Wednesday, July 22, 2015

U.A.E Fuel Deregulation and Some Implications

July 28 Update : U.A.E Fuel prices committee has released revised fuel prices for August 2015.

In what's most likely a watershed moment in the U.A.E economy, from August 2015 petrol prices will no longer stay regulated at $0.47/liter as has been the case for many years. Diesel prices will decrease. The decision is, as I see it, in line with several precursors steering the U.A.E towards a realistic existence amidst our 21st century issues. Let's take a look at some of these.

The U.A.E government's strategy for a "Green Economy", a vision launched in 2012, aims for a reduction in domestic consumption of oil by 7-10%, natural gas by 7-20% and electricity by 11-15% year on year through to 2030. An 18.4% CO2 emissions contribution from the transportation sector (2011 World Bank data) doesn't appear to support that vision.

The Dubai Strategic Plan 2015 had the Road and Transportation Authority (RTA) setting a target of 30% of the population using public transport in 2020, compared with 12% in 2010 (UAE State of Green Economy Report, 2014).

To cope with the ever-rising traffic volume and road congestion in Dubai, the Salik toll collection system was rolled out in 2007. In October 2013, car-pooling was legalized.

Lots of money was pumped into the vitalizing a metro and the tram system. Biodiesel was investigated for the public buses. In Abu Dhabi, a park and ride system was started whereby someone from the outskirts could park their car and take a shuttle into the interior of the city for free.

Charging stations were introduced in a move to build an infrastructure for electric vehicles.

A Dubai Bicycle Plan aims at providing 850km of bikeways in strategically located areas and other cycle tracks have already been developed for the sports minded.

The U.A.E GDP grew 27 times since the 1975, largely supported by oil and gas revenues. In a double whammy, $50/barrel oil price not only squeezes that share but also discourages the proliferation of renewable energy technologies. It gives an opportunity for everyone to sit up and take notice of the gorilla in the room - regulated pump prices. If you ask me, this has been long overdue.

What might some of the implications be from new fuel prices to be announced soon?

1) Firstly, people taking long trips are going to obviously going to think twice. Let us suppose gas price in U.A.E increases to $1/liter, a 113% increase. Driving a car with an average fuel efficiency of 25 mpg (9.4 L/100km, a figure representative of my 2 year old Mitsubishi), a round trip to :

a) Sharjah (22.08km away) and back would cost 4.2L of petrol and 4.2 x $1 = $4.2 = 15.79 AED versus 7.52 AED with current price of $0.47/L.
b) Abu Dhabi (152.4km away) and back would cost 28.66L of petrol and 28.66 x $1 = $28.66 = 107.76 AED versus 51.74 AED with current price of $0.47/L.

In both these cases, one can expect roughly the same % increase in travel costs as the 113% increase in fuel costs.

2) I see more people investing in GPS units (best "Ecoroute", that kind of thing) and utilizing smart driving services like apps, which give real time traffic information. Trip planning could take more prominence.

3) I hope this sets in motion a massive awareness for fuel efficient vehicles. It makes promise for vehicles such as the Toyota Prius, Nissan Leaf or the Tesla BEV's. It also makes promise for diesel cars. While their first costs might be a bit on the high side, the lifecycle operation costs of using a higher energy density fuel will be low.  I'd like to see these vehicles in U.A.E showrooms ASAP. A hybrid or a diesel should be choices that people can make without having to resort to importing. I'm a bit upset there has been a vacuum in the UAE so far for these models.

4) I hope it allows people to think about methods to economic driving as well.  Less displacement is really better. Turbos are not just for sportscars. Driving slower is good for your pocket. Lower engine RPM's are good. This has the benefit of reducing speeds on Dubai roads as well. And does a family of 2 really need a towering 4x4? An Aston Martin to go to Carrefour? How about a Toyota or a Kia for that purpose? Retailers and showrooms have got some work to do to in educating the masses about these things.

5) I suspect the fuel price hike will change the trend for people to clog up toll-free roads. The difference between money saved by avoidance relative to the extra fuel needed to go the longer toll-free distance will most likely vanish.

6) Bicycle commuting lanes on the roads? Anyone? I'd champion this any day. We'll have to wait and see if the RTA plans on introducing dedicated lanes on the roads so that those who don't wish to drive or take the public transpo have an option. While it's easy to say this, I imagine a single bicycle track, an artery, running from the innards of Deira all the way to Jebal Ali along the Sh. Zayed Road would be just awesome. It could have multiple take off points so people could divert to key locations along the way. I don't see this happening any time soon but I eagerly await a more comprehensive picture of the Dubai Canal works to see what we can expect come 2017-2018.

7) Status boosting is the itch to buy a gas guzzling V8 and a 4 digit number plate to go along so you look good at the water cooler in the office. Well, I for one do hope the fuel degregulation makes a strong attempt to demolish this trend because it borders on discourteousness to the rest of the economizing society.

8) What I would also like to see is a massive turnaround in the trucking fleet in the U.A.E. This is one of the other low hanging fuits for improvement in terms of fuel efficiency and emissions. To see clean stuff coming out of the tailpipe from a rickety Volvo or a people carrier is, I suspect, what many people would also like to see while driving on Sh. Zayed Road. It's about time people in the trucking fleet community started talking about EGR, SCR systems, clean combustion diesel, things of that nature. Educate the drivers as well, especially about proper tire pressures! Why? Because it eats into fuel efficiency!

I'd like to conclude that if you're one among the bunch looking for a vehicle in 2015/16, knock yourself out and go through this handy EPA dataset of vehicles listed according to fuel economy. While I hope there's a datasheet more representative of vehicles in the U.A.E, it should at the minimum give someone a clue about what is the state of the art in fuel economy numbers these days. Thanks.

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