Oil deregulation still going well

As a former oil industry executive, looking at how the new independent oil companies are gnawing away at the market share of the majors day in and day out, I can’t say I envy my former colleagues, some of them I had welcomed into the fold fresh out of college those days.

It’s just mid-year and the Department of Energy is already saying that the share of “small” oil companies has already risen to 34 percent from 30 percent last year. By next year, the “small” players are saying that their numbers would grow to 1,500 stations from 1,000 currently.

It now seems to be a misnomer to call the new oil companies “small.” If Chevron (formerly Caltex) has now only 800, some of the independent players like TWA Inc. (Flying V), Seaoil Philippines Inc. and Phoenix Petroleum Philippines Inc. could be regarded as formidable challengers now.

Flying V, for example, which tags itself as the largest network in the country among the independent oil companies, has close to 400 stations already, and is still aggressively seeking new outlets in areas where it can compete head-on against the majors.

Aggressive and fierce

Competition in the oil industry is indeed very much alive so much so that only Petron remains the only member of the original Big 3 (Shell and Chevron, being the other two) that has managed to grow its share of the market in terms of number of stations and sales since the industry was deregulated.

The Oil Deregulation Law passed in 1998 had provided for generous incentives to interested new entrants, the objective obviously to give the most chance for them to survive under an environment that had been tightly controlled by the Big 3 for decades.

The guerilla offensive of the independent oil players as well as the new entrants which are affiliated to foreign companies like PTT of Thailand and Total Petroleum of France have been aggressive and intensely fierce, so much so that even they themselves have been turning against each other.

As a result, casualties among the new players that have just two or three stations can no longer be ignored, and buyouts among the ranks of the new oil companies occasionally have been reported to the DOE. Overall, though, their numbers in totality have grown stronger over the last 14 years.

Safety and quality

Like foot soldiers bickering over the spoils of war, some of the smaller players have been seeking protection from the DOE to protect them from the marauding ways of their bigger colleagues.

Administratively, taking care and monitoring over 150 oil companies is now a tougher act for the Energy department unlike pre-deregulation days when it was just going after three multinational industry members. But for consumers, it has had its bonuses.

Especially for those in far-flung barrios or islands, small players are taking their chances by putting up stations with just one or two pumps that can provide cheaper fuel to serve fishermen and farmers.

There is still income from these types of operations, especially since the capital cost of putting up a station is not tethered to the more expensive standards of the bigger companies. The downside, though, is maintaining safety and quality.

Often, the temptation to bargain on acceptable safety standards when constructing tanks and dispensers is too great for small operators whose capital is limited, and who need to contend with the competition from bigger oil companies, either independents or affiliated with multinationals.

When talking about safety, this is not just about protecting lives from the flammable characteristics of petroleum. It is also about keeping the environment safe from oil spills and contamination, the latter largely from change-oil practices.

Price wars

Nevertheless, notwithstanding the effects of crude oil price swings in the world market, pump pricing has been relatively uncontroversial now compared to when there were only three dominant oil companies operating in the country.

In fact, the DOE has been known to intervene in cases where cut-throat pricing is being waged, and subsequently is feared to result in an annihilation of a competitor, more often than not, a struggling new player.

The public may not look favorably on the government meddling with such kinds of price wars, but ultimately, this is to their benefit. The success of the deregulation law so far has been in keeping small players alive, and this has still contributed more good than bad in favor of the general public’s welfare.

The neighborhood’s small player is often a few centavos lower than a major’s, a great boon to jeepney and tricycle drivers who are looking for ways to stretch their mileage and increase their earnings after a hard day’s work.

On the other hand, the majors are on their toes by offering timely promos to keep or increase patronage. Especially during the intense heat of the recent summer months, it was always a welcome gesture to receive a free bottle of Coke when filling up the gas tank.

Gasoline of today

A fitting end to this column is a letter by Ayc Aycardo, a former colleague in Shell more known for his technical expertise on petroleum products. This should sit well with those who mind gasoline octane numbers. Let’s hear what he says.

“Historically, premium gasoline used to be sold with a 95.0 octane number. Then a 93.0 octane was also offered. However with the ban on of use of tetraethyl and tetra methyl lead in gasoline, the octane numbers of premium gasoline (now called unleaded) became 95 and 93 (note that the numbers are without a decimal and zero as in 95.0 and 93.0)

“Very recently the 93 octane gasoline was further reduced to 91. Most cars nowadays require a 91 octane as a minimum. Since the 91 octane gasoline being marketed now is advertised only as “91,” it is very likely that a 90.6 to 90.9 octane is rounded off to 91.

“Every time this happens, most likely the car engine will “knock” and in time the engine may be damaged. What should be done, since the gasoline octane required by cars is already at its minimum, is to ensure that the 91 octane is really 91. This can only happen if a decimal point and a zero follows the number 91 (91.0). This will ensure that what is marketed will be no lower than 91.0.

“For my own safeguard, I now mix gasoline of the 91 octane (which could be 90.6 to 90.9) with gasoline of a 95 octane to assure myself that I meet the minimum 91.0 octane in my gas tank.” –Rey Gamboa (The Philippine Star)