Indonesian President Susilo Bambang Yudhoyono assured President Aquino yesterday that his country would help stabilise the oil supply of the Philippines amidst a looming shortage caused by tensions in the Middle East and North Africa.
Aquino and Yudhoyono held a joint press conference at the Istana Merdeka (Presidential Palace) here as part of the Philippine president’s two-day state visit where three bilateral agreements were signed.
“With regard to joint sharing of supplies, I think what is more important is the access for the stability in supplies. And to that His Excellency (Yudhoyono) has promised to help us in attaining that stability in our energy supplies,” Aquino told Filipino and Indonesian reporters.
Yudhoyono pointed out that for Indonesia, being an oil-producing country, having a stable supply is policy. “It will damage all economies and now we are still in the phase of recovery from the 2008 oil economic crisis.
“We have to maintain the security of supply of food and energy because if not, the prices will continue to rise and it will impact on the economies of all countries,” said Yudhoyono through an interpreter.
“Even oil-producing countries must continue to produce so that there is no shortage of demand at the global level. It is my second hope that the situation in the Middle East and North Africa must be resolved soon so that it will not affect the supply of oil,” he added.
Aquino hinted earlier that the Philippines may consider forging an emergency oil-sharing agreement with either Japan or the United States to avert a looming oil crisis due to the continuing unrest in oil-producing countries in the Middle East and North Africa.
He said the government would consider the proposal despite an assurance by the energy department that there is enough supply of oil.
“We will consider that, but at the present time, the DOE (Department of Energy) and trade secretaries told me that we have guarantees from certain oil producing countries,” he told Palace reporters in a chance interview Monday.
“In fact, there is a non-traditional supplier. And they were saying, ‘so long as you are ready to pay the price, we are ready to supply you,’” the President said in an ambush interview after the recent turnover of command rites of the new Armed Forces chief in Camp Aguinaldo, Quezon City.
He said the government was working on a 60-day stockpile to ensure a steady supply of oil in the country.
“The DOE together with the oil industry, and all the stakeholders, are trying to come up with a guarantee that we will not have an interruption, even beyond the 60 days,” the President said.
Given the volatility of the major oil producing countries, he said the government had to consider reconciling having enough oil and having too much of it at a high price. “Because the high price will have to be paid for by the consumers at some point.”
A member of Congress proposed that the government forge an emergency oil-sharing agreement with either Japan or the US.
The proposal includes entering into a “forward commercial storage agreement” with an oil-exporting country and building a state-owned petroleum reserve, possibly through the Philippine National Oil Co., so that there would be enough supply during emergencies.
Rep. Arnel Ty of the party-list group LPG Marketers’ Association (LPGMA) urged commercial banks to extend standby credit to small oil companies to enable them to get extra supplies to boost the country’s inventory of petroleum products.
“In our recent meeting with (Energy) Secretary (Jose) Almendras, the independent players with modest capitalisation expressed readiness to lock in forward oil contracts, as long as they can get ready financing here from banks,” said Ty.
Ty, a member of the House energy committee, said forward contracts would enable the small firms to muster additional fuel supplies for future delivery, over and above their usual 15 to 30 days of moving inventory.
A forward contract is an agreement between two parties to buy or sell an asset at a specified future time at a price agreed today. This differs from a spot contract, which is a deal to buy or sell an asset today.
“Small oil players have limited capitalisation. Many of them are also already spending whatever capital they have to build up their depots, terminals, and retail outlets. They will require extra bank financing if they are to get hold of additional supplies,” Ty said.
“Anyway, they said that if additional bank financing is available, they can always use the forward fuel supplies as collateral,” he said.
Small firms grouped under the Independent Philippine Petroleum Companies Association supply some 15 percent of local fuel requirements.
These firms include Eastern Petroleum Corp., TWA Inc. (Flying V), Seaoil Philippines Inc., Unioil Petroleum Philippines Inc., Filoil Gas Co., Filpride Energy Corp., and Oilink International Corp.
The so-called Big Three – Petron Corp., Pilipinas Shell Petroleum Corp., and Chevron Philippines Inc. (formerly Caltex Philippines) – are heavily capitalised and could easily take care of their future supplies on their own, Ty said.