Government can try ‘temperature compensation’ to address rising oil prices | Inquirer Opinion
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LETTER TO THE EDITOR

Government can try ‘temperature compensation’ to address rising oil prices

/ 04:05 AM June 14, 2022

The government appears helpless in the face of continuing increases in oil prices. There is a way of reducing the cost of oil products. One way of reducing what consumers pay for oil products is through the method called temperature compensation (TC), which is being done in many countries abroad. It is practiced in 17 states in the US including Hawaii, which has a tropical climate like ours.

It is also practiced in Australia, Belgium, Canada, the United Kingdom, etc. TC is the norm in all international oil transactions, meaning oil companies are also temperature compensated by their suppliers.

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TC aims to compensate consumers for the effect of temperature on the quality and quantity of oil products. Oil products are sensitive to changes in temperature and these are more pronounced, especially in tropical countries like ours. When the temperature rises, the volume of the oil also increases, and when the temperature falls, the volume decreases. The problem, however, is that the incremental increase in the volume does not bring about the increase in energy or mileage, so consumers in our country pay more for less.

The optimum temperature for oil products is 15 degrees Celsius. The mileage remains constant at the volume at 15 degrees Celsius. The increase in volume due to the increase in temperature above 15 degrees Celsius does not bring about any increase in mileage. So that in countries where TC is practiced, it is the volume at 15 degrees Celsius and not the actual volume at, say 30 degrees Celsius, that is charged to the consumers. For instance, if the computed volume at 15 degrees Celsius is 100 liters but the actual volume loaded is 110 liters at 30 degrees Celsius, consumers pay for the 100 liters so they save on the 10 liters.

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According to my calculations, consumers save as much as P0.90/liter for gasoline and P0.60/liter for diesel. There are savings also for other oil products, such as kerosene, fuel oil, etc.

What could be done about these savings? First, since the oil companies will invest in gadgets to be fitted to the dispensing pumps that will calculate the volume at 15 degrees Celsius, for the first few years or more, the savings to the consumers will first remain with the oil companies until they are able to recover their investments. After which, the savings are given to consumers every time they buy oil. For gasoline, the savings per year for consumers given a yearly gasoline consumption of 6 billion liters is P5.4 billion, and P6 billion for diesel assuming yearly consumption is 10 billion liters.

There are other options available to the government. The government could opt to allocate 25 percent of these savings to a special fund for oil subsidy (P2.9 billion/year) in case the price of oil becomes abnormally high as in the present case, and 25 percent to a special fund for the development of alternative sources of energy (P2.9 billion/year). The remaining 50 percent goes to the consumers. The government could do these options by passing a law authorizing oil companies to remit to the special fund. If you include all the savings from kerosene and fuel oil, more funds will be available for the special funds.

ERNESTO M. ADAYA
[email protected]

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TAGS: Ernesto M. Adaya, Letters to the Editor, oil prices
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