Energy diplomacy and DOE leadership

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Energy diplomacy is an emerging important track to ensure economic stability of many countries that are badly suffering from low supply of oil-gas and hence, high prices of these important commodities. Oil-gas do not only mean diesel and gasoline, LPG and electricity. Oil-gas also mean  naptha and bitumen, methanol and polyethelene, synthetic rubber and fertilizers, and many more.

Consider these recent reports in The Philippine STAR: “Recto: 1.04 million barrels of diesel expected to arrive this week” (March 29), “Fuel supply issues shut more than 300 gas stations” (March 30), “Petron confirms 2.48M barrels of Russian oil purchased, says it may buy more” (March 30), “Philippines’ fuel supply extended to nearly 51 days” (March 31).

Securing alternative supply of oil and gas in a short period of time is good energy diplomacy done by Department of Energy (DOE) Secretary Sharon Garin. The DOE facilitated the 2.48 million barrels imported by Petron from Russia while negotiating with other countries for continued or new supply of oil-gas-coal that help strengthen our domestic energy security while global energy uncertainties continue.

Last March 29, Executive Secretary Ralph Recto issued a good statement lauding both Petron and Garin, “Petron’s pledge that it will tirelessly secure both traditional and alternative sources to keep our supply stable should be a source of calm and comfort…. the oil diplomacy led by Secretary Sharon Garin has resulted in the firm order of 1.04 million barrels of diesel... From Indonesia also comes the ironclad guarantee of a steady supply of coal.”

Last March 26, the DOE received the first shipment of 22.58 million liters or 142,000 barrels of diesel imported under its Emergency Energy Security Program of Executive Order 110 to strengthen the country’s oil supply. DOE attached agency Philippine National Oil Co. (PNOC) and PNOC Exploration Corp. (PNOC-EC) facilitated this with the goal of securing up to two million barrels of additional oil supply for the country.

Petron lost four million barrels of canceled Middle East crude when the Strait of Hormuz was choked – two million barrels on Feb. 28 or Day One of attack of Iran, then another two million barrels on March 7. Petron, with the go-signal from the DOE and DOF, negotiated with Russia to keep its refinery in Bataan, the only oil refinery in the country, running until at least June. Petron produces 30 percent of the Philippines’ fuel market and roughly 98 percent of our crude imports come from  the Middle East, particularly Saudi Arabia and United Arab Emirates (UAE).

Garin’s oil diplomacy led to two batches of 700,000 barrels each or 1.4 million barrels that have already arrived. Plus another 1.04 million barrels mentioned by Recto, total purchase of 2.48 million barrels.

The phased delivery schedule of the 1.04 million barrels through PNOC-EC are as follows: 142,000 barrels from Japan, delivered last March 26 in La Union and Batangas; 300,000 barrels from Malaysia and Singapore due in early April; 300,000 barrels from India due in  mid-April; and 300,000 barrels from Oman via Singapore due on end-April.

This is good oil diplomacy by the DOE. More oil from more countries outside our usual sources Saudi Arabia and UAE. And scheduled in phases to ensure sustained domestic availability while overall external supply uncertainty remains.

Garin also added that the DOE, with support from the Department of Foreign Affairs, is exploring new supply partnerships with Argentina, Australia, Brunei, Canada and Colombia.

As of March 27, inventory announced by the DOE showed the following number of days that finished products will last: gasoline 60 days, diesel 47 days, jet fuel 63 days, fuel oil 47 days, LPG 34 days.

Garin is correct to assure the public that “as we consume we add… we have a continuing supply… lead time to order more while we are consuming for the month of April.”

DOE plus DOF, DFA, BSP (for foreign currency use), with policy guidance from the President and the Executive Secretary, this is whole-of-government approach that converts Cabinet-level diplomatic engagement into actual oil deliveries.

Oil-gas supply stability should continue as the government prepares for the rollout of the Strategic Investment Priority Plan (SIPP). Committed investments, new or expansion of existing ones, should be given assurance that they will not be hampered by energy uncertainties.

Finally, my take on two related issues – “Libreng Sakay” program and oil excise tax suspension.

The  Libreng Sakay (free ride) program by the government should be done more by the local government units (LGUs) and less by the national government through DOTr and DOE. Recto’s statement lauding and encouraging the local governments of Quezon City and Manila for their Libreng Sakay initiative to their commuting residents is correct. He also lauded businesses that deferred price increases so long as they can. These are “damayan” moves by the LGUs and private businesses with the public and the national government.

Suspension of oil excise tax should prevail over subsidy for public transportation because we need to extend support also for tractors, harvesters, irrigation pumps, trucks, fishing boats and other machines used in farming-fishery. It is not fair that government will subsidize only the urban-based public transportation but ignore the needs of the rural-based machines and agriculture transportation.

Revenue losses should be compensated by spending cut somewhere and not by additional borrowings. Besides, the DOF has windfall revenues from higher VAT collections as oil prices remain high. VAT at P55/liter (before the Iran war stated) means P6.60/liter revenue while VAT at P120/liter means P14.40/liter revenue, or revenue windfall of P7.80/liter. Suspension of the P10/liter excise tax becomes bearable.