How Much Will FUEL Cost in Georgia?

NINO ARVELADZE

“The world has gone mad” this is the phrase which matches existing oil market in the best way. In April of 2004 35$ per barrel shacked the world and nobody could imagine that the same world would easily adjust to 100$ per barrel.

Rising prices in oil creates danger for us too, not only for the world, because the expensive oil concerns to our country and it is unavoidable. Steady GEL lets our importers to sell the product to our population as cheap as it is possible. The Chairman of the Boards of Directors of JSC Wissol Petroleum Georgia Mr. Samson (Soso) Pkakadze talks about international trends and existing situation in Georgia:

– Mr.Soso, what kind of situation is on international market today?
– You will agree that existing situation on international market has reached the culmination that does not concerns only oil. We pay great attention to different reports made by financial institutions and banks, because the each small thing of developing events is very important for us. Fuel business is becoming very dynamic. We sell non-European two products and also Western-European four products, every day we have deal with buying and Customs that is why making analyses of international market and knowing coming forecasts is so important for us. If being frankly, we are not able to do this during last months, because oil prices are increasing in a catastrophic speed. In the February of 2007 Morgan Stanley said that oil prices would be 100$ per barrel to the end of this year, but nobody shared the idea. Huge amount of oil are bought by hedge-funds and investment funds because of the speculation demand. The fact that oil prices are increasing has subjective and objective reasons, for example such as political factors. If we look through the analytical reports we will make the conclusion – oil prices are increasing because of circumstances and the reason is very banal – shortage between demand and supply. Everybody knows that demand has sharply increased in Asia, in particular, in India and China, demand is increasing in developing countries, such as are Brazil and Argentina. Finally, there is a shortage between demand and supply and it is impossible to make any correction without restoring balance. When the oil prices reached 80$ per barrel many people thought that it would never reach 95$ a barrel, but it has exceeded this verge too and today nobody has a doubt that oil prices will be 100$ per barrel soon.
– There are two factors – refining and output is 31-32 milliard tone per day. There is a trend of reducing constructions of oil refining factories in the world.
– The fundamental reason does not mean only shortage in demand and supply. One of the reasons of expensive oil is exchange rate too, oil is sold in dollars. As soon as the exchange rate of dollar decreases it has great influence on oil prices – oil producing countries begin to reduce product output as they want to have high income. When dollar exchange rate is decreasing America and other countries which buy product are less tend to have loss as they buy the product in dollars. It is not excluded US Federal Reserve Bank to decrease interest rates by half per cent on coming meeting that will make oil pricess to go higher, because when interest rates are down demand on dollar will be lower. US dollar is in a very hard situation because of different causes, so decreasing exchange rate of US dollar will give rise to oil prices.
At the end of 60-ies Greens Movement began in America. Because of the ecological factors there has not built new oil-refining factories in America approximately for 40 years. As its consumption is 20-22% of oil US economy has great influence and any cataclysm and increasing demand in USA reflects on oil prices. Oil demand has had a dynamic increase for last years, while due to the strong lobby of Greens Movement in America and Europe oil-refining factories are not built any more. Besides that existing factories do not have enough capacity. For example, in Rotterdam, Shell, BP and Exon have old factories which are built 20-30 years ago, since then no factory like these have not built in America.
– Are new oil-refining factories built in Asia?
– Yes, they are. Some of them are built in Asia and Middle East, but the point is that these ones did not provoke to such problems 10 or 20 years ago as they do it now. Everything is aggravated by one fact – since 2001 the global economy has risen in an impressive rate, such rise was not in 90-ies or 80-ies. It is true that “Asian Tigers“ economy had rise, but last four years the global economy becomes wide and almost each country`s economy has increasing signs except some poor ones. Naturally, everything this has a reflection on oil products, its prices and demand. Because of these factors it is very difficult to forecast that oil process will come down.
– What kind of influence has BioPetroleum?
– Brazil has very big amount of sugar-cane, it can be said that Brazil state company has foreseen some things. There are many poor people in Brazil and 25 per cent of cars used natural gas till high oil prices. There are some successes about BioPetroleum but we can`t make any kind of suppositions according to analyses of one country that BioPetroleum will make oil products cheaper. The vice president of BP said the alternative petroleum may make real influence after 30 years. Today oil prices is the confirmation that alternative petroleum does not exist, in other rate oil price would never reach 90$ per barrel. Traders have some psychological verges, 90$ is one of them.
– What role does Russia play on international market?
– Russia is not an OPEC member country but it is the second one in the world that produces approximately 9.5 million barrels per day. Russia is the N1 country in gas export, it means that Gazprom is the world`s largest gas industry. Developing events on international market is good for Russia. If we look through the oil prices it is obvious that due to oil record prices Russia earns 9 million dollars per day. While such international circumstances Russia is not able to regulate costs, more over, for Russia cheap oil is not profitable – its economy on the whole stands on energy recourses and the economic diversification is not high.
– Has Katar entered in OPEC?
– Katar has quite big recourses of natural gas, it is in five as Iran.
– Does it mean that OPEC has become stronger? Why does not Russia enter into the cartel?
– Katar has entered into OPEC for a long time. OPEC member states are connected to each other also in geographic way, more of them are Middle East countries. There is one more reason OPEC produces 35-40% of world`s oil and it is its share in global oil producing. OPEC has important meaning for Pro-American and Pro-Western countries as for America and Europe. When in Western Europe or America oil prices are too high immediate statements are made by different members of society that OPEC has to rise quotas to supply market better and to make prices go down. So, Russia`s statement about entering in OPEC cartel won`t be profitable. In this case OPEC share in global oil producing will exceed 45 per cent and that is monopoly. But it can be said that OPEC is a monopolist, oil prices depend on it very importantly, but we can not say firmly that oil prices are determined by OPEC.
– What does 100$ per barrel mean in particular? What would be buying and selling prices of gasoline and how much would be 1 litter petrol cost approximately?
– It must be mentioned that 100$ includes as objective and speculative reasons as political ones too. Price of 1 metric tone petrol reaches 800$ When Brent costs 89$ from it is calculated the Platts price, which is used in Western Europe for buying the production. Oil prices reached 88-89$ a barrel so fast that it could not find reflection in oil-product prices. Oil-product prices always fallow oil prices. If oil prices reach 100$ per barrel we should suppose 1 metric tone gasoline to be 900$. According to which country do we import it is added from 20 to 60$. Gasoline selling price will be 1,75-1,80 GEL per L.
– If oil price reaches 100$ a barrel will 1 L gasoline cost 2GEL in Georgia?
– Today the highest price is 1.80 in Georgia, the lowest one 1.45 GEL. If our expenditure for 1 L is 1.80 GEL the value should be 2.15 GEL without company profit.
– What much is the consumption in Georgia?
– It is approximately 30-35 tone gasoline and the same amount of diesel per month.
– Can high oil prices reduce the petroleum consumption?
– There is one interesting phenomena in the world: Famous analyst and economists said that petroleum consumption would be reduced when oil prices reach 50$ a barrel, but paradoxically demand on petroleum goes higher with oil prices. For example, in October demand grew by 1.2 per cent in America. Rising demand makes oil prices higher. The same can be said about Georgia, rising prices have not made the consumption less.
– What will you say about economic fields that are connected to petroleum?
– It must be mentioned that we always try be have some drop in prices and don`t allow them to reflect on Georgia`s market immediately. But prices are changed in the world almost every day that depends on production prime cost. There are socially poor people in Georgia and we try to keep low prices as long as we can. But it is naturally that our resources are foreseen for 3 or 4 weeks and after resources are expired we don`t have the other way. We don`t produce or refine the production, it just comes through us and the prices rise independently from us. Thought Russia is a producing and refining country rising in prices is higher in Russia than in Georgia. From my point of view it does not means if you are producing country or not, because it is impossible to stop rising prices. When there is fixed prices in the market the producing country will not sell the production on domestic market, it can sell it on foreign market. If we add to the situation geopolitical problems we will see that increasing in oil prices is unavoidable.
– Wissol is connected to AP, Lukoil imports the fuel from Bulgaria, Eko imports from Greece. There is SOCAR in Georgia, does it make any kind of influence on costs?
– No, it does not. When there is a high price on production everyone – retail or wholesale trader or refining factory will always try to sell the production in high price. There is one thing government can reduce taxes of refining and output in the countries where fuel prices are too high and by this way diminish production value, so they can make any correction in prices.
– Why is not natural gas cars sector developed in Georgia?
– Our company has provided a research according to the international practice. The results show us the following trend – there are countries where the gas consumption reaches 10-15 per cent, but the index does not concerns only cars and industrial consumption. We have made decision to develop this sphere and to make some investments. We paid attention to the international trends. According to the search made in Georgia there are cars which work on natural gas and wishers too. It is due to one reason oil prices become higher very fast. In October of 2007 the first gas station opened in Tbilisi. We know that there are poor people in Georgia and our company has social activities and makes moderate budget for corporate social responsibilities. If oil prices go higher or stay on this index I consider the number of gas cars will rise in Georgia. If the economy of the country develops steadily and there is more wealth in the country the amount of gas cars will be narrowed, because oil product has its attractive side and if someone is not poor he will not choose natural gas fuel for his car. It must be said once more that if oil price is 100$ a barrel natural gas share in selling will be risen.
– Can we say how much natural gas is 1 L gasoline which costs 1.80 GEL?
– The lowest quality gasoline costs 1.45 GEL, 1 m2 natural gas 0.75 Gel, but it depends on a car and its technology equipment. Natural gas costs are less almost by half than gasoline and can drive the same distance which would be driven by 1L of gasoline. Our company is planning to build 15 or 20 gas stations, it is quite expensive. Though from my point of view after several years there will not be high demand on natural gas cars, it is not the fuel of the future and as soon as there are many employed people in Georgia and there is more wealth in our society the demand on natural gas will decrease. It is not for well-off people.
– Is not it dangerous to use natural gas as a fuel?
– By its admixtures it is the most ecologically pure fuel, while producing oil it is the first condensate. It is dangerous only in closed spaces, but is lighter than air and if it percolates it goes into air. Gasoline, diesel and liquid gas are heavier than air and they pollute environment more than natural gas. So any alternative fuel of natural gas is more dangerous and makes more pollution. But there is a very important factor: gas fuel cars in Europe are made in factories, sometimes 3 years are spent to produce one gas fuel car. Unfortunately, it`s difficult to talk about securities of the car which is re-made by the dilettante handicraftsman.
– Where are you going to open gas stations in Georgia?
– One of them is already opened in Tbilisi and in the nearest future we are going to open ones in Sachkhere, Zestaphoni and Khashuri. We are planning to open these stations out of Tbilisi as the demand is higher in regions. It is not only economic income for our company, it is an image too because we don`t serve only wealthy people.
– What kind of influence makes steady exchange rate of GEL on fuel prices?
– The only thing by which Georgian government and National Bank can help us is the steady exchange rate of GEL. If the exchange rate was 1.70 it would make prices to go up. We can keep low prices by steady Gel. Everybody has adjusted to the fact that fuel costs 2$ in Turkey.
– If we go by the fixed exchange rate and the Monetary Council in Georgia matches our 1 GEL to be 2$ will fuel prices reach 3 GEL?
– It is obvious that steady exchange rate is good for import. When we talk about the import of oil products and when the price is 100$ per barrel there is no doubt that steady GEL is profitable for us.