Rising fuel demand in road to recovery boosts oil firms’ bottom line, but do the rest of us benefit?

A gasoline station attendant receives payment from a customer in Angono, Rizal.

THE robust growth in fuel demand is helping boost oil firms’ overall financial performance after two years of losses. However, this this does not sit well with some consumer groups, lawmakers and militant groups, amid skyrocketing oil prices.

Some proposed to put Petron Corporation back to government control, while others want to amend the oil deregulation law so government can better scrutinize what we actually pay for a liter of fuel.

However, there is an upside to this that many may have missed.

On the part of the oil firms, they said a healthy bottom line creates more economic opportunities for more sectors.

For instance, Petron’s post-pandemic transition has so far been marked by steady growth particularly in segments where it earlier suffered major setbacks.

“We move forward with hope and optimism as we roll out projects that will not only yield optimal returns for the company but more importantly, lead towards greater sustainability and create economic opportunities,” Petron President Ramon S. Ang said.

Its first-half net income for the year doubled to P7.7 billion from P3.87 billion in the same period last year, driven by a double-digit sales growth. It expects full-year net income to reach P18 billion, bulk of which is expected to come from its Malaysian operations.

As the Philippines’s largest oil company and only remaining refiner, Petron said it is in a unique position to create economic opportunities for the country, especially now that the country is on the road to recovery.

“We are looking at further expanding our retail footprint, storage facilities and logistical capabilities to ensure a reliable and continuous fuel supply during this crucial period. Our expansion projects mean more employment opportunities and economic activity, which are both vital to accelerating our recovery as a nation,” the company, which supplies about 40 percent of the country’s oil requirements, said via e-mail.

Petron’s petrochemical production is also critical to driving economic development. In fact, Petron has been consistently recognized by the government as one of the Philippines’s top exporters of petrochemicals. “In this light, we are pursuing more export sales which would help boost the country’s USD revenues,” it said.

Petron’s products, it added, fuel strategic industries that are essential to economic growth. “We also have CSR efforts like our scholarship and entrepreneurship programs that aim to empower our host communities and ultimately, help build a stronger nation,” it said.

Phoenix Petroleum Philippines Inc., for its part, believes that the industry could help fast-track the economy by providing employment and proper healthcare. It said that a strong, healthy, productive and motivated workforce is a critical enabler to an economy trying to bounce back, noted Phoenix Petroleum President Henry Albert Fadullon.

“Externally, we could help by providing quality products and alternatives or options to customers that are priced competitively and made available where they need and want them,” he said via text message.

The oil firm, which returned to profitability in the second quarter after posting P201 million in net income, is hoping that the suite of services and integrated Family­Mart stores will sustain a steady growth in the quarters ahead.  “We are more determined to stay on the path to recovery. With the economy opening up, we are focused on improved inventory strategies and continued cost discipline to sustain our upward momentum,” Fadullon added.

Pilipinas Shell Petroleum Corp. (PSPC), meanwhile, has taken concrete steps toward recovery and growth in line with its reset and refocused strategy. These include the build-up of its mobility stations and the construction of more oil import facilities to provide a more stable, undisrupted supply of fuel.

PSPC president Lorelie Quiambao-Osial said the oil firm is confident about driving fuel mobility and getting the country back on track. “We are confident to continue our momentum, deliver shareholder returns, and power progress for the Philippines,” she said in an earlier statement.

Secured supply

ON the part of the Department of Energy (DOE), an official observed that the oil firms’ financial health determines their capability to expand operations and improve their service and product offerings.

“With continued investment, this will redound in sustained fuel supply security. In the end, it benefits us because consumers could be assured of stable supply,” said Department of Energy-Oil Industry Management Bureau (DOE-OIMB) Director Rino Abad in an interview. “That is one way to look at it.”

He explained that infrastructure investments would sustain the increased requirement for storage capacity, transport vehicles and retail outlets. “Working capital will sustain the fund availability to address increasing prices of imported petroleum products. Both investments will result [in a] continuous security of supply,” Abad noted.

Since the implementation of RA 8479, otherwise known as the Downstream Oil Industry Deregulation Act of 1998, the DOE noted an increasing number of players that entered various downstream oil businesses such as importation, distribution and storage of petroleum products.

The number of industry participants increased by 19.59 percent from 18,218 in 2020 to 21,786 in 2021, bringing in a total actual investment of P20.41 billion last year or an accumulated investment of P210.69 billion since the industry was deregulated in 1998, said the agency’s 2021 report.

The DOE expects investments to keep growing as lockdown measures—first imposed in 2020—have been lifted, thereby creating more opportunities as businesses operate on full capacity.

“They have resumed their expansion plans which took a pause since the onset of Covid-19 pandemic. These include more retail stations, refinery upgrade, construction of more oil import terminals, offering of new products, among others,” said Abad.

PSPC, for instance, is looking at developing more import terminals. It already has two in Luzon: the Shell Import Facility Tabangao in Batangas and the Subic Import Terminal. Its third is located in Cagayan de Oro City called the North Mindanao Import Facility.

It broke ground on the fourth import terminal, the Darong Import Facility in Darong in Southern Mindanao.

In 2021, the oil firm said it was looking to spend up to P20 billion in the next five years to finance, among others, its plan to build two more import terminals and introduce more its so-called “mobility site” for its fuel stations.

Of the P20 billion, roughly 60 percent is earmarked for the opening of 60 to 80 mobility sites every year to meet the target of 1,500 such sites by 2025.

Petron, for its part, is building new power plant facilities in the refinery, which will replace some of its old generators, increase steam production, and expand power generation capacity from 140MW to 184MW.  The cost is approximately P12 billion.

This is part of Petron’s planned capital expenditure projects to ensure reliability and efficiency of critical refinery process. Other projects include putting up more retail service stations, expanding the retail network of its LPG, lubes and non-fuel segment, upgrading its logistics capacity, and expanding its Malaysia operations with new service stations and facilities improvement in the Port Dickson refinery and terminals.

Declining market share of ‘Big Three’

OVER the past few years, the smaller oil firms have edged out the combined market share of Petron, PSPC and Chevron, otherwise known as the Big Three.

In the first half of the year, the Big Three registered a market share of 40.77 of the total demand while other industry players—Seaoil, Insular, Unioil, Phoenix, Liquigaz, SL Harbor, South Pacific, Jetti, Pryce Gas, FLC, TPC, Isla LPG, TWA, PTT, Trafigura, Marubeni, Apex, Golden Share, Peak Fuel, Petrotrade, Era1, Warbucks Industries, Micro Dragon, Warbucks Southern Corp., VMaximus, Power Fill, Lubwell, Eastern, Jadelink, and others—as well as the end-users who imported directly for their own requirement, captured 59.23 percent of the market.

The same applies to LPG (liquefied petroleum gas). Based on DOE records, 21.71 percent of the LPG market share was credited to Petron and PSPC, with Petron’s share at 21.53 percent of the total LPG demand.

Bulk, or 78.29 percent, was the total market share of other industry players, including end-users in the total LPG demand.

Among the other LPG industry players, Liquigaz got the biggest market share with 21.28 percent, followed by South Pacific Inc. with a share of 15.95 percent. Next were Pryce Gases and Isla Gas with shares of 14.78 percent and 13.23 percent, respectively. Phoenix LPG, on the other hand, got 7.87 percent, while Peak Fuel got a 4.62-percent share.

Oil import bill

THE country’s net import bill, or the difference between oil imports and exports, shot up to $9.7 billion in the first six months of the year, up by 133 percent from $4.166 billion in the same period a year ago.

The country’s total oil import bill amounted to $9.931 billion, 115 percent higher than the previous year’s $4.60 billion. This was attributed to high import cost of crude and finished petroleum products during the period.

“There was minimal change in terms of volume, but in terms of value it is significant. This was because oil prices are more expensive during the period compared to last year,” said Abad.

Total oil import cost was made up of 82.6-percent finished petroleum products and 17.4 percent crude oil.

Import cost of crude oil amounted to $1.72 billion, thrice more than last year’s level of $536.97 million.

Total product import cost, by contrast, doubled from last year’s level of $4.072 billion to $8.2 billion. The rise was due to higher import costs of finished products.

Meanwhile, total export earnings dropped by 48.9 percent from $443.51 million of last year’s level to $226.57 million this year due to decreased product exports.

Also contributing to a higher import bill, Abad said, was the average dollar rate for year-to-date June 2022, $52.11, vis-a-vis year to date June 2021’s average rate of $48.24.

For some, owning an oil company could be a lucrative business, but it could be costly for the government if it takes over.

Industry experts said government may not have the technical expertise nor does it have the financial muscle to operate a very complicated business. “If it falls in the hands of the government, we could assume that many will ask for subsidies. If that happens, how can it survive? Perhaps, it is best left in the hands of the private sector,” they said.

Still, a review of the Oil Deregulation Law could improve transparency among industry players and assess the benefits to consumers, according to Senator Sherwin Gatchalian.  “Considering that this is a 24-year-old law, the review can be helpful in optimizing the oil industry,” he said.

As a way forward, the senator stressed the need to explore new domestic oil and gas reserves and transition to renewable energy as well as electric vehicles in the medium to long term. These, of course, require huge investments which the private sector is willing to make, though with much planning and time required.

Image credits: Junpinzon | Dreamstime.com



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