Independent oil players build retail muscle

Calling 2013 a good year and maintaining bullishness toward 2014, independent oil players are gearing for expansion to give the “Big 3” a run for their money—in niche areas, at least.

While Luzon remains a prized market, independents are gearing to plant seeds of growth in underserved Visayas and Mindanao.

Aside from pent-up demand, the replacement of damaged fuel stations in parts devastated by a recent quake and typhoon may also spur the construction of new stations.

Sources from small and large oil firms all agree that there are opportunities for so-called “white stations”—basic, one-off fuel stations painted white—in remote areas as the benefits of economic growth spread throughout the country.

Flying V, part of the Villavicencio group of companies, has 350 stations and wants to build 150 new ones in 2014. As for Flying V’s affiliates, Filoil has 100 stations and will add 50 new ones in 2014, while FilPride has 12 stations and will add three more. For the whole group, the target is 665 stations by the end of 2014. Flying V COO Ramon V. del Rosario Jr. said the company would expand its Davao Terminal and add new terminals in Bacolod City and Gen. Santos City.

Business is good

For the Eastern Petroleum group, which is diversifying to LPG retail sales and biomass power generation, business is so good that it has budgeted P2.31 billion in capital expenditure (capex) for next year—its highest ever. Eastern Petroleum has 40 existing stations and chair Fernando L. Martinez said he would want to open 15 new ones in the provinces of Bohol, Bulacan, Cavite, Cebu, Davao, Pampanga, Pangasinan, Quezon (Lucena City), and Tacloban, as well as in Metro Manila (Quezon City).

Also, Thai-led PTT Philippines Corp. (PTTPC) is embarking on a five-year expansion program to the tune of P2.1 billion that will fund 75 new stations in addition to its existing 70, as well as new depots.

“Our long-term plan is to also expand in the Visayas and Mindanao. But our thrust for now is to establish our presence in Luzon,” said Wisarn Chawalitanon, PTTPC country CEO and president.

Phoenix Petroleum, the Philippines’ largest independent oil player, has a 7.2-percent share of total product demand, but says it is expanding to be at par with Chevron’s estimated 8.4 percent.

Seaoil said it would end 2013 “on a high note” by ramping up investments in 2014 to P2.98 billion (from P1 billion in 2013). The firm will be building more oil depots, retail stations, and a “superstation” to be put up along the Subic-Clark-Tarlac Expressway, becoming the first independent to do so.

Independents may still have a long way to go before winning the game of deep pockets and marketing tenacity with large oil firms Petron, Shell, and Chevron, which control almost two-thirds of the local market, as per Department of Energy data.

Still, analysts say, retail expansion will continue in the  Visayas and Mindanao.

“It may take a while before the independents can catch up given the huge capital investments required for network expansion. This is further aggravated by low margins, foreign exchange volatility, and erratic crude prices in the world market, which is hugely impacted by geopolitics. All these are further worsened by continued smuggling,” an analyst said.

Consumers, at least, will benefit from the tough competition.

Fuel demand

The country’s total demand of finished petroleum products in the first half of 2013 was up by 5.7 percent to 58.2 million barrels (MB) from 55.084 MB seen in the first half of 2012.

The Department of Energy’s oil supply and demand report for the first half of 2013 said major oil companies Petron Corp., Chevron Phils. and Pilipinas Shell Petroleum Corp. got 69.9-percent market share of the total demand for petroleum products.

The rest went to independent oil players and end-users (those who directly import part of their requirement). The so-called “independents” include Phoenix Petroleum (with 7.2-percent market share), Total Phils. (3.1 percent), Liquigaz (3.1 percent), Unioil Petroleum Phils. (2.5 percent), Seaoil (2 percent), Jetti (1.7 percent), PTT Philippine Corp. (1.6 percent), Isla Gas (1.6 percent), MicroDragon (1.4 percent), TWA Inc.’s Flying V brand (1.1 percent), Petronas (1 percent), Filoil Gas Co. (0.7 percent), Prycegas (0.5 percent), Eastern Petroleum (0.3 percent percent), and Ixion (0.2 percent).

Product demand comprised mostly of diesel (43 percent), followed by unleaded gasoline (23.1 percent), kerosene/avturbo (11 percent), fuel oil (10.9 percent), LPG (10.7 percent) and other products (1.3 percent).

Bullish outlook

Motorization amid economic growth are among the drivers of fuel demand. From January to November 2013, car dealers have already sold 164,098 units, which is 16.2 percent more than that of the same period last year. The Chamber of Automotive Manufacturers of the Philippines said sales took a hit after Supertyphoon “Yolanda” struck, but the industry could still meet target sales of 210,000 units for 2013.

Although consumer sentiment crashed in the fourth quarter to a 10-quarter low, according to the Bangko Sentral ng Pilipinas’ Consumer Expectations Survey, due to high commodity prices and the impact of various calamities, government and private analysts alike hold a more bullish outlook for 2014.

The Philippine government also stuck to its 2013 economic growth target of 6 to 7 percent, according to Socioeconomic Planning Secretary Arsenio Balisacan.

From January to September, growth of the economy averaged 7.4 percent.

The Asian Development Bank has maintained its growth forecast of 7 percent for this year and still sees strong domestic demand next year.