Report cites overcrowded Philippine oil market

PHILIPPINE DEMAND for oil would probably grow at an average 3.4% between 2022 and 2031, according to Fitch Solutions Country Risk and Industry Research, citing the country’s overcrowded market.
“Net imports are anticipated to grow at around 3.5%, more or less closely in line with demand growth,” it said in a report dated Jan. 25.
Oil product imports are expected to hit 78% of total fuel consumption this year amid a relatively strong recovery in oil demand since 2021, it added.
The country’s “relatively small oil market” has dampened industry profitability, demand and growth, Fitch Solutions said.
“The Philippines’ demand for oil products has not been growing fast in spite of a growing economy and population,” it said. “Oil product demand stayed relatively at around 450,000 barrels per day (bpd) for the past years, growing by an annual average rate of 3.3% between 2010 and 2021.”
Potential demand growth for transport fuel such as gasoline and diesel has been hampered by the higher ratio of motorbikes compared with cars. Oil demand growth has also been hindered by the increasing use of biofuels, it added.
The Philippine oil market is overcrowded, with many players involved in oil distribution and trade, according to the report.
There were 167 fuel importers and 157 bulk distributors in the Philippines at the end of 2021, according to the Department of Energy (DoE), Fitch Solutions said, citing Energy department data. “Refiners faced increased competition from industry players in wholesale and retail markets where they are free to set oil product prices and sales of smuggled fuels is rampant.”
It also cited the country’s fragmented oil market, with more importers, wholesale and retail players.
“Companies like Phoenix, Unioil, Insular and Seaoil are gaining market shares, far outpacing legacy players like Chevron,” according to the report.
In 2021, about 61% of the oil market was controlled by a fragmented group of importers and end-users, with the remaining market share held by Petron Corp., Pilipinas Shell Petroleum Corp. and Chevron Philippines, Inc. it added.
“In light of refining capacity losses, the long-term security of supply has become a growing concern for the government as it seeks to build strategic petroleum reserves for oil emergency use,” Fitch Solutions said.
“We anticipate a sharp rise in oil product imports if the state-owned Philippine National Oil Co. goes ahead with investment in the strategic petroleum reserve project, in addition to imports by current industry players,” it added. 
Fitch Solutions said the Philippines was expected to attract downstream refining players due to price decontrols after the passage of the Downstream Oil Industry Deregulation Act, but this did not materialize.
“Deregulated oil markets are supposed to attract downstream players, but refiners in the Philippines had instead chosen to divest from refining assets and permanently closed their refineries.”
Meanwhile, Fitch Solutions warned that the Philippines could be the only market in Southeast Asia without an operating refinery if Petron Corp. decides to close its refinery in Bataan.
“It remains uncertain whether Petron will keep running its lone refinery for a longer period of time if refining profits are unfavorable amid rising competition from industry players,” it said. “The Philippines could be left as the only market in Southeast Asia without an operating refinery if Petron decides to call it quits sometime in the future.”
Fitch Solutions said the country had a lower refining capacity as refined fuel production dropped to 79,000 bpd in 2021 from 236,000 bpd in 2018, with the low refining capacity gaps worsened by lower refinery use rates.
“Petron has strong incentives to hike refinery utilization rates in light of growing shortages in domestic supply, but it is not likely to do so given the challenges of distribution across the archipelago, which is critical to securing market shares in the Philippines’ oil market,” it added. — Revin Mikhael D. Ochave