War and oil

Monday night in the busy streets of Metro Manila saw long queues of motorists lined up at the different gasoline stations.

On my way home, I passed by at least three stations and the lines were really long, one nearly around the block and enough to cause traffic on the main roads.

Motorists were filling up their tanks to beat the big-time increase in local pump prices the next day – P13.15 for diesel and P7.10 for gasoline.

These are unusual scenes for sure, signs of the times and possibly a portent of even worse things to come.

Perhaps, for the seniors, such developments were reminiscent of the Oil Embargo Crisis of 1973, which was also marked by long queues at gasoline stations as motorists needed to fill up their tanks amid very limited supply of imported oil.

At the time, so say our grandparents, people were given vouchers because supply had to be rationed.

Skyrocketing oil prices

Oil prices have skyrocketed to their highest level since 2008,  no thanks to Russia’s escalating war against Ukraine and the crippling Western sanctions.

The US has imposed a ban on Russian oil exports, in a bid to force the Putin-led country, the world’s second largest energy exporter, out of the global markets and hurt its economy.

Independent oil players need additional capital

Fernando Martinez, chairman of the Independent Philippine Petroleum Companies Association (IPPCA), sent me on Monday their group’s briefer on the situation.

In it, IPPCA laid down several recommendations to help mitigate the situation not only for its members, but more importantly for consumers.

For one, IPPCA said its members need at least P15 billion in additional working capital to import the same volume of petroleum products. This is because the amount of capital they spend now is no longer enough to bring in the same volume to the market given soaring oil prices.

“Smaller fuel importers may need a source of additional cash to import their fuel supply to prevent bigger players from having a monopolistic hold on local supply,” IPPCA said in its position paper.

The group is also supporting the suspension of the excise tax on fuel, as long as Dubai crude is above $80 per barrel. Dubai crude hit $113.35 per barrel on Monday.

It urged the government to provide a mechanism for excise tax reimbursement for shipments whose local excise taxes have been already paid by oil companies.

This, IPPCA said, would encourage fuel importers not to delay any importation due to impending removal of excise tax, and oil companies would not have to wait until old stocks that have already paid excise taxes to the government are sold before rolling back local prices.

Supply

In all, IPPCA said there is still supply, but it is tight and it may get tighter if the military conflict between Russia and Ukraine lingers.

“Countries who depend on Russian crude oil, such as Europe, will have to get their crude elsewhere because of the sanctions. Unfortunately, OPEC Plus, of which Russia is a key member, is not releasing all their reserve capacity,” the group said, a situation that may improve if OPEC and its allies produce more crude.

Regulation vs deregulation

With soaring oil prices, many have been calling on Congress to scrap the Downstream Oil Industry Deregulation Act of 1998.

Calls are coming mostly from the Left. No surprise here because it’s really a populist call and one which I disagree with.

This is because the Philippines is largely dependent on international selling prices by oil exporting countries such as the OPEC.

This means the government cannot afford to subsidize the huge losses during periods of global price drop, as what happened to the Oil Price Stabilization Fund (OPSF), which bled the government dry.

Note that any government subsidy needs to come from somewhere – either from the funds for social services, health or education.

This is why I argue that deregulation is not the answer. Note that  the country has been experiencing oil price increases even before deregulation took effect because the country was and still is, a net importer of oil.

Oil players do not have much choice, but to adopt the rise in prices.

However, no oil company should unduly take advantage of rising oil prices by engaging in monopolistic acts,  such as controlling the supply to jack up prices or smuggling oil to disrupt the market.

Consumers are already hurting and we will hurt more as inflation, commodity prices, and interest rates go up. Anyone abusing this crisis by unduly profiting from the situation is hurting his fellow Filipinos.

Let us remind ourselves that our fragile economy is still recovering from the debilitating impact of the COVID-19 pandemic.

Oil fields

Moving forward, our authorities and the next president should also move to develop the country’s oil resources to lessen our dependence on imported fuel.

In 2019, total petroleum and other liquids production in the Philippines reached 37,000 barrels per day (b/d), and the country consumed 474,000 b/d, according to the US Energy Information Agency.

The Philippines has only two active petroleum fields: Galoc, an offshore field in the Northwest Palawan Basin, and Alegria, an onshore field in the Province of Cebu.

Maybe, just maybe, there are more petroleum fields somewhere out there. But the first step is to start looking.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com.