Oil Crisis: Diesel Could Cost More Than Petrol

[george]

OIL CRISIS: Diesel could cost more than petrol

It will take more than four years to repay subsidy debt: EPPO

BANGKOK: -- The price of diesel will eventually surpass that of petrol, according to Metta Bunterngsuk, director-general of the Energy Policy and Planning Office (EPPO).

The current price of diesel in Thailand, even with yesterday’s increase of Bt1.10 a litre by most oil companies, is only Bt2.75 a litre less than petrol. But with the government decision to float the diesel price as of yesterday, the local price of diesel will from now on move in line with the world market. Currently, the international price of diesel is US$7 (Bt293.7) a barrel more expensive than petrol, Metta said yesterday. “The local price of diesel in the future will definitely be on par with the price of petrol. Sometimes diesel will be cheaper, sometimes it will be higher,” he said.

One reason that the price of diesel will be lower than petrol for the time being is the lower taxes collected on diesel, thanks to the Cabinet’s recent decision to cut excise and municipal taxes on diesel by Bt1.10 a litre. However, the government said it would halve the tax concession by December 1 and waive it altogether by April 1, 2006, said Metta.

Currently, in Bangkok and its metropolitan area, the price of 95-octane petrol sold by most service stations is Bt25.74 a litre, compared to Bt23.19 for diesel. State-controlled PTT currently sells diesel for Bt22.99 a litre as it has resorted to a lower price adjustment of Bt0.90 a litre, compared to the Bt1.10 most other companies implemented.

Metta said retail consumption was expected to decrease by at least 2-3 per cent as a result of the price flotation.

And there are more price hikes to come. An oil industry source revealed yesterday that oil companies would consider a further increase in prices of diesel and petrol products next week.

Yesterday’s diesel price increase does not fully cover the costs of oil companies, he said.

“The marketing margin on diesel was in negative territory all of last month and is still now at minus Bt0.40 a litre,” the source said. Local oil firms have normally asked for a marketing margin – the difference between the price of finished oil products and the ex-refinery price - of more than Bt1 a litre to cover expenses in marketing and retailing the oil products, which they have to share with petrol station’s operators.

The source said oil companies decided to increase the diesel price less than the actual cost this time also to preserve their public image. A month ago when the government ordered oil firms to increase the price of diesel by Bt3 a litre, the companies were criticised for stockpiling and making a hefty one-day profit from their old inventory of oil purchased at a lower cost.

The government had fixed the local diesel price since last January. But after the subsidy toll topped Bt80 billion, the government adopted a “semi-floatation” strategy on June 1. Since then it has raised the subsidy and hence the price of diesel 10 times, to Bt22.09 from Bt18.19, a 21.44-per-cent increase. Now the total oil subsidy debt has reached Bt92 billion, of which Bt85 billion was racked up during the last 19 months of diesel price subsidy and the rest from a previous support of petrol.

To help reduce the impact on the public, the government would wait some time before collecting higher oil fund levies on diesel to pay off the oil fund’s debts. It is considering collecting Bt1 per litre on diesel when the time is right. He predicted that it would take up to four-and-a-half years to pay down the Bt85-billion debt.

The oil fund currently collects an extra Bt1.50 a litre to pay back its previous subsidy of petrol, a debt Metta said would be paid off within 12 months.

Meanwhile, to help reduce the effects of the diesel price flotation on farmers, EPPO yesterday met with the Agriculture and Finance ministries. The agencies agreed that they would offer low-speed diesel oil with a sulphur content of 0.5 per cent for farmers to use instead of the high-speed diesel sold at retail pumps. The low-speed diesel is cheaper than high-speed diesel, which is used in motor vehicles and is locally produced by Thai Petrochemical Industry, said Metta.

TPI, the only producer of the fuel, has a production capacity of 80 million litres a month, which should be sufficient, he said.

The low-speed diesel will be distributed to a network of agriculture cooperatives. Related agencies will find ways to prevent the distribution of the oil to other groups of users, he said.

According to Reuters, world oil prices edged higher yesterday on fears of supply disruptions at US offshore oil facilities as another major storm, Emily, is brewing over the Caribbean.

But prices eased from stronger early gains after the International Energy Agency downgraded its forecast for world oil demand growth, citing weaker-than-expected Chinese consumption.

--The Nation 2005-07-14

[mouse]

Now the subsidies, that were originally designed to protect the consumers are going to do the exact opposite at a much higher rate.

I have however, suggested that Thailand get Sundays set aside as a "Do not drive day" for anyone except emergency vehicles and tourist transportation (taxis and tuk tuks) in the areas such as Phuket, Pattaya and Chian Mai. Violators to be heavily fined.

[Erwin1011]

I may be wrong, but I always thought that in the fractioning process of crude, diesel comes earlier of the column than petrol and is therefore production cost wise cheaper than Petrol.

[griser]

Diesel IS easier to produce, in fact much cheaper. You also get more diesel out of a barrel of crude then petrol.

Why is it more expensive? because it CAN be, you see, businesses around the world run on Diesel so the producers of diesel can charge more for it becuase they know they can.

greg

Edited July 14, 2005 by griser

[astral]

SH*T

I want to sell my diesel car.

[pluto_manibo]

Someone want to buy my pick up?

...

[Erwin1011]

Diesel IS easier to produce, in fact much cheaper. You also get more diesel out of a barrel of crude then petrol.

Why is it more expensive? because it CAN be, you see, businesses around the world run on Diesel so the producers of diesel can charge more for it becuase they know they can.

greg

<{POST_SNAPBACK}>

So, at the end of the day, if you want to minimize the effects of the crude price, you limit the gross margin of the of the producer. that way the diesel price may go up, but it could never exceed the the petrol price. Is my understanding here correct?

[mike100]

Might be cheaper to use vegetable cooking oil it carries on like this.

My father has been doing this in the UK for a couple of years, Lol.

About a 40% cooking oil and a 60% diesel mix, and no ill effects so far.

Last time I was home, I laughed and told him cooking oil was a lot more expensive than diesel in Los. About the same now.

[awarrumbungle]

Biodiesel is a solution. As far as I'm aware that there is a station in Chiang Mai that is sellnig 2% biodiesel. If you guys know if its happening anywhere else let me know.

You can use any % of a mix. You can use 100% 50% 20% 2% with normal diesel. The emissions are 90% less than diesel. Google it. I made it back in Aus from use veggie oil for A$0.20 a litre. On a larger scale it would be more expensive.

As for the no driving on Sunday idea...... what!! I read a qoute the other day "sustainability is boring" conserving our petrol is not the solution. New technology and methods are needed. Solve the problem not the symptoms.

[Erwin1011]

Biodiesel is a solution.  As far as I'm aware that there is a station in Chiang Mai that is sellnig 2% biodiesel.  If you guys know if its happening anywhere else let me know.

You can use any % of a mix.  You can use 100% 50% 20% 2% with normal diesel.  The emissions are 90% less than diesel.  Google it.  I made it back in Aus from use veggie oil for A$0.20 a litre.  On a larger scale it would be more expensive.

As for the no driving on Sunday idea...... what!!  I read a qoute the other day "sustainability is boring"  conserving our petrol is not the solution.  New technology and methods are needed. Solve the problem not the symptoms.

<{POST_SNAPBACK}>

Solving the problem may take longer than we think. Unless of course you like to go for Nuclear.

Meanwhile you need to bridge that transition time until the new tech works. Reducing consumption is then part of the interim solution.

[Heng]

Now the subsidies, that were originally designed to protect the consumers are going to do the exact opposite at a much higher rate. 

I have however, suggested that Thailand get Sundays set aside as a "Do not drive day" for anyone except emergency vehicles and tourist transportation (taxis and tuk tuks) in the areas such as Phuket, Pattaya and Chian Mai.  Violators to be heavily fined.

And of course, anyone who required a Sunday driving permit could acquire one for a specified cost from the Land Transport Dept. Business is 24-7... it doesn't stop on Sundays.