Threats of oil supply shortage and exploding depots

I support the deregulation of industries. Less government intervention is the better for business. I was one of the countless oil company staff that worked on position papers and made one too many presentations to legislators and media to deliver the message that deregulation would benefit the consumers.

True benefits to the consumers of a free market can only be achieved if the players are perceived as responsible and sensitive to the place where they do business. They must be seen as responsive to the needs and conditions of their customers. And they must be also be seen as willing to share in the burden and difficulties of the public that is the life blood of their business.

I have always believed that any business must operate in an environment of trust, with emphasis on responsibilities to the consumer, the community, and the nation.

Insensitivity forced government’s hand

Today, after more than a decade of a deregulated oil industry, the validity of a belief that free market is still better for the country is being tested.

Last October 20, the two major oil companies that control about 70 percent of the local market jolted consumers with hefty increases in the pump prices of gasoline and diesel – this, when the country was still reeling from large-scale damage from successive super typhoons.

The public, of course, reacted adversely. When energy secretary Angelo Reyes stepped in and, as usual, defended the oil companies’ action, the President was forced to step in.

In a surprise move, she issued Executive Order 839 which effectively ordered oil companies to roll back their pump prices to pre-October 20 levels. Plus a stern warning to oil firms to comply or face the consequences.

Equally surprising was the posture that some oil companies took in response to the EO. To threaten of supply shortages was a callous disregard of the current state of calamity that a large part of Luzon is in.

More speculative

While crude prices have undeniably risen these last few weeks by about $10 per barrel, the price spike seems more speculative than fundamental. Once again, analysts are grasping at possible reasons: weak US dollar, lower gasoline inventories, refinery slowdown, etc. As of this writing, crude prices – that have flirted the $80-mark the last few days – are back to about $77 a barrel.

Clearly, in terms of pricing by local oil companies, there is scope for some tempering especially when a large part of the country is still trying to cope from the recent tragedy that saw life and property ravaged by floods, strong rains and wind.

It is not as if the industry has been left high-and-dry in past decades. Even during those years when local oil firms’ operations were closely supervised under a regulated regime, they would be able to recover their losses from any government decision to cap pump price increases, even if it sometimes took some months.

Deregulation pitfalls

Now that the industry is in a deregulated environment, it seems it has become a bit overzealous, if not lopsided, in its interpretation of market supply and demand forces.

When crude prices are rising, they are quick – too quick – to increase product prices at the pumps. And yes, when world crude levels are dropping, any pump price change is barely discernible. Mabilis magtaas, mabagal magbaba, is how consumers view oil companies’ interpretation of deregulation.

Shell’s unwillingness to share refinery ownership

There is also the perceived uneven playing field arising from Shell’s recalcitrant behavior to open up its refinery assets and operations to public ownership. When the deregulation law was passed, all existing oil refineries were supposed to offer part of their shares to the public.

Since 2001 when this provision should have been in effect, only Shell now remains and alone benefits from this opportunity of owning a refinery all by itself. Caltex had mothballed its Batangas refinery. Petron, even before the passage of the deregulation law in 1998, was already partly owned by the public.

The advantage to Shell and Shell alone is apparent during times when crude prices are lower if compared with the equivalent product quotes based on Singapore trading. Even when the local oil company has bought crude at a low price for refining, it will quote prices for gasoline and other refined products based on Singapore when this is higher to conveniently justify a price increase in the local market.

And this is one of the basic reasons by Raul Concepcion, consumer advocate and chairman of the Consumer Oil Price Watch, is asking DOE to set pricing benchmarks: Singapore trading prices for importers without refineries, and Dubai crude for refiners like Shell and Petron.

For this reason, and for what apparently is a loss of conscience of the oil companies, I support a review of the current oil deregulation law.

It can happen at Pandacan

In addition to oil supply shortage, there is another threat from the oil companies – the threat of exploding depots.

A frightful picture and its corresponding story of an explosion at a Puerto Rican fuel storage facility last Sunday (October 25) on The Star’s World section’s front page could not be ignored especially in the light of the Big Three’s continued presence at the densely populated Pandacan district.

Thankfully, no one was injured even if the blast with an equivalence of a 2.8 magnitude earthquake reportedly shook people out of their beds in the nearby town of San Juan and shattered windows across the bay in the colonial Old San Juan.

What apparently was the accident’s saving grace was the fact that homes were far from the refinery and storage site. Even then, the provincial government had to evacuate up to 1,500 people from one neighborhood on fears of smoke pollution.

This regrettable incident only underscores what many activists, mainly residents of Pandacan, have been warning on the continued presence of 313.5 million liters of highly flammable and highly volatile products which include petroleum gas, liquefied petroleum gas, aviation fuel, diesel, gasoline, kerosene and fuel oil among others, right beside several residential communities.

Now that the Caribbean Petroleum Corp. experience in Puerto Rico tells us that an explosion in a storage facility is a possibility, should we just leave the fate of Pandacan residents to luck?

Are the oil companies — Shell, Chevron and Petron — prepared to issue unconditional guaranties that they will be responsible and will answer for all the consequences of an explosion at the Pandacan depots? Let’s here it from them.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net. –Rey Gamboa (The Philippine Star)