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By Euan Paulo C. Añonuevo,
Reporter
HARD to believe but even oil
companies are feeling the pinch from rising crude prices.
Fernando Martinez, Eastern
Petroleum Corp. (EPC) president, said that soaring crude prices are
causing demand for fuel to wane as consumers resort to cost-cutting
measures just to make ends meet.
”Yes there is a
contraction because people are beginning to conserve. It’s a
natural phenomenon. The people who use cars will be forced to share.
Even bus companies are cutting trips,” he said.
The head of EPC, which belongs to
a group of firms that blossomed after the government deregulated the
downstream petroleum industry a decade ago, said that a number of
companies are beginning to cut operating hours to make up for the
high costs and lower revenues.
This partly explains Saudi
Aramco’s departure from the Philippines’ largest oil refiner.
Petron Corp., which accounts for nearly 40 percent of the local
market, saw its return on equity (ROE) dip over the last five years,
according to a report by Peter Lee U, dean of the University of Asia
and the Pacific School of Economics.
ROE is a measure of a
shareholder’s return from every peso invested in the company.
Despite its market dominance,
Petron’s ROE fell to 0.40 percent last year from 4.03 percent in
2002. In contrast, Petron’s closest competitor, Pilipinas Shell
Petroleum Corp., saw its profitability improve over the same period.
Shell’s ROE more than doubled to 12.21 percent last year from 6.06
percent in 2002.
U said this showed that Shell is
faring better in terms of cost controls in the face of rising crude
prices.
Dubai crude, the Philippine
benchmark for the commodity, has been averaging at about $120.50 per
barrel in June, up by roughly a third year-on-year. The price of
imported diesel and gasoline at the Mean of Platts Singapore (MOPS)
topped $161.23 per barrel and $130.92 per barrel, respectively.
But collecting under recoveries
arising from the faster rise in oil prices is easily said than done.
Firms’ under recoveries stood at about P3 per liter last month.
Ed Chua, Shell president, said
that while oil firms have to keep up with rising prices they also
have to be wary of the public’s reaction before making
adjustments. This is one reason why they would have to make do with
staggered price hikes.
Do more than just cut costs,
hike prices
To recoup their ballooning under
recoveries, oil firms however would have to do more than just cut
costs and hike fuel prices, industry sources said.
Indeed, record oil prices
worldwide are generating a flurry of activity in the alternative
fuels business, such as biofuels.
Industry sources said that
investments in the petroleum sector increasingly are shifting
towards the upstream oil and gas exploration and development, which
has become more viable with the current price levels.
This can be gleaned from the
renewed investor interest in discovered oil resources that had been
deemed commercially unviable previously. These include the Galoc,
Calauit, Octon and West Linapacan fields.
The same reason underpins
Aramco’s decision to divest from Petron, as the Saudi company’s
thrust has shifted to oil production, thus its exit from the
Philippine refiner, the same sources said.
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