Demand destruction

By all accounts, a month from now is when we will reach the point of no return. When President Marcos said, last week, that we have 45 days of gas left, people seem to have reached the conclusion that a total shortage would occur.

When the President advised people that travel would be affected by the crisis because jets are basically fueled by kerosene, what was his point? Consider these facts: Petron operates the only remaining oil refinery in the Philippines (it can refine 180,000 barrels per day or supply 40 percent of the country’s needs). It’s a finite capacity. As reported by Nicky Franco, Petron has a small refinery (88,000 barrels per day) in Malaysia. The problem is, it’s been offline since December, when a storm destroyed the facility’s jetty. Among the products the Petron refinery can produce from crude is kerosene; but even if we have sufficient crude, we don’t have sufficient capacity, so to speak, in our refining pipeline, to meet national demand–we will have to prioritize who gets gas and when.

And that is what’s in store for us not just in the short, but also in the medium, if not long term.

The food sector, one consumer noted, has been absorbing the oil crisis. Another consumer had to ask, how will that affect deliveries? As it is, early on, the government decided to provide a subsidy to motorcycle taxi and transport workers. There will probably be a demand for some sort of relief for poor households when it comes to limited stocks of liquefied petroleum gas (LPG) and kerosene.

Bettina Osmeña, a food entrepreneur, puts the problem bluntly: “In the coming months, it’s going to be about survival in business especially in the food industry. Extra profit could be a pipe dream.” Here, the big players in the private sector and local governments have a large role to play in deciding who gets to survive. During the pandemic, the mall operators offered concessions to tenants to help them survive. What can local government units do?

Business leaders have already gone on record warning that an energy crisis could have a greater negative impact on the economy than the pandemic did. Back then, the private sector and gated communities mobilized quickly, to stave off hunger in neighboring areas. This bought time for the slower but massive resources of government to be mobilized for national relief.

The government, ironically enough, having sharply reduced its spending because of the fallout from corruption exposés, might have the money it needs to help. Sen. Sherwin Gatchalian last week said there is room in the national budget to scrounge up P170 billion to realign for crisis-related spending (by way of context: For Bayanihan I, the government disbursed P369.8 billion; for Bayanihan II, it spent P204 billion; with other programs, P690 billion was spent).

When John Mangun who keeps an eye on these things, pointed out 60 percent of our electricity comes from coal, another 15 percent from natural gas and the rest from oil, I wondered if some news items might be relevant. The first is that considering the damage to Qatar’s LPG facilities and expectations the United States is poised to make up for that shortfall, would we be able to get a piece of that as a benefit of the alliance?

And would Indonesia, with its president due to visit Manila, be able to guarantee us coal supplies? And would China’s leverage over us expand since we derive most of our oil imports from them? He replied, “Probably not. Indo already supplies our imported coal needs. On a scale of 1 to 10 of being damaged by the Hormuz situation, CHN (China) gets an 11. And, when CHN gets an energy cold … [Southeast Asia] gets pneumonia.”

What, then, are our options, I asked by way of a follow-up. His reply: “Perhaps one concept that [the National Capital Region] folks of mid econ and above are not good at … energy conservation and reducing nonessential travel. Diesel shortage is the serious issue and government buying that 300k is a good start. Excise tax cut on fuel ok … not great … can be counterproductive. We need demand destruction. Painful but necessary.”

Demand destruction is already happening. Tourism in Baguio City has already fallen off a cliff, if promos by the Baguio Country Club are any guide–there are no takers for rooms. But even if, say, the government brings in the tankers, it will take time to get their crude into our tanks as gasoline. In the meantime, priorities will have to be established. Who gets gas or diesel—buses and tricycles, ambulances and police cars, cargo trucks and trains, modest private vehicles, in that order? Who gets told to leave it at home? Owners of gas-guzzling SUVs (sport utility vehicles)? Yachts? Private jets? Whose demand gets to be destroyed?

These are the questions that will leave no one happy, but which have to be asked, and in an ideal world, it’s what will be facilitated by that executive order the President signed declaring a state of energy emergency. Families are already ruthlessly destroying demand–as a matter of survival. But there is the destruction only government can do, though hopefully after inviting the private sector and the public to weigh in, too.

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Email: mlquezon3@gmail.com; Twitter: @mlq3