An enlightening comment

I just got back from a small dinner gathering with some close friends so I am going to take a short cut in today’s entry. Fellow blogger Vincent left a very long comment in one of my recent post and I think his comment worth mentioning here. He is talking about how an increase in crude oil price will not benefit a net oil exporter country like ours. Quite enlightening I must say. His comments are as follows:-

Because I actually like you (I think you are better than a lot of the silly “socio political bloggers”) I shall take the time to explain how fuel subsidy works. (zewt - vincent, you're not gay right?)

Being a net exporter is actually irrelevant in many ways. In some countries where their National Oil Company is the one who runs the petrol stations, they can afford to charge the people at cost price or even subsidise the fuel significantly. I would argue that socialism is bad for business, but since it's the "people's oil" it is acceptable that they charge at cost price or a lost.

However, in Malaysia, we have loads of oil companies operating different petrol stations. Shell has the market share of about 35% while Petronas has about 32% (don't quote me on the exact figures). The rest of the market share is split out between BHP, Esso and Mobil (Projet now belongs to Shell).

Therein lies the problem. Foreign companies charge the market price. The government has to PAY them the difference between the market price and the set price of RM1.92. Which means that when the price of crude oil increases, the foreign oil companies will charge the government more and hence the government spends more just to keep the price at RM1.92.

Again, we can argue that subsidies are meant to 'help' the people. But that argument can only hold valid if the market was dominated by Petronas. But since 70% of the market share is taken up by foreign oil companies, surely it doesn't seem wise that all those subsidies are flowing out of the country into foreign hands instead of remaining within??

10-15 isn't exactly accurate. This is a case of a politician talking without exactly knowing his facts. I believe the latest figures stand at about 19 years. 10 years ago when I was in school, we were told there was enough oil for another 20 years only.

The 'discrepancies' in the figures are actually due to discovery of new wells and new technology which allows oil that was previously un-extractable to be available. Also, rising crude oil prices have made many small wells which were previously not financially viable to extract very feasible now.

I am sure you all find it informative cause I did. By the way, crude oil price hit a record high of USD90 per barrel a few days ago before settling down.