Under-investments in exploration seen pushing oil prices higher

By Myrna M. Velasco

Global under-investments in petroleum exploration and commercial developments in the last two years will be pushing oil prices even higher to the levels of US$90 to $100 per barrel, and this will come to be an extremely agonizing news to heavily import-dependent economy like the Philippines.

Energy Secretary Alfonso G. Cusi acknowledges the “consumers pain” over high oil prices, but the government has yet to come up with concrete contingency measures on how to cushion the impact of new record-high oil prices – that shall be beyond the token discounts they have been asking from the oil companies.

Cusi said his department “is closely coordinating with the Department of Finance to discuss new measures concerning the excise tax and value-added tax on oil as result of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law.”

Other than the actual soaring prices at the petroleum pumps, the next dilemma for the Filipino consumers will be pricey oil’s spiraling effect on electricity rates – since gas prices being utilized by power plants are oil-indexed.

Manila Electric Company (Meralco) Vice President Lawrence S. Fernandez noted that the utility firm has been sourcing 50 percent of its supply from gas-fired power facilities, mainly the Santa Rita, San Lorenzo and Ilijan gas-fired power plants.

The next round of gas fuel re-pricing will be in July this year, which will then be reflected in the August electricity bills of consumers.

“We already saw last month the effect of the recent increases in world crude oil prices, when Malampaya’s gas price was repriced upwards,” Fernandez noted, although at this point, he asserted hopes that softer prices in the Wholesale Electricity Spot Market (WESM) prices may save Filipino consumers once again from prohibitive rate hikes.

It is worth noting that from the very depressed state of global oil prices that had gone rock bottom at US$30 per barrel in early part of 2015, the production freeze collaboration of global oil producers led by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC alliance with Russia, had already gone a long way in arresting further price fall – with international prices now reaching the level of $77 to $80 per barrel for basket of crudes.

After Brent crude cognitively breached US$80 per barrel last week, it was almost hovering at steady pace of US$78 to $79 per barrel; but Dubai crude has been rising higher to US$77 per barrel from last week’s $75 per barrel.

IEA Executive Director Fatih Birol has already warned that “it is easy for consumers to be lulled into complacency by ample stocks and lower prices, but they should heed the writing on the wall: The historic investment cuts we are seeing raise the odds of unpleasant oil security surprises in the not-too-distant future.”

As emphasized, global oil exploration and production capital expenditures had been on continuous downtrend since 2015 – as plummeting prices had been squeezing margins of oil producers.