Petron’s reply to our octane ratings’ article

Last Monday we wrote an article about octane ratings and Petron replied with a lengthy, self-explanatory letter that fills this whole corner.

“Dear Mr. Avila, We are writing in connection with your column titled ‘Why are we paying more for high-octane fuel?’ that was published on July 25 in The Philippine STAR. We wish to clarify some issues that were raised in your column, including the octane rating of gasoline, the cetane number of diesel, and the profitability of Petron. There are actually three types of octane rating, namely, Research Octane Number (RON), Motor Octane Number (MON) and the Anti-Knock Index (AKI). The AKI is sometimes also called the Road Octane Number (RdON) or Pump Octane Number (PON). 

“The most common type of rating worldwide is the RON such that in most countries, the octane shown on the pump is the RON. In the United States, however, the octane rating used is the AKI, which is the average of the RON and the MON, (RON+MON)/2.  

“The MON is another type of octane rating that measures the behavior of a fuel under load. The MON rating is usually 10 points lower than the RON, depending on the composition of the fuel. Given this difference, the octane rating in the US is about five points lower than the RON of the same gasoline elsewhere. The 87 octane ‘regular’ fuel in the US is thus equivalent to 92 RON and the 91 ‘premium’ fuel is equivalent to 96 to 97 RON.  

“In the Philippines, the minimum RON requirement in the Philippine National Standards (PNS) is 93, which is just slightly over the 87.5 AKI mandated by the Philippine Clear Air Act. The RON postings at service stations are required by the Department of Energy. The minimum octane requirement of a vehicle varies depending on the car make and model but this is essentially dictated by the compression ratio of the engine. While some cars can still run at a minimum rating of 91 RON, most modern cars require a higher octane. The higher octane requirement is driven by the aim of car manufacturers to come up with more efficient vehicles, not only in terms of power but also for better fuel economy and less emissions.

“With regard to the cetane number of diesel, this is often mistaken as a measure of fuel quality but is actually a measure of the fuel’s ignition quality. The cetane number of diesel fuel is dictated by the type and quality of the crude oil refined and its resulting boiling fractions. The cetane number requirement actually depends on engine design, size, nature of speed and load variations. Using diesel with a cetane level lower than the minimum requirement of an engine would result in rough engine operation, increased engine deposits and greater exhaust emissions. The PNS for diesel fuel specifies a minimum cetane number of 50.

“In your column, you also mentioned oil companies making excessive profits and we quote, ‘But when oil companies rake in humongous profits at the expense of our economy… that should open them to closer scrutiny by government agencies like the DOJ…’ As a publicly listed company, our financial statements are accessible to anyone. In fact, our books were recently audited by SGV and UA&P upon the behest of the DOE-DOJ Task Force, to see if oil companies were making excessive profits.

“They concluded that our profits during deregulation were much lower than levels reached during the time when the market was regulated. They also stated that movements in local pump prices were consistent with price trends in international crude and product markets. To put things in perspective, the P33.36-billion income (and not P35.18 billion) we posted since the start of deregulation in 1998 up to 2007 is equivalent to what some companies make in one year. From our public records, it can easily be established that Petron’s Return on Sales is less than three percent (please refer to attachment 1). This means that we have less than three centavos in net margin for every P1 sale. This is substantially lower than most industries in the country (please refer to attachment 2). 

“Since the start of deregulation, we have invested about P40 billion in projects aimed at ensuring the country’s energy security and giving consumers the best value for their money. In 2005, for instance, we invested $100 million that enabled us to produce gasoline and diesel that adhere to the strict standards of the Clean Air Act without resorting to importations.

“Last April, we commissioned our Petro Fluidized Catalytic Cracker (Petcock) and a Propylene Recovery Unit (PRU) – part of our $300-million refinery upgrade program. The PetroFCC gives us the capability to produce more LPG, gasoline and diesel for our customers, while the PRU allows the production of the petrochemical feedstock propylene. Propylene is used in everyday products such as home appliances and automobile parts.  We do hope that we have been able to clarify the points that were raised in your column. Maraming salamat po! Virginia A. Ruivivar, Manager, Public Affairs.”

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For e-mail responses to this article, write to [email protected]. Bobit Avila’s columns can also be accessed through www.philstar.com. He also hosts a weekly talkshow, “Straight from the Sky,” shown every Monday, 8 p.m., only in Metro Cebu on Channel 15 of SkyCable.