Navigating the Surge in Oil Prices: A Strategic Analysis of Domestic Consumption Balance Between Diesel and Natural Gas and Its Impact on Fuel Subsidies

By : Mohammed El-Shahati , Libyan Oil Expert

Introduction: The Rising Tide of Brent Crude Prices

Brent crude oil surpassed the $90 per barrel mark last week, reflecting the dynamics of the global oil market. This development signals a positive outlook for the Libyan economy, potentially boosting the Gross Domestic Product (GDP) and offering a reprieve to the country’s fiscal and monetary policymakers following intense discussions on revenue and expenditure figures. However, concerns have emerged regarding the increasing cost of fuel subsidies due to the rising oil prices, calculated traditionally by the difference between global (higher) and domestic (lower) prices.

The Fuel Subsidy Debate: Concerns and Practical Solutions

The debate shifts towards the drawbacks of subsidies and the apprehension over an inflated fuel subsidy bill, overshadowing practical approaches to mitigate these costs. The emphasis often lies on smuggling, particularly of gasoline, and diesel losses in electricity generation as primary factors driving up the subsidy bill, with calls for subsidy removal to correct distortions in the domestic energy balance.

Projected Increase in Fuel Costs: A 2024 Outlook

The fuel bill is expected to rise by more than 5% in 2024 due to higher oil prices and an increase in domestic consumption of locally produced and imported products, heightening demand for foreign currency and potentially offsetting the positive impact of oil price hikes on the current account balance.

Leveraging Price Differentials :A Strategic Shift

The disparity between oil and natural gas prices presents an opportunity. By reducing diesel consumption and increasing natural gas usage, significant savings can be achieved. A scenario based on 2015 consumption levels in electricity generation demonstrates the potential for substantial cost reductions by transitioning from diesel to natural gas.

The Kuwait Model: Emulating Success

Kuwait’s experience, where billions are saved annually by substituting liquid fuels with natural gas, serves as a practical example worth considering.

Addressing Natural Gas Supply Concerns

While the availability of sufficient local gas supply, excluding commitments to Italy via the Greenstream pipeline, remains uncertain, alternatives like importing liquefied natural gas (LNG), as practiced by Egypt during peak summer demand, offer a viable solution.

Economic Rationale for LNG Importation

Despite the absence of a detailed economic study, the significant price difference between liquid fuels and natural gas, expected to persist until the end of the decade, warrants a thorough analysis to address natural gas supply imbalances.

Conclusion: Strategic Recommendations for Fuel Management

Even with the potential restoration of refining capacity at the Ras Lanuf refinery, the economic preference would be to export diesel and import natural gas temporarily. This approach not only aligns with economic efficiencies but also curtails fuel smuggling, given the inherent challenges in diverting natural gas supplies compared to diesel.

This translation is tailored for publication in a research center, presenting a professional and analytical perspective on the strategic management of domestic fuel consumption and subsidy implications in light of global oil market trends.