High prices or not, does petroleum remain best option?

Yesterday, they plunged further to about US$92 (Bt3,200) per barrel on reports that fallout from the US financial crisis had spread to Europe and elsewhere.

The oil market fears demand will shrink if the US economy, the world's biggest oil consumer, enters recession later this year.

Speculation has it that the $700-billion bail-out package approved last Friday by the US Congress may not be enough to avert a serious US recession.

US investment legend Warren Buffett is among those worried about the economic downturn, saying in "The Snowball", a new book on his life and investment style, that a US recession could be long and deep.

As far as oil prices are concerned, the market has lately been very volatile.

Even Jeroen van der Veer, CEO of Royal Dutch Shell, the world's second-biggest oil and gas firm, says it is now too difficult to forecast prices.

On a recent visit to Bangkok, the Shell CEO recalled that oil was about $107 a barrel sometime in January. Then the market set a new price record of $147 in July, after which it has been on a downtrend.

Early spikes in global demand and prices were attributed to high economic growth in China, India, Brazil and Russia.

On the supply side, there was serious concern that global supplies would run short in the long term, and spiralling prices were the result.

Van der Veer said the high prices of earlier this year were a psychological consequence of potential long-term shortage.

Costs of production did not enter into the equation. Some producers, such as Saudi Arabia, can turn out a barrel of oil for only $5, which highlights the massive windfall of profit flowing into the Middle East in the recent past.

In van der Veer's opinion, the record price of $147 per barrel was too high. It significantly affected demand.

However, he said oil remained a very competitive energy, because it had three major qualities: supply security, affordability and reasonable cleanliness.

None of the alternative energies can boast all three qualities. Wind energy, for example, may be clean, but its present cost is uncompetitive.

As for solar and nuclear energy, both are clean, but affordability and supply security remain hindrances.

Regarding biofuels, which is evolving as a new alternative energy, he warned there could be severe competition between energy crops and food crops in coming years as demand for biofuels rises.

In Thailand's case, biofuels have become popular in the form of gasohol, a blend of gasoline and 10 or 20 per cent of ethanol, and biodiesel, a blend of diesel and 5 or 10 per cent of refined vegetable oil.

Heavy tax subsidies have been granted to promote these biofuels and help alleviate hardships among Thai motorists and industries struggling with record oil prices. One of the most ambitious plans is to introduce E85 gasohol, a blend of 15-per-cent petrol

and 85-per-cent ethanol made from locally grown sugar cane or tapioca.