PH needs govt-to-govt supply contracts amid world oil crisis
In the recent Cabinet meeting, Energy Secretary Alfonso Cusi reported to President Duterte that the country has enough supplies of diesel (41 days), gasoline (52 days), kerosene (89 days) and LPG (24 days) inventories as declared by oil companies. If the price of Dubai Crude (Mean of Platts-Singapore) hits $150 per barrel, gasoline will be at P90.39/L, diesel at P84.76/L, kerosene at P84.17 and LPG at P126.10.
He explained that the recent oil price rollbacks were instigated by lower demand from COVID-stricken China and the progressing talks between Russia and Ukraine.
However, Cusi failed to tell the President and the Cabinet the looming possibility of an “oil shock” because of decreasing supply of oil products mainly diesel. Russia, the third largest oil producer in the world, has warned that oil prices will hit $300 per barrel, if its oil products are banned by Western nations.
Last week, the International Energy Agency (IEA) called on the OPEC group of oil producing nations led by Saudi Arabia to help “relieve the strain” on markets, while warning that the world faced the biggest shock to supply “in decades”. IEA Executive Director Fatih Birol said the invasion of Ukraine and cutting Russia’s oil will have huge implications for our economies and societies. The IEA is recommending that advanced countries cut down on their oil consumption by 2.7 million barrels a day within the next four months to lower the demand amid tightening oil supply. Their suggestions include reducing speed limits, work from home three days a week, car-free Sundays, cheaper public transport and use of long-distance trains instead of airplanes.
The problem is that diesel, the workhorse of the global economy, surged last week to an all-time high, surpassing the peak of 2008. Even before the Russian invasion, diesel inventories had fallen to perilously low levels in the US and Europe, the lowest seasonal level in 16 years.
Before the invasion, Russia was supplying Europe with 685,000 barrels of diesel a day, with another 285,000 barrels coming from Saudi Arabia. With the oil embargo, a diesel shortage is already expected anytime in Europe and its prices are expected to skyrocket worldwide.
Today, our country is consuming 29 million liters of diesel everyday, or roughly 182,389 barrels. Diesel keeps our public transport running such as buses, jeepneys, and also trucks, vans, excavators, heavy machinery, freight trains and ships. What happens if diesel supply suddenly becomes scarce and oil companies cannot secure future diesel contracts? With the worsening crisis in Ukraine, let us listen to the IEA warning on tightening oil supply. A big shock could send diesel prices to P145/L with the possibility of fuel rationing.
I remember in the 1973 oil crisis that triggered shortages, then President Marcos secured a government-to-government contract with Kuwait thru the Philippine National Oil Company. He also secured annual supplies of 1.2M barrels of oil from China and 2M barrels of oil from Indonesia. Also Included in that arrangement was a swap of our surplus rice with their oil.
These similar pro-active actions should now be replicated by President Duterte and not wait for his Cabinet’s recommendation. He should drop everything and secure today oil supply contracts on a government-to-government basis from Saudi Arabia, Iraq, Kuwait, UAE, China, Indonesia, Brunei, America, etc.
It is survival time for the entire world and our country has enough true friends and allies who will really help us overcome this incoming oil shock.
