probably need more if we program for more robust reserves.

Just the other day, a yellow alert was raised in the Luzon grid after several power plants went into unscheduled outage. Our reserves are simply too thin. For better energy security, we need to build up our reserve capacity and be prepared to pay for it. Paying for robust reserves is far cheaper for the economy than enduring shortages.

New coal-fired plants are actually cleaner and more efficient than all the conventional plants currently in use. They are more reliable in meeting our growing energy needs.

We can look to the experience of Japan for lessons.

Over the past two years, Japan installed eight new coal plants. The country will add 36 more coal plants to its energy mix over the next decade. Japan’s existing 95 coal-fired plants currently supply 41,273 MW to help power this heavily industrial nation.

Following the Fukushima disaster in 2011, Japan decided to shut down all 54 of its nuclear plants while implementing new safety standards. The Fukushima nuclear power plants, we will recall, were inundated by a horrific tsunami, this caused the failure of their cooling systems and the leakage of radioactive material. To date, only seven of the nuclear plants have been reopened.

To cover the sudden drop in generating capacity caused by the closure of nuclear power plants, Japan had to quickly decide between importing expensive liquefied gas and using new coal-fired technologies. The country chose the latter.

Because Japan had always maintained robust power reserves and because coal-fired plants could be installed quickly, the closure of the nuclear plants did not cause energy shortages that might have undermined its economy.

The International Energy Agency (IEA), in its most recent report, forecast a sharp rise in the demand for coal over the next few years. This will be due to the increased use of coal-fired plants by the growing economies of Asia, particularly the two giant economies of China and India.

The use of new supercritical technologies for generating power from coal is definitely cleaner than using bunker oil. Too, its price is subject to less volatility than oil. This we have seen recently.

If the Philippines builds more coal-fired plants over the next few years, this will be in line with the decisions taken by our neighbors. This is because these plants have proven the more reliable and more economical. Coal is abundant and cheap.

The doctrinal environmentalists who regularly rail against coal plants have to deal with this fact: even if we convert all our farmlands into solar plants, they cannot deliver the power our economy needs.