By Kim Hong-rae
Consumers worldwide are facing another oil shock, the third since the 1970s. Why is crude oil so expensive? Why does it matter to consumers? Oil prices continue to increase every day. Life will again be difficult, and the public needs to be prepared even as the government takes measures to respond. It is important to point out some basic, simple ideas about the situation, as we prepare our own individual strategies on how to deal with the problem.
First, there is a decreasing supply of oil. The amount of available oil is not increasing, while consumption is rising rapidly in emerging energy hungry economies like China and India. According to some news reports, in the first half of 2008, 85 million barrels of oil were available every day, while demand was 87 million barrels. Therefore, the price of oil rises, according to the law of supply and demand.
Second, the U.S. dollar continues to weaken due to many reasons in the American economy. The weak U.S. dollar helped fuel the increase in oil prices for many countries.
Third, the negative news affects the perceptions of consumers worldwide; resulting in panic even if the facts do not support such fears. There is a general feeling of uneasiness due to the predictions concerning oil prices. There are perceptions such as: ``12.5 million barrels are needed, and this still might be insufficient for an energy hungry world. The increase in oil prices has not reached its peak yet,'' and so on. These non-factual statements forecast doom and gloom everywhere, making people nervous.
Fourth, oil-producing countries face security and political problems. The oil is still available, but production and marketing are difficult in these countries, especially in the Middle East and Africa. Investment in oil exploration is not encouraged by this situation since investors worry about damage to production facilities, and returns on their investments.
How should the public respond? How should government focus its measures to be effective in dealing with the oil price shock? There should be greater public awareness on how to deal and respond correctly, and these should be in harmony with other efforts.
The best solution to lower the price of oil is to produce more oil. Many news reports however indicate that oil deposits are becoming exhausted. The Organization of the Petroleum Exporting Countries (OPEC) said that they don't plan to boost production.
All over the world, many responsible governments encourage fuel-efficient cars and bicycles, as well as reductions in oil taxes. Exemption from oil tax is however not a fundamental solution. In a period of high oil prices, experts agree that the correct response should be a reduction in demand and consumption of energy, together with greater efforts for the development of alternative energy sources. It is an important priority to raise greater awareness in the population to use more public transport, and buy only fuel-efficient cars.
It is important for both the public and government to agree on, and support the country's energy policy directions and strategies. Political dialogue is important, but this is a major problem in the current political atmosphere in this country. In the country's energy policy, it is important to achieve a balance of the ``3Es'': energy security, energy efficiency and environmental protection. There is need for increasing public awareness and support of industry targets for the reduction of CO2 emissions, which cause global warming.
The country needs to identify priority policy measures and strategies, both in the short term, as well as in the long term, to achieve the development of alternative sources of energy. There is a need to put in place an energy investment fund, technologies and expertise, as well as to deploy strategic energy diplomacy. It is important to ensure stability in the supply of the country's energy, by intensifying energy diplomacy, increasing long-term contracts in oil production, marketing and distribution, and improving the efficiency and quality of refining facilities. Finally, the appliance-manufacturing sector needs to have a clear response, in marketing targets for high-efficiency electric appliances and facilities, and recall or replace energy-inefficient products from the market.
The writer is a student of Hanyang University in Seoul. He can be reached at greatbear@paran.com.