Petilla, Shell and the looming LPG supply crisis

Atty. Dodo Dulay

Atty. Dodo Dulay

If Department of Energy (DOE) Secretary Jericho Petilla fails to keep his eye on the ball– much like what happened during the Malampaya power plant shutdown that caused one of the biggest spikes in electricity prices in history—millions of Filipinos already reeling from the high cost of utilities and basic commodities may find themselves in a deeper financial hole, this time from the impending increase in liquefied petroleum gas (LPG) prices.

Although the LPG prices in the global market are on the downturn starting February as the winter season comes to a close, domestic prices may buck the market trend if Petilla does not address the supply chain disruption resulting from the scheduled maintenance shutdown of Pilipinas Shell Petroleum Corporation (Shell)’s oil refinery and the permanent closure of its LPG import terminal. Both are in Tabangao, Batangas.

We’re told Shell’s Batangas refinery produces some 10 million kilos of LPG every month. Meanwhile, its LPG import terminal, which can hold up to 47 million kilos of LPG, is the largest in the country and accounts for 66 percent of Luzon’s combined LPG storage capacity of 71.8 million kilos.

House Deputy Minority Leader and LPG Marketers’ Association (LPG-MA) partylist Representative Arnel Ty has warned that “the maintenance shutdown, coupled with the decommissioning of Shell’s LPG import terminal . . . will effectively cut down Luzon’s LPG supply by around 25 million kilos per month.” With domestic consumption at 100 to 110 million kilos per month, that translates to around 25 percent of the country’s monthly supply.

“Of the 25 million kilos of LPG that used to come out of the Shell terminal every month, 15 million kilos were brought in by Shell from abroad, while the balance of 10 million kilos came from the local production of Shell’s adjacent oil refinery,” Ty added.

Before it was “decommissioned” last September, Shell’s LPG import terminal was the primary source of vital cooking gas for Southern Luzon.

There are other LPG import terminals in Luzon—such as those run by Liquigaz Philippines Corp. (12 million kilos, in Mariveles, Bataan); Pryce Gases Inc. (6 million kilos, in San Fabian, Pangasinan); Petron Corp. (3.5 million kilos in Mariveles, Bataan plus 2.5 million kilos in Mabini, Batangas, and 800,000 kilos in La Union)—but these are all concentrated in the northern part of the island.

If we do the math, the terminal’s closure will cause a large LPG supply deficit in the Calabarzon area all the way to the Bicol region since the available inventory will be reduced to just 10 million kilos every month – the volume produced by Shell’s oil refinery. And that’s assuming the refinery operates at its current capacity without any disruption.

The refinery’s maintenance shutdown this coming March, however, will tighten cooking gas supply even more. This precarious supply situation, Ty says, “is slowly but surely putting tremendous upward pressure on cooking gas prices at the expense of Filipino consumers, ironically, at a time when LPG prices are going down in the world market.”

That’s because some of the supplies meant for Metro Manila and other parts of Luzon are now being diverted to Southern Luzon at higher prices to cover the extra transport costs from the LPG terminals in Bataan, Ty pointed out.

To our mind, this tightening cooking gas supply also makes it very tempting for the few remaining major players in the LPG industry to manipulate the price of this essential commodity, just as some electricity suppliers did when Malampaya shut down.

The LPG-MA party list representative is now urging the national government, through DOE, to take over Shell’s mothballed LPG terminal for a limited period of 12 to 36 months until substitute import facilities can be put up.

There is sound legal basis for Ty’s proposal.

Under Section 14 (e), Chapter IV of the Downstream Oil Industry Deregulation Law of 1998 (RA 8479), the DOE under Petilla may, “in times of national emergency, when the public interest so requires . . . temporarily take over or direct the operation of any person or entity engaged in the industry.”

This is consistent with the provision of the 1987 Constitution, which similarly authorizes the national government to temporarily take over or direct the operation of any privately-owned business affected with public interest, such as Shell’s LPG import terminal business, “in times of national emergency, when the public interest so requires.”

We, of course, don’t expect Petilla to lock horns with Shell. After all, if Petilla can’t even compel Shell to obey the oil deregulation law—particularly regarding the oil major’s long-delayed Initial Public Offering (IPO)—it’s highly unlikely he’ll have the backbone to go against Shell’s “business decision” to shutter its import terminal, public interest notwithstanding.

Perhaps it’s high time the House Energy Committee Chairman Reynaldo Umali took a more pro-active stance on this looming crisis by exercising Congress’ oversight functions over the fuel industry sector—before it’s too late.


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