The 'Black Gold' crisis
by Dhaneshi Yatawara
 The price of a barrel of crude oil in the world market hit near the
hundred dollar mark, USA based price indices report. To be exact it was
98.62 dollars last Friday. Are we going further and further away from
getting fuelled up? Last Friday a crude oil barrel was priced at US$
88.92 at the Dubai/Singapore based price indices.
The winter season in the west is just starting and heater usage,
which burns a lot of oil to generate electricity, is still at a lower
level. With the current trend in the price rise, what will happen when
the whole western world switches on their heaters 24/7? Why is this
increase in oil price?
The artificial push
Many local and global analysts find this trend in the world market a
very abnormal situation studying the present demand pattern. According
to many web reports the Western Europe and Japan are experiencing a cold
weather with the start of the winter but the American continent reports
a warmer weather than usual. Hence, the experts of the field say, the
demand pattern does not promote an oil price increase globally. It is
believed this is an artificial trend and expects a fall down soon since
no country can survive at this rate.
Fuel is an essential commodity and brokers in the global market can
play around with these commodities. Economists keeping a close watch on
the characteristics of the global market assume this oil price
acceleration is a result of such strategy. Sri Lanka does not go by the
prices of the USA based indices. Normally the purchasing though Dubai/
Singapore based indices which are most of the time at least ten units
less expensive, a local economist, commenting to the Sunday Observer
said.
 Commentators have attributed the increase in prices to a variety of
factors, including North Korea's missile launch, the crisis between
Israel and Lebanon, US brinkmanship concerning Iranian nuclear energy,
and to reports from the U.S. Department of Energy and others showing a
decline in petroleum reserves.
"Ceylon Petroleum Corporation (CPC) is selling oil (Petrol- general,
diesel and kerosene) below the market price with a subsidy from the
Treasury which amounts to Rs. 14.5 billion in 2004 and for the first
half of 2005, the subsidy has totalled Rs. 9.2 billion due to the
escalating prices of oil in the world market. It is expected that the
oil subsidy for 2005 will exceed Rs. 20 billion - a very large sum
indeed.
The Lanka Indian Oil Corporation (LIOC) which bought 33 per cent of
the CPC in 2002 was also requested to follow the subsidized pricing
policy for oil from January 2004.
Consequent to LIOC selling of oil below the market price it had to
forego US $ 60 million due to the company," states Mr. Saman Kelegama in
a speech he had delivered in Colombo in September 2005 while addressing
the gathering Certified Management Accountants Business Management
Conference. Mr. Saman Kelegama is an academic who holds the Executive
Director post of the Institute of Policy Studies of Sri Lanka - an
institute that keeps a close watch on current political, economical
trends.
  Mr. Kelegama had further pointed out that the global demand for oil
has risen from 76.7 million barrels per day in 2000 to 84.3 million
barrels per day in 2005.
Economists point out with the rapid growth of economies of China and
India, the number of middle class vehicle owners has increased rapidly
creating an additional demand. 35-40 per cent of additional oil demand
during the last five years has come from China and India.Mr. Kelegama
said that amidst all these demands USA still remains as the largest oil
consumer in the world accounting for 25 per cent of global consumption
and India is the 6th largest energy consumer in the world. Further, by
2010 it will be the fourth largest while Asia will account for one-third
of world oil demand by 2025.
Fossil fuel extraction is finite. Therefore, how much the demand
increase and how much efforts put in to increase the oil production the
result will be limited and short term. The supply of oil from OPEC
countries seems to have slowed down and the world refinery capacity is
shrinking. "OPEC stock changes will be slow and until about 2015 it will
provide 37 per cent of the world supply. Non-OPEC supply is forecasted
by many oil economists to continue growing at about 1 million barrels
per day for the next few years and will not be adequate to cover the
total global demand," Mr. Saman Kelegama had further explained.Higher
prices also may have resulted with the increased exploration and
production of oil in countries outside of OPEC. From 1980 to 1986
non-OPEC production increased 10 million barrels per day. OPEC was faced
with lower demand and higher supply from outside the organization.
In this uneasy situation, the government is making attempts to
minimize the hardship to the consumer by taking various measures.
"The use of subsidies for the oil sector is not unique to Sri Lanka.
Many countries provide subsidies for the oil sector to cushion the
producers and consumers from fluctuations of the global oil prices.
However, when oil prices are reaching unprecedented levels, governments
seriously consider cutting down the subsidy at least for petrol and find
various ways and means to conserve energy (combat demand) and find
alternate sources of energy (increase supply)," Mr. Kelegama concluded.
Comparison of the Oil prices between Asian countries
Country Petrol Diesel Kerosene
India 128.99 90.55 21.78
Maldives 72.05 78.70 80.92
Pakistan 100.62 71.22 72.36
Bhutan 107.22 78.23 25.70
Bangladesh 104.00 64.00 64.00
Singapore 118.62 N.A. N.A.
South Korea 182.95 147.47 N.A.
Thailand 94.87 82.36 143.00
Sri Lanka 117.00 75.00 68.00
Current Oil prices of Asian Countries
Source-central bank
The quest for exploration
With the aim of formulation and implementation of policies and plans
and programmes in respect of petroleum resource development, the
Ministry of Petroleum and Petroleum Resource Development has created the
Petroleum Resources Development Secretariat (PRDS) in order to launch
the oil exploration activities of all petroleum based resources in Sri
Lanka.
As the PRDS website states Sri Lanka's oil and gas exploration began
approximately 40 years ago with the acquisition of the first offshore
seismic reflection survey by Compaigne General de Geophysicque (CGG)
performed on behalf of the Ceylon Petroleum Corporation (CPC or Ceypetco)
in 1967."Well drilling in the region occurred during 1974 and 1981.
Although hydrocarbons shows have been encountered as the result of
drilling, no commercial exploitation has occurred. Recent successes in
neighbouring basins, in India, have reinvigorated interest in the
offshore of Sri Lanka.
This is further justified when the results obtained from recent
seismic acquisition programmes in the Mannar Basin in 2001 and 2005 are
taken into consideration," the website further states.An 8 block
subdivision of the region in the Mannar Basin has been determined for
the licensing of acreage across the basin. In 2007, two blocks in the
offshore Mannar Basin have been awarded directly to Indian and Chinese
companies. Three offshore blocks covering the central branch of the
Mannar Basin are now being offered here for licensing with a further
three blocks being offered for licensing at a later date.
dhaneshi@sundayobserver.lk
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