Surge in oil imports seen this year

MANILA, Philippines — The couyntry’s oil product imports are seen surging this year with the continued growth in demand.

In its recent report, Fitch Solutions Country Risk and Industry Research said it expects Philippine oil product imports to surge up to 78 percent of total fuel consumption in 2023.

The surge will be driven by a relatively strong recovery in oil demand since 2021, it said.

Fitch Solutions said the country’s oil demand is projected  to continue growing at an annual average  rate of 3.4 percent between 2022 and 2031.

Net imports, meanwhile, are anticipated to grow at around 3.5 percent, more or less closely in line with demand growth, it said.

“In light of refining capacity losses, long term security of supply has become a growing concern for the government as it seeks to build strategic petroleum reserves (SPR) for oil emergency use,” Fitch Solutions said.

“We anticipate a sharp rise in oil product imports if the state-owned Philippines National Oil Co. goes ahead with investment in the SPR project, in addition to imports by current industry players,” it said.

Fitch Solutions said deregulated oil markets are supposed to attract downstream players, but refiners in the Philippines had instead chosen to divest from refining assets and permanently closed their refineries.

“Fortunately, Petron restarted the Bataan refinery in early 2021 and announced that it will not close the refinery permanently. Nevertheless, it remains uncertain whether Petron will keep running its lone refinery for a longer period of time if refining profits are unfavourable amid rising competition from industry players,” Fitch Solutions said.

Fitch Solutions warned that the Philippines could be left as the only market in Southeast Asia without an operating refinery if Petron also decides to call it quits sometime in the  future.

“A relatively small oil market, combined heated competition for market shares, dampen industry profitability,” it said.

Among the key implications of the refinery closures in the country have been significant reduction in refined fuel production and increased dependence on fuel imports.

It said the country’s refined fuel production  declined from pre-COVID period of 236,000 barrels per day (b/d) in 2018 to just 79,000 b/d in 2021.

Imports, on the other hand, increased to 326,000 b/d, up 29 percent from 2018 levels.

“Large number of importers, including Shell and Chevron, could quickly fill supply gaps through imports in a shorter period of time, pressuring Petron to optimize refinery crude runs,” Fitch Solutions said.

Meanwhile, Fitch Solutions said the country’s oil market is becoming increasingly overcrowded with numerous players engaged in oil trading and distribution.

Data from the Department of Energy showed that there were about 167 fuel importers and 157 bulk distributors  in the country’s  oil market at the end of 2021.

“Refiners faced increased competition from industry players in wholesale and retail markets where they are free to set oil product prices and sales of smuggled fuels is rampant,” Fitch Solutions said.

“Smuggled fuels which can be sold at lower price pose significant competitive pressures on Petron amid increasingly challenged by rising crude oil import costs,” it added.