Cheaper diesel imports arriving soon

The government expects to secure an initial shipment of lower-priced diesel from abroad within this month, but does not yet know where this is coming from nor where this will be stored.

Energy Secretary Alfonso G. Cusi yesterday said in an interview that Russia was previously mentioned only as a possible supplier, but that the government was looking at other potential sources and has not made a deal with any seller.

Officials at Malacañang earlier said the government intended to buy cheaper oil from sources that were not members of the Organization of Petroleum Exporting Countries (Opec).

Russia was mentioned in particular, although Moscow has a two-year standing agreement with Opec related to a coordinated cutback in crude oil production in an effort to “rebalance” global supply and demand—and, hence, raise prices.

“I would like to clarify that it’s not only Russia [that we are looking at for cheaper diesel]. Russia is an option, but there are other options that we are looking at,” Cusi told reporters.

The state-run PNOC-Exploration Corp. “is looking toward the end of June for the arrival of shipments,” he added.

Asked where the refined fuel would be stored, Cusi said PNOC-EC was negotiating for at least three locations.

“There are available storage tanks, and PNOC-EC is negotiating. One is in Subic [in Zambales], one is in Phividec [in Misamis Oriental], another one is in Quezon [province], and there are other areas” under consideration, he said.

Phividec refers to the industrial complex run by the state firm Phividec (Philippine Veterans Investment Development Corp.) Industrial Authority.

“This is what we have been saying [from way back], we need to have a strategic supply,” Cusi said.

“Our oil industry is deregulated but the private sector is required to have 15 days’ supply of refined products and 30 days’ supply of crude oil,” he said. “Of course, we are concerned that we would be affected should there be a disruption in supply. That is why the government is developing a strategic reserve.”

Earlier this week, Cusi said the government was gearing up for a national oil stockpile as crude oil prices touched four-year highs near the $80-a-barrel mark in previous weeks.

As Opec and non-Opec countries including Russia continue efforts to raise prices by reducing output through an agreement made in late 2016, the World Bank’s forecast as of April put crude prices averaging at $65 in 2018 and 2019.

“The government is aware of the country’s vulnerabilities to abrupt changes in the international oil situation and impending threats on the same,” Cusi said. “Hence we are formulating various strategies to address those vulnerabilities to cushion the impact for our consumers.”

Cusi, who is ex-officio chair of PNOC-EC, said the state firm was preparing for oil trading and retail “to provide competition to existing oil industry players and pacify domestic oil prices.”

In particular, PNOC-EC has been directed and authorized to source fuels such as diesel from Russia and non-Opec members, which will be “sold to independent oil firms and directly to the public.”

Oil companies are currently required to maintain a minimum inventory that is equivalent to 30 days’ supply of crude and products for refiners like Petron Corp. and Pilipinas Shell Petroleum Corp. Non-refiners are required to keep a stock good for at least 15 days of diesel, gasoline and kerosene as well as seven days’ worth of liquefied petroleum gas.

Cusi said the creation of a strategic petroleum reserve was based on a number of joint international studies that were done in 2003 and 2004, on the feasibility of building and maintaining such stockpiles. But the Philippines has not gone so far as to build a stockpile as prices of crude and refined products plummeted a few years ago. Until oil ministers of 14 Opec member-countries along with non-Opec producers—including the Russian Federation—agreed in November 2016 to reduce their crude oil output by 558,000 barrels a day for each country.