Interview: Philippines' DOE seeks to build SPR, favors emergency supply framework with Japan

Tokyo — The Philippines' Department of Energy is set to introduce its first bill in the congress this year to set up the Southeast Asian country's strategic petroleum reserves to ensure its oil supply security in the wake of supply concerns in the Middle East, a top official told S&P Global Platts Thursday.

"In light of recent events in the Middle East, that has encouraged the Department of Energy to pursue a new law that creates the petroleum reserves, with the Philippine National Oil Company at its helm," Assistant Secretary Leonido J. Pulido III said in an interview on the sidelines of the 38th JCCP International Symposium in Tokyo.

"We actually have a bill that we will be proposing to the congress for the creation of strategic petroleum reserves," said Pulido, adding that a draft bill would be introduced to the congress in the first quarter of this year.

A series of events and geopolitical tensions in the Middle East, which supplies more than 70% of the Philippines' crude oil needs, has prompted the country to review its supply contingency plans and take some policy actions, Pulido said.

"It highlights the fact that we are so dependent on the international market and international sources," he said, adding that the Philippines is also boosting upstream investment and exploration opportunities in the country.

"The challenge really for us, the national government of the Philippines, is that we are wholly dependent on the compliance of the private sector with the minimum inventory requirement," Pulido said.

"So in the event of a catastrophic supply cut, the Philippine government would have to resort to taking over the infrastructure assets of the private sector in order to protect the country from the effects of a catastrophic supply loss," he said.

Stock requirements

Currently, the Philippines mandates the private sector to hold a certain amount of finished petroleum products and crude oil under its Minimum Inventory Requirement, which might not be sufficient in emergency situations, Pulido said.

Refiners in the Philippines are required under the MIR to hold 30-day equivalent of crude or oil product stocks in the country, with oil product importers with 15 days of stocks and LPG distributors seven days.

At the end of June 2019 the Philippines had crude and oil product stocks of about 17.273 million barrels, or 37 days of supply equivalent, comprising 24 days for crude and 13 days for products, according to DOE data.

Oil product demand in the Philippines in 2019 is estimated at 479,433 b/d, and it is forecast to grow by an annual average of 2.77% over 2021-25, and then 1.67% average over 2026-30, followed by 1.20% over 2031-35, according to Platts Analytics.

Considering METI's proposal

The DOE, which is currently also drafting the creation of an oil contingency committee, is considering a proposal from Japan's Ministry of Economy, Trade and Industry to establish a reciprocal framework aimed at ensuring uninterrupted flow of crude and oil products in the event of supply disruptions, Pulido said.

"We believe it's a very timely offer precisely because we are lobbying for the SPR," Pulido said. "The Department of Energy is very supportive," he said, adding that it needs to be cleared by the DOE as well as by the department of foreign affairs.

"We really look forward to the signing of that agreement," he said. "This year we really want to have it as soon as possible as far as the Department of Energy is concerned."

Japan is looking into cooperating with other Asian oil consumers to work out reciprocal frameworks aimed at ensuring the uninterrupted flow of crude and oil products in the event of a potential escalation of tensions in the Middle East that would threaten to disrupt supplies.

Tokyo's latest policy development is the result of its analysis that any supply disruptions at other major Asian oil consumers would affects Japan's oil supply security.

Studying impact of coronavirus

The Philippines' DOE is looking at the potential impact of the coronavirus outbreak, in particular on domestic oil demand, Pulido said.

"We have not really made any in-depth studies yet regarding its impact on our domestic demand," Pulido said. But he added: "We are actually poised to study on it."

"We are preparing to study the impact on our domestic demand and our supply sources as well," Pulido said.

"In the current review of supply sources [of] finished petroleum products, it's quite diverse," he added. "There is significant amount coming from China but there are a lot of diverse options from where we can source."

The Philippines' two refineries currently account for roughly half of domestic oil product supply, with the balance supplied through imports from across Asia, according to Pulido.