The Philippines' downstream sector is poised for sharp growth.
Despite a slip in refined products demand in recent years, Philippines products demand will rebound sharply by 2000, East-West Center (EWC), Honolulu, predicts. Philippines' planned refinery expansions are expected to meet that added demand, EWC Director Fereidun Fesharaki said.
Like the rest of the Asia-Pacific region, product specifications are changing, but major refiners in the area expect to meet the changes without major cash outlays. At the same time, Fesharaki said, a push toward deregulation will further bolster the outlook for the Philippines downstream sector.
PRODUCT DEMAND
Philippines oil consumption fell to 226,000 b/d in 1991 from 227,000 b/d in 1990, making it the only country in Asia that did not register growth in demand during 1991, Fesharaki said.
But overall demand is forecast to reach 272,000 b/d in 1995 and 345,000 b/d in 2000, he said.
Unlike the rest of the region, which relies heavily on diesel fuel, the main product in Philippines is fuel oil to meet electrical power demand and industrial boiler demand.
Fesharaki noted diesel fuel demand is expected to increase in 1992 to 24,000 b/d from 16,000 b/d in 1991 due to stopgap reliance by gas turbines that typically burn fuel oil. Diesel demand trends are not driven by the transportation sector in Philippines as it is in the rest of the region.
A sharp decrease in diesel demand is forecast with the expansion of electrical power capacity burning fuel oil. Accordingly, fuel oil will remain a growth product.
PRODUCT SUPPLY
The Philippines refining sector is dominated by Petron Corp. 48%, Pilipinas Shell Petroleum Corp. 30%, and Caltex Petroleum Corp. 22%.
Refiners are careful not to be perceived as expanding their market share at each other's expense, Fesharaki noted.
Most of the country's products demand is met by domestic refiners, and in 1991 product imports of 32,000 b/d were mainly fuel oil and diesel. Exports totaled about 14,000 b/d, mainly naphtha.
Refining capacity is poised for a hefty boost with Caltex planning to expand its 72,000 b/d refinery at Batangas by 25% (OGJ, Apr. 20, p. 40) and Shell planning a new 38,000 b/d refinery at Batangas (OGJ, Aug. 5, 1991, p. 31).
Fesharaki predicts with Shell's expansion alone refinery capacity will reach 400,000 b/d by 1995, far beyond predicted demand levels.
To ensure that market share arrangements remain intact, Shell plans to export about 20,000-30,000 b/d of products valued at $100 million/year, mainly naphtha and gasoline, for the first 7 years starting in 1994. After 7 years local demand may absorb that incremental volume.
Petron, operator of a 155,000 b/d refinery at Limay, has been interested in a grassroots refinery for years, Fesharaki said.
World Bank has funded a study for Petron that is near completion, and results are expected to be released in July.
Fesharaki said the study is likely to recommend a grassroots refinery with capacity of 100,000-150,000 b/d.
But, Fesharaki added, it's likely that Shell's new refinery combined with the slow increase in demand will reduce incentive for Petron and Caltex to build new refineries unless they are geared toward exports.
SPECIFICATIONS
Product specifications are set to change beginning in 1994, but Fesharaki said refiners feel the changes can be made without major cost increases.
Lead content, currently 0.84 g/l., will be reduced to 0.2 g/l. by 1994, fairly consistent with much of Asia, which has specifications of 0.15 g/l. Fesharaki said refiners are currently supplying lower lead content gasoline of 0.6 g/l. voluntarily.
The diesel specification, currently at 0.8 wt % sulfur, is to fall to 0.4 wt % by 1996.
Fesharaki reported current supplies average 0.5-0.6 wt % sulfur.
Sulfur content in fuel oil is currently specified at 3.5 wt %.
There is not a set timetable for new specs, but the government expects to reduce that to 2.5 wt % and later to 1.5 wt %.
Pressure to lower sulfur content in fuel oil is coming from the state owned National Power Corp. to preserve equipment preservation rather than for environmental considerations, Fesharaki said.
DEREGULATION
The Philippines oil industry, for years plagued by excess government control and low profits, began to see improvement in 1990-91.
In 1991 Philippines oil company profits totaled 2.3 billion pesos against an asset base of 50-60 billion pesos. And, Fesharaki noted, the outlook for improved profitability is good.
The three components of the Philippines regulatory system are a fixed refining margin, taxes, and an oil price stabilization fund (OPSF).
Shell and Caltex have submitted position papers on deregulation. Shell wants a 2 year phaseout of regulations, while Caltex proposes immediate and full deregulation.
Shell's plan for phasing in deregulation assumes abolition of subsidies might be a big shock to the overall system, Fesharaki reported. He said without the OPSF, gasoline prices would decline by 25%, liquefied petroleum as prices would increase 19%, and kerosine and diesel prices would increase 7-8%.
Caltex said economic efficiency calls for deregulating oil prices all at once, a move that also would provide incentive for foreign investment.
Fesharaki said both frontrunners in the presidential election, Gen. Fidel Ramos and Ramon Mitra, are seen as free market proponents likely to move to deregulate price controls within a year.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
