Costly fuel, urgent need for storage

Costly fuel, urgent need for storage | Daily Tribune

The crisis unfolding beyond our shores is bringing the global energy system to the brink. The vulnerability is no longer theoretical. The disruption in the Strait of Hormuz — through which roughly 20 percent of the world’s oil supply passes — has effectively choked global shipping and stranded tankers.

Oil prices have surged past $100 per barrel, with credible warnings of a further escalation if the conflict persists. More alarming than price, however, is the emerging risk of a physical shortage — production cuts, halted exports, and near-zero tanker traffic in critical corridors.

For an import-dependent country like the Philippines, this is not just a pricing issue. It is a supply crisis in the making.

Under the Oil Deregulation Law, industry players maintain inventories based on commercial logic, not national contingency. Companies such as Petron, Pilipinas Shell and Chevron Philippines are free to determine their import strategies. This has fostered competition and ensured supply reliability.

But deregulation also meant the lack of a coordinated push toward a system-wide efficiency.

There is no true strategic petroleum reserve calibrated for geopolitical shocks, no centralized buffer that can be deployed when markets seize or supply chains fracture. Each firm optimizes for its own balance sheet — shipment size, inventory levels, and price exposure — rather than for national logistics efficiency.

The outcome is rational at the firm level, but suboptimal at the national level. In an increasingly volatile world, this is not just a policy gap — it is a strategic exposure.

We rely on Medium Range tankers delivering 30 to 60 million liters per shipment — enough for roughly one or two days of national diesel demand. This high-frequency import cycle may work in normal times. It minimizes inventory costs, reduces exposure to price swings, and keeps capital efficiently deployed.

But in times of crisis, it becomes a liability. Tankers are delayed, rerouted, or cancelled and may not arrive as expected; cargoes may be repriced or diverted to more enterprising buyers; freight and insurance rates spike; and supply chains freeze under geopolitical strain. As is happening now globally, the system has no cushion. Storage becomes the difference between continuity and disruption.

Without sufficient reserves, the country is forced to compete in the spot market at precisely the worst time — when prices are highest and availability is lowest.

Demand is not static — it is a moving target. As the Philippine economy grows, fuel demand grows alongside it. If growth accelerates, demand will rise exponentially; if growth slows, demand will follow. Energy consumption is tightly coupled with economic activity — transport, manufacturing, construction and power generation all scale with growth.

A system already operating with minimal buffer and suboptimal scale will face even greater strain under higher demand — magnifying both cost inefficiencies and supply risks.

The lesson from today’s crisis is stark: in an era where a single chokepoint can shut down a fifth of global supply, storage is no longer a logistical detail — it is a national defense asset.

A credible policy response must include:

First, expanding strategic storage beyond commercial needs. Not just more tanks, but dedicated reserves insulated from market turnover — capable of several months of demand.

Second, enabling bulk procurement during stability. When prices are low and supply is abundant, the country must be able to import larger volumes and store them — breaking free from the tyranny of constant replenishment.

Third, integrating storage with port modernization. The deeper ports and larger tankers only deliver value if matched by sufficient onshore storage to receive and hold bulk cargo.

Fuel price spikes are visible. Shortages are not — until they happen. The current crisis in the Middle East is a warning: global energy markets are no longer just volatile; they are increasingly fragile and interruptible.

In an archipelago like the Philippines, the modernization of ports and the construction of depots capable of accommodating Very Large Crude Carriers are often dismissed as aspirational — too capital-intensive for a government constrained by chronic budget limitations. But this framing obscures a more uncomfortable reality: the constraint is not purely fiscal, but allocative.

The scale of resources required is not beyond reach. In fact, even a fraction of the reported leakages in public infrastructure spending — most notably in flood control projects over the past three years — would be more than sufficient to finance a strategic network of deepwater terminals and storage facilities. What is presented as a question of affordability is, in truth, a question of priorities and governance.

If energy security is to be treated as a national imperative rather than a residual concern, then the investment case is not only viable — it is unavoidable.

This is no longer just an economic issue. It is a national security issue.

In the end, the question is not whether the Philippines can afford to build strategic storage and modernize its fuel infrastructure — it is whether it can afford not to.

Energy security is not tested in times of abundance, but in moments of disruption, when preparation determines resilience. As Winston Churchill once argued in a different context of national survival, “Safety and certainty in oil lie in variety and variety alone.”

For the Philippines today, that principle extends beyond sources to scale, storage, and system design. Without deliberate investment in these, the country remains one disruption away from crisis — paying more not just in pesos, but in vulnerability.