Petron may participate in proposed strategic oil stockpile

Petron Corp., the country’s biggest oil company, said it would consider participating in a proposed strategic oil stockpile that would cushion consumers from the adverse impact of soaring world prices of crude and oil products.

"We do not yet have the details of the government’s stockpiling program. But if it were one that will give financial exchange for Petron, we will pursue it," said Petron chairman Nicasio I. Alcantara.

The Philippines, which imports more than 90 percent of its oil requirements, has been reeling from the incessant spike in the prices of crude oil. The Department of Energy (DOE) is now looking into the possibility of establishing a 90-day, 30-million barrel strategic oil stockpiling program (SOSP)

The DOE earlier asked the US Department of Energy (USDOE) and the United States Agency for International Development (USAID) to conduct a strategic oil stockpiling study for the Philippines. The USDOE and USAID recommended the putting up of a strategic oil reserve.

"A supply disruption would result in sharp increases in oil prices and inflict serious damage on the Philippine economy. With only two refineries, the economy is also highly vulnerable to product shortages due to the inherent risks in refinery operations," the USDOE said.

The study said that the ideal size of the Philippine oil stockpile based on the International Energy Agency criteria of 90 days of net imports should be 30 million barrels. The stockpile would consist of 23.5 million barrels of crude, five million barrels of diesel fuel and 1.5 million barrels of liquefied petroleum gas or LPG.

Petron president Khalid Al-Faddagh said while the oil company is open to talks for a SOSP, "this has to make economic sense" for it to consider investing in such a capital-intensive facility.

The proposed crude oil, diesel and LPG storage facilities should be owned by the state-run Philippine National Oil Co. which would execute agreements with the private sector that operate refinery and similar storage facilities.

Depending on the technology and capacity of the proposed SOSP, the cost could be in the range of $600 million to $800 million.

To speed up the process, the DOE is considering backing a bill for the establishment of a strategic oil reserve. The bill would include the requirement to maintain a 90-day supply of net imports, the authority to acquire by purchase or condemnation, land or land rights for the location of petroleum storage and distribution facilities.

Currently, local oil companies’ stock requirements are at a low of 15 days which, the USDOE noted, is equivalent to the normal and safety stock level required for refining operations and provides no emergency stockpile in the event of a supply disruption.

Energy Undersecretary Peter Abaya noted that the DOE is still considering whether such legislation could be filed separately or incorporated in proposed amendments to the Oil Industry Deregulation Act.

The other proposed components of the bill include the authority to acquire, store, exchange and dispose of petroleum stocks, authority to levy fees on refiners and importers, and the creation of criteria for the release of strategic stocks.

The study noted that the ideal crude oil storage facility would be along the Bataan coastline near the Petron refinery since it is the largest refinery and would have the greatest crude oil demand during a supply disruption.

At the same time, the area around the Petron refinery is less populated with less industrial development and congestion, making it more conducive to large-scale stockpile storage facilities.

Moreover, the existing refinery has excellent deep-water marine receipt and distribution capabilities that can be shared, thus reducing stockpile capital costs.