Oil prices going down?

If you have been watching the business news channels on cable you couldn’t have missed the excitement over softening international oil prices. The same message was reinforced by energy expert Daniel Yergin, whose well attended lecture at the Makati Shang last Tuesday examined the future of energy.

But a feeling of disconnect sweeps you once you drive up a gasoline station. True, the per liter price of unleaded gasoline seems lower than usual but only by a tad. It is as if CNBC, Bloomberg, BBC and CNN are in a different world.

Indeed, checking the website of the Department of Energy brings you down to local reality. DOE’s latest monitoring report (Oct. 27-31, 2014 trading days) says “crude oil prices increased by about one dollar versus averages last week…

“Overall, Dubai crude increased week-on-week by $0.60/bbl. Likewise, MOPS gasoline and diesel increased as well by about $0.70 and $0.75 a barrel. These were the first weekly price build-up after about two months of consecutive weekly decreases.”

Thus, our DOE reports that “effective Nov. 4, 2014, most oil companies implemented a price increase for both gasoline and diesel by P0.20/liter and P0.25/liter, respectively… With the price uptick in gasoline and diesel, year-to-date total adjustment for said products stands now at a net decrease of P5.54/liter and P7.63/liter, respectively. LPG’s net decrease expanded to P27.32/kg.”

If you don’t feel the softening of prices yet, it is because it hasn’t really softened that much over the past six months. On a per liter basis, unleaded was P53.48 in May and diesel was P43.39. In June, unleaded was P54.38 and diesel was P43.69. In July, P52.38 for unleaded and P41.83 for diesel.

In August, P50.09 for unleaded and P41.35 for diesel. In September, it was P50.58 for unleaded and P40.30 for diesel. In October, it was P47.28 for unleaded and P36.91 for diesel. As of Nov. 5, unleaded is P47.48 and diesel is P37.16.

Because our retail oil product prices are deregulated and it is easy to cartelize petroleum product marketing, an alert DOE is important. They have to tell consumers if the pricing is reasonable given developments in the world market relevant to local pricing.

When international media report declining world oil prices, they are mostly talking of Brent crude and West Texas Intermediate. Dubai is more relevant to us as a “reference” crude. But even then, we have to know what crude type was imported by Petron and Shell, the local refiners. For the other oil players, the Means of Platts Singapore or MOPS is the more relevant guide on the price of gasoline and diesel. Then there is the weakening peso to consider.

Still, one can’t help feeling hopeful that sooner than later, local oil product prices will be significantly lower too. Fortune reported that “Oil has taken a dramatic plunge… Crude oil is crashing. Over the past three months, the price of West Texas Intermediate (WTI) oil has plunged from around $100 per barrel to near $80 – with much of that drop happening over the past week or so.”

Stratfor says pretty much the same thing and believes that oil supplies will stay high as energy production in North America increases and OPEC countries remain hesitant or unable to cut production significantly.

“Moreover, in the short term, the Chinese economic slowdown and stagnant European economy will limit the potential for growth in oil demand. These factors could make it harder for global oil prices to rebound to their previous levels.”

A period of oil price stability is good news for consumer countries like ours. Assuming we are able to feel the full impact of declining oil prices soon, it would be like a tax break for our consumers … that’s so much money we can spend on something else other than oil products.

LTFRB should have a formula to reduce fares in a timely manner so that consumers can feel the positive impact right away. It should also use a period of relative calm to fix what needs fixing in the transport system that would be difficult to deal with when fares are going up.

DOE must do more than collate data from the news wire services on the real time price of oil and oil products relevant to our domestic prices. DOE must have a price model that is easy to explain to the public on how international prices affect domestic prices.

And if DOE representatives listened to Yergin last Tuesday, government ought to accelerate execution of plans for the day when Malampaya runs dry. Even now, we ought to be building the infrastructure needed to import LNG. If it is the private sector that is expected to put up these facilities, proper incentives must be given now to make that happen. We have to move from planning to execution fast.

DOE must show more leadership than it had been able to show since EDSA 1. Otherwise, we will find ourselves unprepared for changes in the energy environment because we wasted long respites like what we have now, to be ready for what is inevitable in our future.

Power

It is obvious by now that talk of emergency power to help mitigate an expected shortage in power reserves next year will produce nothing useful. We have just run out of time to do even the most basic, contracting for extra reserve capacity.

The presentation of Miguel Aboitiz, president of the Independent Power Producers Association during the Yergin affair was somewhat reassuring. First of all, Aboitiz made it clear that the shortage is not in actual capacity, but in reserve. We may be able to survive March and April 2015 without an hour of blackout if all power plants operate smoothly.

Of course we can understand why the Energy Secretary is worried. He doesn’t want to take any chances because if even just one power plant goes off grid, some blackouts will happen.

Anyway, Aboitiz also debunked the common impression that there is little interest from the private sector to put up power plants. There is a lot of interest, and Alan Ortiz of San Miguel agreed. Alan said in fact, over a thousand megawatts of new capacity will go on line soon.

But, Aboitiz acknowledged the need to improve the investment climate for power producers for future needs. It doesn’t help that over 200 permits are needed by a power plant proponent just to get started. He is suggesting a better and more centralized way of ensuring compliance to various laws and regulations designed to cut down time needed before ground can be broken for a power plant.

Aboitiz also decried the NIMBY (not in my backyard) attitude of communities. They are in favor of more power plants, but not in their neighborhoods. Perhaps, Aboitiz said, the host community could be given some significant incentive to agree to host a power plant. The cost of incentives should be reimbursable from the rates the plant will charge. –Boo Chanco (The Philippine Star)