Philippines announces plan to establish strategic petroleum reserve

The Philippine Department of Energy (DOE) has announced a plan to establish a strategic petroleum reserve and require oil companies to “unbundle” or break down the cost of petroleum products, including component, capital and operational costs.

The country’s two oil refiners, Petron Corp. and Pilipinas Shell, are required to maintain a 30-day crude oil and petroleum products inventory, while importers and bulk suppliers are required to keep a 15-day product inventory. LPG sellers are required to keep a seven-day supply.

Spokesperson Felix William Fuentebella said that DOE is looking into “unbundling” the base prices of petroleum products, from the port of entry up to the retail point. Once the policy on unbundling of petroleum products prices is issued, the DOE will require oil companies to provide a weekly notice of pump price adjustments.

The DOE will also check the quality of imported petroleum products, he added.

“What we’re doing is also for the protection of the industry, because we are going to check the quality of petroleum products,” Fuentebella said.

The DOE admitted that the proposed strategic petroleum reserve lacks a legal and technical framework, which the DOE’s Oil Industry Management Bureau (OIMB) and the Philippine National Oil Company-Exploration Corporation (PNOC-EC) are reportedly finalizing. Yet, the government announced that it is already expecting its first oil import shipment from Russia this month.

Energy officials said that government-to-government transaction could exempt PNOC-EC from the mandate of Republic Act 9184 or the Government Procurement Law.

The involvement of PNOC-EC into oil trading is raising some eyebrows, however, at a time when the global oil market is long, so the possible legal justification for government involvement in the relatively efficient oil market due to a supply shortage appears to be lacking. Further, future global oil demand is expected to decline, with the growth in electric vehicle demand as well as alternative energy sources.

Additionally, the intent to sell the government-procured oil just to “independent players” could raise additional legal issues, with the state favoring one business group over the big three oil companies – Petron, Pilipinas Shell and Chevron Philippines.

Independent players likewise expressed concern as they are tied to long-term supply contracts already and cannot switch suppliers easily.