Gasoline Consumption in Iran Higher Than Industrial Countries

Gasoline Consumption in Iran Higher Than Industrial Countries
Nov 29 2003
Payam-e Iran Khodro, Monthly Magazine, Vol. 7, No. 83, Nov. 2003, Page 22-24
Word Count : 2153

Gasoline imports in 1992 were estimated at about 4 billion liters at an approximate cost of about one billion dollars. In view of the 10-percent growth of gasoline consumption, lack of proportion between energy consumption growth and growth of gross domestic product, lack of proper culture for using energy... the needed budget for import of gasoline and MTBE additives has been estimated at about 1.5 billion dollars during the current year.

Gasoline imports in 1992 have been estimated at about 4 billion liters at an approximate cost of about one billion dollars. Last year, in addition to technical problems for importing that much gasoline, the government was also facing $295 million deficit. If adequate funds were not supplied, the country was sure to face gasoline shortage.

During the last quarter of 1381 (2002-03) Majlis allocated 70 billion tomans (700 billion rials) to increased gasoline imports and the credit was approved from surplus oil revenues to make up for budget deficit needed to import gasoline.

The upward trend of gasoline use during the current year will continue due to such factors as annual manufacture of 450,000-500,000 automobiles, not discarding dilapidated cars, heavy traffic and high gasoline consumption of many vehicles.

In view of the 10-percent growth of gasoline consumption, lack of proportion between energy consumption growth and growth of gross domestic product, lack of proper culture for using energy... the needed budget for import of gasoline and MTBE additives has been estimated as about 1.5 billion dollars during the current year and even if the government supplied that budget, still the country lacked adequate infrastructures for unloading, storage, transfer and distribution of that much gasoline and had to construct such installations as import docks, storage tanks and pipelines. So, the cost of building new facilities must be taken into consideration and added to $1.5-billion estimate for gasoline imports.

The time needed for constructing those installations is another problem. The energy consumption predicament has other aspects with their respective consequences too.

Excessive Use and Gasoline Import Difficulties

Iran, which accounts for one percent of the world's population, consumes about 2 percent of global oil products and growth of gasoline consumption is not proportionate to the number of active cars, economic growth and actual need of various economic sectors.

Gasoline consumption grew by an annual average 9.1 percent during a 35-year period (1967-2002) and increased from 919.772 million liters in 1967 to 14.03 billion liters in 2000 and 18.25 billion liters in 2002.

Also, gasoline consumption during the Third Economic Development Plan (2000-2005) grew by an annual average of 6.1 percent to jump from 40.7 million liters per day in 2000 to 51.5 million liters per day in 2005. However, the growth rate hit 10 percent per year during the past two years with daily consumption of gasoline increasing from 2.5 million liters in 1967 to over 50 million liters in 2002. The figure is projected to exceed 60 million liters by the end of the Third Plan.

While average gasoline consumption in the world has grown by 5-20 percent in various countries during 1990s and it has been proportionate with the growth of their gross domestic products, gasoline use has increased by 80 percent during the same 10 years. In other words, gasoline consumption in Iran has grown about five times the global figure. The growth has also been disproportionate to population growth, economic growth and growth of production added value and, in fact, is a result of excessive consumption.

Base on a report issued by the country's energy balance sheet, which officially reflects changes in the energy sector, per capita primary energy supply stood at 3 equivalent barrels of crude in 1969 and the number has now increased to 14 equivalent barrels. Energy consumption has also risen from 2.4 equivalent barrels of crude oil in 1969 to 11 equivalent barrels of crude currently.

However, despite 5-percent annual growth of energy production and consumption, the country's gross domestic product at the fixed price has only grown by 3.7 percent per year and this shows that consumption of energy and gasoline is illogical and disproportionate to actual economic growth and the needs of population.

For example, gasoline consumption for producing 1,000,000 rials goods (added value) stood at about 15.7 equivalent barrels of crude oil. However, now the figure stands at 54 equivalent barrels of crude, that is, we use 3.5 times energy compared to 1969.

The inappropriate structure of gasoline supply and demand is a factor wasting both gasoline and people's time, and excessive consumption growth disproportionate to economic growth will only exacerbate gasoline imports.

If the current trend continued, that is, annual manufacture of 450,000-500,000 new cars and projections for production of 700,000-1,000,000 automobiles in 2002, not discarding old cars and continued heavy traffic, growth of gasoline consumption would persist.

Under conditions that gasoline consumption is hiking by 10 percent annually, if demand is not controlled, imports should rise and the country would be facing a crisis due to lack of adequate budget and facilities for gasoline imports.

In view of $295-million budget deficit for gasoline imports in 2002, it is not clear how the government intends to supply $1.5 billion needed for importing gasoline and MTBE additives?

Observers believe that even if the government supplied the hefty $1.5-billion budget needed for gasoline imports, the country lacked needed infrastructures for unloading and transport of the imported gasoline. At present, Shahid Bahonar, Shahid Rajaei, Bandar Abbas and Mahshahr docks are working at full capacity and pumping stations have little additional capacity. Therefore, in case of increased gasoline imports, the country would be facing shortage of technical facilities to handle imports.

Estimates show that gasoline consumption grew by 11 percent in 2002 compared to 2001 while domestic gasoline production only increased by 2.5 percent and the rest of the needed gasoline was supplied through a 38-percent hike in import.

Gasoline consumption would hit 55 million liters per day by the end of 1382 (March 2002) and gasoline imports must rise by about 50 percent with 18-19 million liters of gasoline and MTBE being imported on a daily basis.

If the current trend continued, gasoline consumption would hit 80 million liters per day by the end of the Fourth Economic Development Plan. That is, daily gasoline consumption will rise by 30 million liters within next seven years and to supply that much gasoline, one refinery must be constructed every year.

Based on the Third Plan's projections, gasoline production in the country will growth at average annual rate of 1.2 percent to increase from 34 million liters per day in 2000 to 35.7 million liters per day in 2004.

Resource Wastage Due to Excessive Gasoline Consumption

A study of energy consumption indexes and the amount of gasoline wastage shows that gasoline consumption in Iran has no meaningful proportion to trend of economic growth, society's needs and the modern standards of the world.

Experts put the cost of excessive gasoline consumption and its wastage at about $1-$2 billion annually.

Ghadiri Abyaneh, an economic expert, says in this regard, "Each Iranian wastes an average $17 gasoline per year. To gain $1 billion profit through non-oil exports, we must at least, produce $10 billion high-quality goods for global markets. In Iran, however, apart from oil extraction costs, the rest of revenues are considered as profit and added value. In other words, every $1-billion gasoline wastage in Iran would mean a minimum $10 billion of industrialist efforts for achieving one billion dollars in net exports profits.

If we didn't have oil, we would be obliged to produce and export as much as $20 billion goods.
Energy wastage in automobiles is also high and they use about 14-25 liters gasoline for every 100 km, while the corresponding figure in other countries in 3-10 liters.

Today, big international automakers have managed to reduce fuel consumption and subsequent air pollution through hefty investments and governments are considering tough standards for top automakers.

Based on the report issued by energy balance sheet, the index of gasoline consumption inside the country has reached 5.38 equivalent barrels of crude oil for every 1,000,000 rials gross domestic product, which indicate low efficiency of gasoline use.

Gasoline consumption index has increased from 5.12 equivalent barrels crude for 1,000,000 rials in 1976 to 5.38 equivalent barrels crude in 2002.

Iran enjoys the highest index of gasoline consumption and the lowest gasoline consumption efficiency.

Iran's gasoline consumption is 16 times that of India, 3 times that of Malaysia and as much as China's more then one billion population.

Per capita gasoline consumption in Iran is equal to that of highly industrial nations. In other words, it is not proportionate to industrial growth and is a result of an inappropriate consumption. Gasoline consumption during 1980-1990 was about 6.8 percent, but gross domestic product rose only by 0.6 percent.

During the same decade, gasoline consumption and economic growth in Turkey stood at 6.9 percent and 5.1 percent, respectively. Also, gasoline consumption and economic growth rates in other countries such as Egypt, Mexico, Indonesia and Malaysia have been identical and even advanced countries such as the England and the United States have managed to reduce fuel consumption in parallel to economic growth hikes.

In short, consumption growth has been a function of the economic growth and fuel conservation, but the 11 percent growth of fuel consumption in Iran is in contrast with 5-percent economic growth rate. In Japan, through fuel conservation, gasoline consumption fell from 6.1 percent during 1965-1980 to 2.1 percent in 1980-1990. In Iran, however, economic growth and gasoline consumption stood at 8.7 percent and 2.8 percent, respectively, in 1965-1980. Despite 0.6-percent economic growth in Iran during 1980-1990, gasoline consumption reached 6.2 percent.

Social Justice and Disproportionate Distribution of Energy and Fuel Subsidy The difference between selling energy carriers at international rates and its domestic sales is called energy subsidy.

In other words, gasoline sales price in the world is determined on the basis of its rarity. However, estimates show that true gasoline price compared to consumer goods price index in 1997 has decreased since 1966 and the government is paying hefty subsidies on gasoline. Despite the fact that nominal price of gasoline has increased from 6 rials in 1966 to 650 rials in 2003, its true price reduced from 6.28 rials in 1966 to 3.37 rials in 1978, 8.36 rials in 1980, 3.4 rials in 1986, 1.08 rials in 1994, 1.6 rials in 1997, 2.41 rials in 2000 and 2.5 rials in 2002. In fact, true price of gasoline has constantly decreased and has created no motivation to discourage excessive consumption.

Based on a report issued by the Management and Planning Organization, share of every Iranian household from energy subsidy in 2000 was 1,992,000 rials per month and 9,628,200 rials per month. However, families belonging to lower income strata do not have high energy consuming equipment or automobiles and, therefore, high-income families practically gobbled up the share of poor families. The share of low-income families from fuel subsidy stood at 1.3 percent, while that of rich social strata equalled 42 percent, that is, 30 times that of the poor. Therefore, fuel subsidy did not lead to social justice, but faced the government with a budget shortage that led to mothballing many developmental projects.

Subsidy for every liter of gasoline in 2000 was 1,400 rials on average and the government was unable to allocate needed resources to renovation of refineries and supporting vulnerable social strata, while high-income strata availed of energy subsidies.

Paying subsidies, in addition to excessive gasoline consumption, has led to air pollution, heavy traffic, inflation resulting from inequitable distribution of subsidies and intense class pressures.
The ratio of social security costs to gross domestic product has increased from 1.2 percent in 1989 to 1.6 percent in 1997 and the government lacks enough resources to expand social security services.

Also, the ratio of high-income to low-income strata decreased from 23 in 1989 to 20 in 1996, however, it still reflects discrepancy in the income of various social strata.

The experts believe that the government must organize gasoline subsidies through better distribution of income and preventing wastage of resources.

Transportation sector is the major consumer of energy subsidies, while share of productive industrial and agricultural sectors is very low. The fuel subsidy is used by high-consumption vehicles and single-passenger cars roaming the streets.

Dr. Ghadiri Abyaneh
http://www.ghadiri.org/archives/000252.html