US urges RP to establish 90-day oil stockpile

The US government is urging the Philippines to establish a 90-day, 30-million barrel strategic oil stockpiling program (SOSP) that would cushion it from the adverse impact of spiraling prices of crude and oil products due to insufficient supply.

The SOSP was one of the recommendations made by the US Department of Energy (USDOE) and the United States Agency for International Development (USAID) which completed a strategic oil stockpiling study for the Philippines’ Department of Energy (DOE) upon the request of former Energy Secretary Vince Perez.

"A supply disruption would result in sharp increases in oil prices and inflict serious damage on the economy. With only two refineries, the economy is also highly vulnerable to product shortages due to the inherent risks in refinery operations," the USDOE said.

The USDOE commissioned a five-man strategic oil stockpile advisory team to conduct a feasibility study of the potential stockpiling facilities in the Philippines and to develop recommendations for the establishment of a strategic oil reserve.

The study said that the ideal size of the Philippines oil stockpile based on the International Energy Agency criteria of 90 days of net imports should be 30 million barrels. The stockpile would consist of 23.5 million barrels of crude, five million barrels of diesel fuel and 1.5 million barrels of liquefied petroleum gas or LPG.

To speed up the process, it was also suggested that the DOE pushes for a bill calling for the establishment of a strategic oil reserve. The bill would include the requirement to maintain a 90-day supply of net imports, the authority to acquire by purchase or condemnation, land or land rights for the location of petroleum storage and distribution facilities.

Currently, the oil company stock requirements are at a low of 15 days which the US DOE noted, is equivalent to the normal and safety stock level required for refining operations and provides no emergency stockpile in the event of a supply disruption.

Energy Undersecretary Peter Abaya noted that the DOE is still considering whether such legislation could be filed separately or incorporated in proposed amendments to the Oil Industry Deregulation Act.

The other proposed components of the bill include the authority to acquire, store, exchange and dispose of petroleum stocks, authority to levy fees on refiners and importers and the creation of criteria for the release of strategic stocks.

The study noted that the ideal crude oil storage facility would be along the Bataan coastline near the Petron refinery since it is the largest refinery and would have the greatest crude oil demand during a supply disruption.

At the same time, the area around the Petron refinery is less populated with less industrial development and congestion, making it more conducive to large-scale stockpile storage facilities.

Moreover, the existing refinery has excellent deep-water marine receipt and distribution capabilities that can be shared, thus, reducing stockpile capital costs.

There are two storage technologies than can be applied to store crude oil in the Bataan area: the conventional steel storage tanks and hard rock mined storage caverns which would cost about $700 million and $800 million, respectively.

For diesel fuel storage, the USDOE said the stockpile capacity should at least be five million barrels and best stored in commercial storage facilities due to product turnover or refreshment requirements.

Some of the storage alternatives for diesel include the Caltex Batangas Terminal which has an unused storage capacity of 3.4 million barrels, the Philippines Coastal Subic Bay Terminal with unused storage capacity of about one million barrels and the Nonoc Terminal in Palawan

On the other hand, the recommended 1.5-million barrels of LPG can be stored by converting an abandoned mine near Tuba, Benguet and the construction of a new hard rock LPG storage cavern in close proximity to the Liquigaz LPG storage in Bataan.

The proposed crude oil, diesel and LPG storage facilities should be owned by the state-run Philippine National Oil Company which would execute agreements with the private sector that operate refinery and storage similar facilities.