THE Department of Energy’s (DOE) plan to put up an oil stockpiling facility has drawn support from independent oil player Eastern Petroleum Corp.
“To begin with, the government should immediately put in place the mechanisms needed and consider stockpiling, either through actual volume storage or paper placement,” Eastern Petroleum Chairman and Chief Executive Fernando Martinez said over the weekend, adding that the latter could help the government from incurring additional cost for storage.
Martinez pointed out that the government could tap the Malampaya fund or part of the reserves of the Bangko Sentral ng Pilipinas (BSP).
He also noted that the country’s annual fuel consumption has already dropped to $6 billion from $12 billion in past years.
Martinez said fuel prices, both local and international, are likely to double to $60 per barrel in the next two years. “It’s unlikely for fuel prices to drop further since it has already hit bottom, or its 13-year low,” he added.
“If $6 billion will be set aside by the Monetary Board as part of its reserves, similar to what it does for gold, thus, if fuel prices double in the next two years, then the BSP could already reduce, if not erase, the deficit it has incurred in the last three years,” he said.
Eastern Petroleum said setting up reserves would not only assure supply stability but also provide additional revenue streams for the government.
In his 20 years in the oil industry, Martinez said fuel prices could double within a year or two and in the same manner, lose value just as quickly as what happened in the last two years.
“Given the significant reduction in world oil prices by 60 percent, it is the right time for the government to look into and decide on this (oil stockpiling) as the likelihood of prices to appreciate in the next 18 months is imminent, with major oil exporting countries agreeing to either cut or maintain their production levels,” he added.
Since the start of 2016, the net price reductions for diesel and gasoline have already amounted to P2 and P3.45 per liter, respectively. Crude prices have also declined by more than half to around $30 per barrel from $90 to $100 per barrel in 2014.
Earlier, Energy Secretary Zenaida Monsada said her department is studying the possibility of oil stockpiling in order take advantage of the significant drop in fuel prices.
The Philippine National Oil Co. (PNOC) has been tasked to review earlier studies made and conduct new studies to determine the feasibility of oil stockpiling.
Monsada said that as of now, there is no storage facility and the only existing company that can do it has already been privatized, which is Petron Corp., in which PNOC was once a part owner.
Monsada again ordered a review of the possibility of stockpiling oil, saying that “Asean is asking the status of the Philippines [on the stockpiling issue]but the DOE cannot and will not do the stockpiling, but the PNOC can. One of the tasks of the PNOC for this year is to look into it,” she said.
“Most of the other countries they have stockpiling, through legislation, because they need to support that,” she added
“If ever stockpiling is approved, it cannot be started this year because it takes time to make the facility, where to put it and what kind. Also, the big factor is who will spend for that facility because the inventory cost is very expensive,” Energy chief said.
She said that in other countries like the US and Japan, the stockpiling facility is shared by government and private sector through legislation.
“The basic concept is, oil is a finite resource and there are just some areas that have huge reserve oil. Even having the US around, it will take 40-plus days travel time to come here,” Monsada.
“Part of the study is whether reserve should be strategic or commercial. In the U.S. it is strategic, you cannot use the reserve even if the price is very high but the U.S. can use it when supply is not enough in the market,” she added.
She said the DOE is studying and looking into the South Korean formula, in which a portion is strategic and another portion is commercial
“A portion is being bought and sold, when the timing is good, because Korea has a 90-day reserve. So we are looking into it if we can replicate the Korean formula,” Monsada said.