Four months into energy emergency – now what?

MANILA, Philippines — What was expected to be just another day at the end of February became the beginning of a crisis that would ripple far beyond the Middle East.

On Feb. 28, a joint United States–Israeli strike that killed Iran’s supreme leader, Ayatollah Ali Khamenei, triggered waves of missiles and drones across the region.

Energy infrastructures came under attack. Commercial vessels and oil tankers were targeted, disrupting maritime traffic.

Then came the biggest blow: the effective closure of the Strait of Hormuz, the narrow waterway that typically carries around 20 percent of the world’s oil and gas supplies.

In a matter of days, global energy markets were thrown into disarray. The disruption to the Middle Eastern crude fueled fears of prolonged supply shortages, sending oil prices surging.

For the Philippines, which sources the majority of its crude oil from the Middle East, the consequences were quickly felt.

The country experienced the largest single jump in fuel prices. It recorded the world’s second-highest increase in gasoline prices and the fourth-largest rise in diesel prices, according to Global Petrol Prices.

Crisis or not?

During its media briefings, the Department of Energy (DOE) was repeatedly asked whether the country was already facing an energy crisis. But officials maintained that it was not.

“Just be honest with the public about where we are. Because the moment you say something too rosy, everybody expects that tomorrow everything will already be back to normal,” former DOE secretary and now Leyte Gov. Jericho Petilla told The STAR.

“Be honest with them because the more honest you are, the more they can prepare themselves, rather than expecting something that isn’t going to happen,” Petilla said.

Despite the global oil shock and its impact on the country, it took the government almost a month before declaring a national energy emergency.

Through Executive Order 110, signed on March 24, the government activated a whole-of-government approach to respond to the global oil crisis.

Nearly four months later, the question is no longer whether there was a crisis – even if energy officials insisted there was none.

The question now is, has the energy emergency delivered the action and relief Filipinos needed?

Emergency powers

At the height of geopolitical tensions, diesel prices in Metro Manila and highly urbanized cities climbed to as high as P170 per liter, while the cost of gasoline surged past P120 per liter.

Prices were even higher in other parts of the country.

The sharp price hikes drew public criticism, with many Filipinos questioning why oil firms immediately raised pump prices even though they were still selling stocks procured before the war.

And the DOE’s explanation: replacement cost.

In the oil industry, replacement cost refers to the current cost of replenishing fuel stocks at prevailing market prices. When global oil prices rise, the next fuel shipments also become more expensive.

“Lahat po tayo ay tinamaan dulot ng giyera sa Gitnang Silangan, pero mga tsuper ang higit na pumasan ng hirap dahil direktang tinamaan sa hagupit ng taas ng presyo ng petrolyo (We were all affected by the war in the Middle East, but drivers bore the greater burden because they were directly hit by the surge in petroleum prices),” Manibela national chairman Mar Valbuena told The STAR.

The government has no direct control over fuel prices due to the decades-old Oil Deregulation Law, which fully liberalized the country’s downstream oil industry.

To better manage price movements, however, the DOE limited how much oil firms could increase pump prices while mandating minimum rollbacks.

Energy Secretary Sharon Garin said the energy emergency declaration triggered the DOE’s authority to set pump price adjustments, clarifying that it is “not an arbitrary price control.”

The government also temporarily suspended excise taxes on liquefied petroleum gas (LPG) and kerosene to “provide relief to Filipino families.”

But economic watchdog IBON Foundation argued that the tax suspension was “too little” and amounted to a “tokenistic measure.”

The move, it added, failed to address growing calls from transport groups and the general public for bigger oil tax cuts.

The suspension was lifted by the Bureau of Internal Revenue (BIR) on July 8 after the average Dubai crude oil price fell below the $80-per-barrel threshold, triggering the automatic reinstatement of the tax.

This after a certification from the DOE that the one-month average Dubai crude oil price, based on the Mean of Platts Singapore, settled at $79.45 per barrel from June 1 to June 30.

Race to build fuel buffer

While consumers were grappling with record-high pump prices, the DOE’s immediate priority was to keep the country’s fuel supplies flowing.

Although the Philippines sources most of its refined petroleum products from other Asian countries, these refineries also rely on crude oil imported from the Middle East.

Given this, the government and private oil firms scrambled to secure alternative fuel sources to avert potential shortages.

State-run Philippine National Oil Co., for instance, procured over 178 million liters of diesel and 21,000 metric tons of LPG to beef up the country’s existing fuel stockpiles.

Petron Corp., the country’s only oil refiner, was also prompted to secure 2.48 million barrels of crude from Russia after two shipments were unable to transit the Strait of Hormuz.

As of July 3, the Philippines had average fuel stocks sufficient for 46.5 days, according to DOE data.

The inventory included 43.72 days’ worth of gasoline, 43.81 days of diesel, 177.5 days of kerosene, 84.93 days of jet fuel, 36.45 days of fuel oil and 42.28 days of LPG.

The Philippine Institute for Development Studies (PIDS), meanwhile, said efforts to diversify fuel import sources and build up commercial oil inventories should have been pursued much earlier.

“How inter-island petroleum transport is performing and how fuel deliveries are being prioritized across the archipelago could also have given local governments, businesses and consumers a clearer picture of regional supply risks,” PIDS senior research fellow Adoracion Navarro told The STAR.

From an emergency-response perspective, however, Navarro believes that government actions were “reasonable and transparent.”

“The acknowledgment of declining inventories, at the risk of triggering panic buying, is a difficult balancing act but has been necessary to nudge people to aggressively conserve and manage demand. The weekly price projections also served as signals against excessive profitmaking.”

For global sustainability group Forum for the Future, the DOE deserves credit for keeping fuel supplies stable and preventing pump prices from spiraling even further.

“The government has been fairly transparent on fuel inventory numbers and pump prices,” Jonathan Catalla, principal strategist for energy transition at Forum for the Future, told The STAR.

What’s missing?

But Catalla said transparency should not stop there.

The DOE, he argued, has yet to provide the same level of transparency on data that could help accelerate the country’s transition to renewable energy.

Catalla said the global oil crisis has once again exposed the Philippines’ vulnerability to external shocks because of its heavy reliance on imported fuel.

“Real energy security means transitioning our energy system to mostly indigenous renewable sources and building a grid that can actually handle it,” he said.

While oil represents only a small portion of the country’s overall energy mix, the main challenge lies in remote areas that remain not connected to the grid and rely on costly diesel for power generation.

“If community-scale solar and co-ownership models had been scaled up before the crisis hit, vulnerable areas would be far less exposed today,” Catalla said.

Peace deal

Months after the energy emergency was declared, fuel prices are finally beginning to ease.

Following a series of rollbacks and the signing of an interim peace agreement, gasoline and diesel prices have fallen below P100 per liter in some parts of the country.

In several gasoline stations in Metro Manila, pump prices have even moved closer to pre-war levels.

But the crisis is far from over. Although tensions in the Middle East have eased, uncertainty remains as the US and Iran are still negotiating a final peace deal.

And even if the conflict ends, the DOE said fuel prices are unlikely to immediately return to their pre-war levels of around P50 to P60 per liter. It also expects the energy emergency to remain in effect for several more months.

“We are experts in resiliency,” Garin said in a chance interview with The STAR.

Resilience may have, so far, helped the country weather the worst of the global oil crisis.

However, the real test is whether the lessons from this crisis will translate into a Philippines that is less vulnerable and better prepared for the next one.