Better for Oil Price to Decline to USD20 And Preserve Resources? – Dr. Jeffrey

Kota Kinabalu:    “There are many benefits for Malaysians if the world oil price drops to USD20 per barrel” said Datuk Dr Jeffrey Kitingan, Sabah STAR Chief, agreeing with the public who have started talks that it is better for the oil price to decline to USD20 so that the oil and gas extraction from Sabah will stop and reserved for future generations.

Global oil industry players and analysts have opined that the global oil price could drop to USD20 at any time.   Even the head of the World Bank seems to think that that the world price could be as low as USD10 to USD15 per barrel.

On the oil producers’ side, Saudi Arabia thinks that the oil price will only rise to USD70 in 2020, which is another long 5 years more.

From midnight 31 December 2015, the government lowered the pump petrol price by 10sen to RM1.85 per litre which works out to RM294.126 per 42 gallon barrel or USD68.40 at an exchange rate of USD1 to RM4.30.   In Houston, Texas, an oil producing State in USA, the pump price is only USD1.49 to USD1.52 per gallon which works out to RM1.69 to RM1.73 per litre which is much lower than Malaysia and makes one wonder why is it so?

If the oil price is USD20, generally, ordinary Malaysians will benefit from such low oil price.  Obviously, pump petrol prices could drop to RM1.00 per litre and all costs related to oil will be cheaper compared to the current prices.   Transportation and costs of transport for goods and services should be the first beneficiaries of low petrol prices.

The low oil prices will also impact a host of other consumer related items and services.   This will in turn reduce costs of living which recent increases, many of which are caused by government policies and decisions, have burdened the ordinary citizens.

However, a very important and unseen benefit will be that the low oil prices will reduce profitability and will probably cause Petronas and the federal government to stop or at least reduce the pumping of oil from Sabah and Sarawak.   Thus, the precious and depleting oil and gas resources, which was stated to run out in Sarawak in 25 years, will be left preserved for the benefit of future generations of Malaysians.

The hijacking of Sabah and Sarawak’s oil and gas resources since 1976 have seen little benefit for Sabahans and Sarawakians and have only benefited by way of much infrastructural development in Malaya.

“The people are right in talking of preserving Sabah’s oil and gas resources for future Sabahans” emphasized Dr. Jeffrey.

“Of course, the low oil prices will have negative implications too” added Dr. Jeffrey.

First and foremost, Malaysia will have lower national revenues as it depends some 40% of its national income from oil and gas and related industries.    Petronas alone contributed more than RM61 billion in 2014 and about RM45 billion in 2015 due to the drop in oil prices.   

The national budget for 2016 is based on world oil price at USD48 per barrel.  However, yesterday, the CEO of British Petroleum (BP) could hit record lows in 2016 which closed at about USD37.60 for Brent Crude on the last day of 2015.  

The drop in national revenues will impact the government’s spending.    But on the other hand, the reduced income will hopefully see a reduction in the amount of wastages through corruption and excessive spending by the government and their political leaders.

Apart from Petronas’ reserves, very little is left for future Malaysians from the hundreds of billions, if not trillions, that have been squandered by the BN government.

In comparison, Malaysians should take note that Norway’s sovereign wealth fund has become the biggest in the world, surpassing the Middle East nations, with an estimated reserve of more than USD813 billion currently.    Norway has transformed its oil production to monetary and financial wealth held transparently and with accountability so much so that each Norwegian at birth is already a millionaire from its North Sea oil wealth, pumped out long before his or her birth.

Ordinary Malaysians have almost nothing from the nation’s oil wealth.  To top it all, Malaysia now has its national debt at its highest level, more than RM800 billion.  For Sabahans, it’s a nightmare, having produced more than 50% of Malaysia’s oil and yet the poorest in the country.  Perhaps, it is high time to ponder a change of government while hoping for further drops in world oil prices to keep their oil and gas from being further siphoned to fund Malaya’s development?