Low fuel prices disadvantageous in long run–DOE

by Lenie Lectura – January 17, 2016

from Business Mirror

WHILE the plunging price of oil continues to benefit consumers at the gas pump, the Department of Energy (DOE) enumerated disadvantages that the low oil prices bring.

In the Philippine Energy Plan (PEP) 2015-2030, the agency’s policy and planning bureau pointed out the effects of current low oil prices, which settled below $30 a barrel on Friday for the first time in 12 years.

Lower oil prices, it said, stimulates oil consumption in the transportation sector. When this happens, an increase in greenhouse-gas emission follows, thus contributing to global warming.

Thus, the DOE said, there is a “need to accelerate additional requirement for biofuels.”

The Biofuels Act of 2006 requires the use of clean alternative fuels, such as ethanol mixed with gasoline, that is expected to save the country P35 billion in annual oil imports. Oil companies are mandated to sell unleaded, premium and special gasoline products with at least 10-percent ethanol blend.

Another negative impact is “it makes alternative fuels and technology development uneconomical,” the agency said, but more important, falling oil prices “makes renewable energy [RE] less attractive and competitive.”

Energy Secretary Zenaida Monsada explained that in the power sector the cost to produce power is passed on to the consumers. For the power plants that utilize fossil fuel to generate power, this would eventually translate in lower power rates. However, the developers of RE are already feeling the pain of lower oil prices.

Investing in RE is capital intensive, yet, many do so because they believe that the benefits of RE outweigh the cost implications associated with it.

“With lower oil prices, we will slightly feel the impact of RE. If oil prices are higher, RE will be cheaper,” Monsada said.

It is the DOE’s goal to achieve at least 30 percent of installed generating capacity of RE in the power mix. This goal is still achievable, but not in the immediate future.

Based on the 2014 DOE Power Statistics, 25.64 percent of the country’s total power generation is sourced from RE facilities, or equivalent to installed generating capacity of about 32.87 percent of the country’s installed capacity. At preset, coal is the dominant fuel in the mix. Many power firms generate power from coal because it is the cheapest fuel among all power sources.

But the mix keeps on changing. By 2020, some 23 new coal-fired power plants are expected to be put up.

The PEP also cited that exploration investments in the country would be affected. It said lower oil prices “slows down indigenous oil and gas development.”

The DOE launched Philippine Energy Contracting Round (PECR) 5 in 2014, with 11 petroleum areas offered. There was a low turnout of investors, with only four proposals received by the agency, of which, three have been qualified for evaluation.

PECR is a transparent mechanism that allows the government to develop and utilize indigenous petroleum resources under a service-contract regime through partnerships with qualified local and international exploration companies.

Monsada, however, downplayed the possible negative effects of the continued drop in oil prices which may have in oil-exploration investments, saying investors are aware of it and that they are “not dependent on short-term developments.”

Last, the PEP said lower oil prices “dampens energy efficiency and conservation efforts” by the government.

On the other hand, cheap fuel is good news to motorists as they frequent the roads more often.

Shell Philippines Country Chairman Edgar O. Chua, in an interview, noted an increase in sales volume as some drivers gas up more often in anticipation of traffic jams.

“Yes, it helps. However, this is not the kind of volume we want to see. Besides, traffic turns off people from driving,” Chua said. “What we want to see is increased productive usage of fuel, and not fuel gone to waste.”

Phoenix Petroleum Corp. Vice President for External Affairs Raymond T. Zorilla said in a separate interview that some of its service stations benefit from the unfortunate traffic situation in the metropolis.

“It depends on the location. There are certain stations within Metro Manila with high sales volume as a result of this,” he said. “The behavior in this situation is that you tend to load more gas when you know that you will be caught in traffic. It’s better to load up when stuck in traffic,” Zorilla explained.

Eastern Petroleum Corp. Chairman Fernando L. Martinez noted that “this behavior of our motorists is just but practical.”

“Yes, it is definitely a contributor in increasing sales volume. At times, the motorists can no longer choose a particular oil firm where he wants to gas up. Whatever gas station is nearby, be it one of the big three or not just one of the small players, it doesn’t matter anymore. What is important is that they have enough gas to get to their destination,” Martinez shared.

A few months back, Economic Planning Secretary Arsenio M. Balisacan said the traffic woes cost the Philippine economy at least P3 billion a day.

He said that a Japanese study in 2012 found that time lost by people stuck in traffic and the extra cost of operating vehicles in gridlock in Metro Manila and nearby areas amounted to P2.4 billion a day.

But with an even bigger population to date, coupled with more vehicles using the roads, he said P3 billion is a conservative estimate. The cost over a year is 0.8 percent of GDP.