Amid global glut, PHL mulls over option to stockpile on fuel

by Lenie Lectura – February 17, 2016

from Business Mirror

THE Philippine National Oil Co. (PNOC) has been tasked by the Department of Energy (DOE) to revisit plans to accumulate and maintain fuel supply for future use amid declining oil prices in the world market.

“One of the tasks of the PNOC this year is to study the possibility of fuel stockpiling. They have studied this before, but the PNOC will take another look at it. They have to make a report this year,” Secretary Zenaida Monsada said at a news conference on Wednesday.

More than a year since the Organization of Petroleum Exporting Countries (Opec) decided not to cut production to boost prices, oil remains about 70 percent below its 2014 peak. Supply still exceeds demand, according to the Goldman Sachs Group Inc.

The DOE chief noted that most countries resort to fuel stockpiling via legislation, a move that might not be replicated here in the country, according to Monsada.

“In Japan the cost is shared between the government and the private sector. Oil is a finite resource. By being a government corporation, there are many rules that must be followed. At the moment, where do we store the supply? The carrying costs is also too huge for the government to shoulder,” she added.

Energy Director Melita Obillo earlier said that “to have an oil stockpile is good at this time, since prices are low, but do the players or the government [should] have the facility and the financial capability to do so?”

She pointed out that it could cost P300 billion to stockpile fuel for a year. But even on a quarterly basis, the government could still not afford it, given the miniscule budget of the agency.

The DOE’s budget last year was pegged at around P700 million.

A couple of years back, the PNOC had considered fuel stockpiling “for the country’s use in times of extraordinary need.” Back then, it was estimated that it may require some P2.4 billion to acquire 50 million liters of diesel.

Monsada said that Asean ministers are already inquiring if the Philippines will resort to fuel stockpiling. “The DOE can’t do it. That’s why the PNOC was tasked to study this. The PNOC will hire a consultant on this,” the DOE chief added.

Oil firms, which import petroleum products, are able to store their supply within 15 to 30days. For those with refineries, oil firms are able to store supply within two months.

An official of one of the oil firms said there are “intricacies” in fuel stockpile.

“This was previously offered to the government. One, the government has no ready tanks and huge facilities to store the fuel.

“Two, it may not have included in its budget for the massive purchase of the fuel. Three, there are other government procedures that have to be complied with that, once complied, prices may no longer be low, thus, defeating the purpose for which these conditions may have been established,” said an official, who insisted anonymity because he is not authorized to speak on the matter.

“At any rate, the government, through its vast powers, can effectively set up measures to cushion radical price movements,” the official added.

Oil prices came under further pressure because of the dim prospects of a coordinated cut in production by leading exporters, led by the Opec and Russia, due to their differences.

However, just the other day, Saudi Arabia and Russia agreed to freeze oil output at near-record levels.

The price of gasoline in the country went down by P3.80 per liter since the start of the year. The price cut for diesel has amounted to P3.9 per liter, and P4.2 per liter for kerosene.