=== pep-2023-2050-vol2-section-b-page-024.pdf === Production and Consumption. In 2022, natural gas production was recorded at 113,611 million standard cubic feet (MMSCF), a 6.2 percent decline from the previous year’s level of 121,089 MMSCF.12 Meanwhile, consumption was seen at 108,567 MMSCF, also indicating a decrease from 115,871 in 2021 (Figure 4). 13 The consumption or utilization of natural gas in the country is solely for power generation as it is not utilized for industrial purposes because the Pilipinas Shell Petroleum Corporation’s (PSPC) ceased its oil refinery operation in February 2021. Natural gas supply from Malampaya can possibly be extended up to 2027 but will not be able to sustain its usual production rate. Considering this, the DOE continues to promote and encourage private sector investment in LNG receiving terminals and other downstream gas related facilities by creating an investor-friendly environment. Regulations Governing the Natural Gas Industry. The importation of LNG is one of the strategic solutions the government identified and initiated to ensure supply continuity. With Department Circular (DC) 2017-11-0012 or the Philippine Downstream Natural Gas Regulation (PDNGR) in place, LNG investors are guided to initiate and build the corresponding facilities that will help spur the industry’s development. Figure 4. Natural Gas Production and Consumption (2021-2022) Currently, the PDNGR is undergoing major revisions covering the provisions for Third Party Access (TPA) and the supply side. The former will no longer be mandatory, while the latter will have two types of supply accreditation to be issued – supplier accreditation and aggregator accreditation. As an aggregator, the investor can source natural gas from both local and imported gas. Other changes also include streamlining the documentary requirements for permit applications. The permits on facilities are clearly defined. Other than the existing Notice to Proceed (NTP), there are also the Permit to Expand, Permit to Rehabilitate, approval of the DOE prior to the transfer of operatorship of gas facility, and approval of decommissioning and abandonment of natural gas facility. The revised PDNGR was issued at the end of 2023. LNG Projects. Currently, the DOE has approved seven (7) LNG projects with an aggregate capacity of 21.98 million tons per annum (MTPA) through the issuance of the NTP. Three (3) have proceeded with Permit to Construct (PC) and most recently, one of the holders already submitted its application for Permit to Operate, after its mechanical completion and its Floating Storage Unit (FSU) arrived in the country (Table 6). The development of LNG infrastructures is focused on feasible areas in the country, with most ongoing LNG projects located in Luzon (e.g., Batangas, Quezon, and Bataan). The Linseed Field Corporation received its first LNG delivery in April 2023 through the Ocean Glacier vessel from the United Arab Emirates (UAE). The delivery benefitted Ilijan Power Plant as the gas supply is crucial in the plant’s resumption of operations from its almost eight (8) months of non-operation. Linseed Field Power Corporation’s LNG Receiving Facility with Ocean Glacier vessel. The FSRU of First Gen (FGEN) Corporation arrived in Batangas on 16 June 2023 through BW Batangas. The BW Batangas is part of the Interim Offshore LNG Terminal Project that can hold 162,524 m3 of LNG and can regasify up to 500 MMSCF of gas per day. This will enable utilizing LNG to augment the decreasing supply from Malampaya.14 Production is gradually decreasing because of the gas field’s decreasing pressure over time. The difference between production and consumption rates as reported is due to the own use of gas for platform operations. 14 First Gen Corporation’s Press Release thru their Official Facebook Page dated 23 June 2023 12 13 14 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-025.pdf === Aside from additional gas supply, FGEN and Linseed also provided job opportunities in the country. FGEN generated 1,025 jobs during its preparation and construction phase, while Linseed hired 880 people for its project. Most of the workers are residing in the province of Batangas and nearby provinces, ensuring that their own professional and skilled workers will be the first to benefit from the job requirements of these energy projects. Table 6. List of Ongoing LNG Projects with Most Recent Issued DOE Permits as of 07 July 2023 Proponent Project Target Operation Location Capacity (MTPA) Most Recent Issued DOE Permit September 2023 Batangas City 5.26 July 2023 Batangas City 3.00 Permit to Construct issued on 28 December 2021 FGEN LNG Corporation Interim Floating Storage and Regasification Unit (FSRU) Linseed Field Corporation Floating Storage Unit (FSU) and Onshore Regasification Energy World Gas Operations Philippines Inc. LNG Storage and Regasification Terminal December 2023 Pagbilao, Quezon 3.00 Permit to Construct Extension for one year issued on 31 January 2023 Luzon LNG Terminal Inc. Floating Storage and Regasification Unit (FSRU) December 2025 Batangas City 4.40 Permit to Construct issued on 19 December 2022 Vires Energy Corporation Floating Storage and Regasification Unit (FSRU) April 2023 Batangas City 3.00 A two-year Notice to Proceed extension was issued on 12 January 2023 Shell Energy Philippines, Inc. Floating Storage and Regasification Unit (FSRU) September 2023 Batangas City 3.00 20-month Notice to Proceed extension issued on 06 January 2023 Samat LNG Corporation Small–Scale LNG Terminal Project March 2024 Mariveles, Bataan 0.32 Total Permit to Construct issued on 20 Sept. 2020 with a six-month extension already issued on 13 December 2022 Notice to Proceed issued on 09 January 2023 21.98 Table 7. List of Natural Gas-related House Bills House Bill No. Title 17, 29, 4097, 4615 Promoting the Development of the Philippine Downstream Natural Gas Industry, consolidating for the Purpose All Laws Relating to the Transmission, Distribution, and Supply of Natural Gas, and Appropriating Funds Therefor • • • • • • Sponsors 173 Developing the Philippines Natural Gas Industry, and Appropriating Funds for this Purpose Rep. Caroline L. Tanchay and Rodante D. Marcoleta 3015 Providing for the National Energy Policy and Framework for the Development and Regulation of the Philippine Midstream Natural Gas Industry, and other Purposes Rep. Joey S. Salceda 4627 Developing the Philippines Natural Gas Industry, and Appropriating Funds for this Purpose Rep. Gus S. Tambunting HB 17 - Rep. Ferdinand Martin G. Romualdez, Yedda Marie K. Romualdez, and Jude A. Acidre HB 29 - Rep. Lord Allan Jay Q. Velasco HB 4097 - Rep. Paolo Z. Duterte, Eric G. Yap, Edvic G. Yap, and Jeffrey Soriano HB 4615 - Rep. Michael L. Romero Legislative Agenda. The 19th Congress saw the review of the Committee on Energy on related House Bills (HBs) for natural gas industry development. These HBs filed in the House of Congress are shown in Table 7. On the other hand, Senate Bill (SB) 152 titled “An Act Providing for the National Energy Policy and Framework for the Development and Regulation of the Philippine Midstream Natural Gas Industry, and for Other Purposes,” aims to fill the gaps in the intricacy of the existing natural gas industry. A comprehensive legislation is needed to strengthen and bridge existing policies to unlock the potential of natural gas as a vital source of energy for the country. The HB on LNG was recently approved by the House of Congress - Technical Working Group (TWG) on 24 May 2023. Said HB consolidates all related HBs on natural gas and the emerging LNG industry. The consolidated HB is titled “An Act Promoting the Development of Philippine Downstream Natural Gas Industry, Consolidating for the Purpose All Laws Relating to the Transmission, Distribution, and Supply of Natural Gas, and Appropriating Funds Therefor” and provides a framework for the development of the Philippine Downstream Natural Gas Industry (PDNGI) and its transition from emerging into mature industry within a competitive natural gas market. It also defines the responsibilities of various government agencies and private entities in furthering the industry’s growth. Vo l u m e 2 15 === pep-2023-2050-vol2-section-b-page-026.pdf === Approval of the LNG Bill by the HOR Technical Working Group on 24 May 2023 Gas Policy Development Project. The DOE partnered with the University of the Philippines – Statistical Center Research Foundation, Inc. (UP-SCRFI) and UP National Engineering Center (UP – NEC) for the Gas Policy Development Project (GPDP) funded by the United States Department of State. The project was launched in December 2018 to provide technical assistance to the DOE on the implementation of PDNGR, conduct of capacity buildings among government agencies in regulating the importation of LNG into the country, and other potential LNG-related trainings and workshops. The project also assisted the DOE and the Philippine Inter-Agency Health, Safety, Security, and Environment Inspection Monitoring Team (PIA-HSSE-IMT) in putting up a governance structure for the evaluation of applications for permits of LNG projects. Another output is the conduct of a market study on the potential non-power applications of natural gas other than power generation. The study was conducted among the Philippine Economic Zone Authority’s (PEZA) economic zones, which are potentially huge energy users especially manufacturing companies serving as locators in these zones. The GPDP resulted in the publication of three research papers. The “Power and Non-Power Applications of Natural Gas,” completed in June 2022, presented the technical and environmental performance of existing gas facilities and summarized process recommendations that could increase efficiency and reduce emissions. Meanwhile, the “Market Profiling on Potential Natural Gas Users in Economic Zones”, completed in May 2022, updated the profile and activities of the existing economic zones, identified locators with energyintensive operations in CALABARZON and Central Luzon (selected provinces), and determined the interest of locators in Special Economic Zones (SEZ) to convert to natural gas. The study delved into the top considerations for switching to natural gas, knowledge and perception on natural gas, knowledge on environmental issues, and technical requirements for switching from conventional fuel to natural gas. Further, the “Market Profiling with Emphasis on the Use of Liquefied Natural Gas to Power Economic Zones” focused on the manufacturing and agro-industrial SEZ and recognized its distinct facilities and technologies that contribute to high energy demand and intensity. It also analyzed the willingness of the company locators within these SEZs to shift from its current energy source to LNG. Moreover, GPDP published two reference documents for the downstream natural gas industry - LNG Investors’ Guide and Financial and Technical Recommendations for the LNG Project Applications. The former would assist investors in processes of business permitting from setting up of the facilities to commercialization. The latter is deemed important for evaluators in the assessment of the technical and financial viability of LNG project applications. 16 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-027.pdf === GPDP 2 As GPDP progressed to its second phase, it completed the Natural Gas Development Plan (NGDP) to aid regulators, policymakers, and investors in the development of the natural gas industry. The plan likewise provides guidance on the role of natural gas, legal and regulatory framework, and potential areas for development. GPDP 3 The DOE is working to expand the project into its third phase through a technical assistance. The focus will be on the capacity-building aspect for the HSSE-IMT member agencies for the harmonization of regulations governing the natural gas industry. Currently, the Department is still working on the potential funding for this initiative. Memorandum of Understanding (MOU) Between DOE and MAN Energy Solutions. The DOE and MAN Energy Solutions15 signed an MOU on 22 February 2022 that aims to formalize the establishment of cooperation on a nonexclusive basis for the conduct of a feasibility study for small- and medium scale LNG importation and regasification to power projects. It will also identify applicable technical and business solutions utilizing small- to medium-scale LNG importation and regasification to power projects that can be implemented in Visayas (indicative areas are Cebu, Iloilo, and Bohol) and Mindanao (indicative areas are Davao and General Santos). The MOU will also determine the required mixed modes of land and sea transport to domestically provide natural gas supply in an economical manner including the required infrastructure and transportation facilities that will contribute to the market development of natural gas in these regions. The feasibility study is in the finalization phase and targeted to turn over to the DOE by end-2023. Natural Gas Taxation. Given its nature as a fossil fuel, natural gas is not subject to excise tax and customs duty tax. As stipulated in the guidelines of the Bureau of Internal Revenue (BIR), imported LNG, although classified as a fossil fuel, is not among those articles enumerated under Title VI, Chapter V of the National Internal Revenue Code (NIRC), as amended, and thus exempted from excise tax.16 Additionally, based on Republic Act (RA) No. 9337 or the Reformed Value Added Tax (RVAT) Law signed in November 2005, locally extracted natural gas and LNG are not subject to the excise tax on mineral products. Prior to the amendment, these products were taxed at the rate of two (2) percent.17 Imported LNG is not also subject to custom duty tax18 which indicates that the price of LNG will be competitive among other fuels, considering its reliability and flexibility in terms of technology. German firm known in the engineering industry as a technology provider for decarbonization. FOI Portal Inquiry Response to Asst. Commissioner Manuel V. Mapoy, Large Taxpayer Services (LTS) FOI Portal Inquiry Response to J. Salvo, DOE NGMD 14 Feb 2020 18 Section V, Chapter 27.11 of the 2017 ASEAN Harmonized Tariff Nomenclature (AHTN), Tariff and Customs Code – Most Favored Nation (MFN) & ASEAN Trade in Goods Agreement (ATIGA) 15 16 17 Vo l u m e 2 17 === pep-2023-2050-vol2-section-b-page-028.pdf === Plans and Programs The energy sector’s overall goal is to have a “sustainable, stable, secure, sufficient, accessible and reasonably-priced energy” for the country. Corollary to this, the downstream natural gas industry specifically aims to improve its governing policies by establishing a world-class, investment-driven, and efficient natural gas industry. Legislative Agenda and Policy Advocacy Campaign. The foreseen entry of LNG investments and projects in the country entails the DOE to focus on strengthening and formulating relevant policies and regulatory frameworks on natural gas supply security, safety, and access. These policies include the following: a) Joint Administrative Order (JAO) among relevant agencies on the PIA-HSSE-IMT that is responsible for the inspection and permitting of LNG projects; b) ongoing amendment of the existing policy governing the industry, which is the PDNGR; c) Third Party Access Rules; d) NGDP; and e) development of National Oil and Natural Gas Contingency Plan. Forming part of the initiatives is also the establishment of bilateral partnerships between academe, international organizations, institutes, and industries to map out regulatory, technical, and commercial capabilities of natural gas and clearly understand the gas demand in non-power applications. The policy advocacy campaign specifically pinpoints the support for the passage of the Natural Gas Bill and the preparation of its Implementing Rules and Regulations (IRR) once signed into law.The conduct of market study and research (i.e., market survey and profiling) will be continued through the GPDP. The study on taxes and incentives for imported LNG, inventory of natural gas technology for non-power applications, and natural gas pricing, are all priorities in knowledge-building to effectively assist the DOE in managing the industry. The results of these studies will further support the formulation of necessary policies and regulations for the downstream gas industry. Standards Development. The establishment of standards for natural gas is an essential move to properly manage the facility and products. The recent creation of a Technical Committee (TC) for Natural Gas Standards Development started with the acceptance of invited TC members. The 13 membership nominations for the TC were formally accepted by the sectoral representatives consisting of the academe, manufacturers, government agencies, industries, professional institutions, and standard government organizations. The development of a Philippine National Standard (PNS) on LNG Import Terminal (both onshore and offshore) is a top priority. The standards to be formulated will be benchmarked to countries with vast LNG experience in importation such as Japan, which is known to be the largest global LNG importer. The code of practice is also essential as it encompasses inspection procedures, LNG handling, and PNS implementation in LNG terminals (through an issuance of a DC). 18 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-029.pdf === Figure 5. Downstream Natural Gas Roadmap Short Term 2023-2024 Legislative Agenda and Policy Advocacy Campaign DNGI Standards Development Communication Initiatives DNGI Program Management Monitoring & Implementation Medium Term 2025-2028 Long Term 2029-2050 • Develop/Implement policy, plans, rules and regulations on natural gas supply security, safety and access » JAO to strengthen the established inter-agency HSSE-IMT » Ongoing Amendment/Update of the Philippine Downstream Natural Gas Regulation (DC 201711-0012) » TPA Rules/Code » PDNGI Development Plan » Develop National Oil and Natural Gas Contingency Plan » Advocate passage of Natural Gas Rules/Bill » Develop the IRR the Natural Gas Bill • Establish bilateral partnerships with the academe, international organizations, institutes and industries to map out regulatory, technical and commercial capabilities* • Develop/Implement policy, plans, ruin and regulations on natural gas supply security, safety and access » Approval/Implementation of JAO by members of the inter agency HSSE-IMT » Public consultation of the IRR of the Natural Gas Bill, approval publicatioin and implementation » Implement TPA Rules/Code » Update every three (3) years the PDNGI Development Plan » Implement the National Oil and Natural Gas Contingency Plan » Development of necessary and relevant policies, rules and regulations for a harmonious implementation of the plans and program of the DNGI • Develop/Implement policy plans, rules and regulations on natural gas supply security, safety and access » Amend the Natural Gas Bill and it’s implementing Rules and Regulations » Continue updating every three years the PDNGI Development Plan » Update the TPA Rules/Code » Update the Natural Gas Contingency Plan » Development and updating of necessary and relevant policies, rules and regulations for a harmonious implementation of the plans and programs of the DNGI • Creation of the Technical Committee to develop standards on facility, product and code of practice • Develop & promulgate PNS on facility: • LNG Import Terminal ͟ onshore ͟ offshore • Develop PNS on code of practice: » Inspection Manual » LNG Handling » DC to implement the PNS on LNG Import Terminal • Develop & promulgate PNS on facility: » Transmission Pipeline Code » Distribution Pipeline Code » Natural Gas related ancillary facilities » HSSE Standard • Develop PNS on code of practice: » LNG Terminal Safety Operation » Transmission & Distribution Pipeline Safety Operations » DC to implement the PNS on Transmission and distribution Pipeline • Update PNS on natural gas product: » PNS on Natural Gas Quality: Industry, Transportation, Household • Develop PNS on code of practice: » LNG/Natural Gas safety application » LNG/Natural Gas safety storage » LNG/Natural Gas safety transportation » DC to implement PNS on natural gas quality in industry, transport & household application • Development and updating of necessary standards on product, facility and code of practice so that it will be responsive with the new and emerging technologies and economic conditions, ensuring quality product and safe operation of the natural gas facilities • Promote Natural Gas Market Development and Natural Gas Infrastructure Development Program to potential investors • Conduct Market Study/Desk Research & Database » Market Survey/Profiling with GPDP » Excise tax and incentives for imported LNG » Inventory of natural gas technology for non-power applications » Profiling of potential gas market/consumer » Natural Gas utilization and pricing statistics » Study on price indices of LNG » Evaluate emerging trends in natural gas use and its impact on other fuels and the economy » Study the commercial application of natural gas seepage, coal bed methane, hydrates and other potential sources • Conduct Study and Assessment on potential natural gas projects • Natural Gas Infrastructure Development » Implementation of LNG Import Terminal in Luzon • Conduct of pre-application conference • Conduct technical review & evaluation of Permit application of proposed natural gas infrastructure projects • Issuance of Notice to Proceed • Issuance of Permit to Construct • Issuance of Permit to Operate and Maintain » Registry of Operators and natural gas facilities • Natural Gas Supply Security » Accreditation of LNG Importer » Accreditation of Natural Gas Supply & Transport » Accreditation LNG Importation and Natural Gas Supply & Transport • Monitoring of activities to ensure HSSE compliance by operators of gas facilities: » Facility inpection/validation in cooperation with inter-agency HSSE-IMT » Site validation in cooperation with DNG REC and inter agency HSSE-IMT prior to issuance of POM » Natural gas project in small and off grid islands in Visayas & Mindanao • Promote small scale LNG terminal in small islands in Luzon, Visayas & Mindanao • Promote LNG application in off grid islands • Promote application of emerging technologies in industry, transport and household • Promote the Philippines as LNG and Transshipment Hub in Asisa Pacific Region • Conduct FS of Small scale LNG terminal in off grid islands • Transmissions & Distributions Pipeline from LNG Hub Terminal in Luzon, Visayas and Mindanao including virtual pipeline • Issuance of Permit to Expand • Issuance of Permit to Rehabilitate • Issuance of Permit to Modify • Establishment of sinking fund for the decommissioning of transmission & distribution pipeline and natural gas facilities • Decommissioning Plan of natural gas facilities 2050 OBJECTIVE To establish a world class, investment driven and efficient natural gas industry that makes natural gas the preferred fuel by all end use sectors Program Management, Monitoring, and Implementation. The procedures on the implementation of LNG import terminal projects are still under development. The DOE, through the pre-application conference, creates an avenue to discuss with potential investors their plans in putting up LNG facilities. This also serves as a forum for the investors to inquire and discuss the permitting process for securing the NTP, PC covering facility construction and completion, and Permit to Operate and Maintain (POM), which gives the green light on the operation of the facility. Progress reports are necessary while the proponent secures the next level of permits. On natural gas supply security, it covers the DOE’s issuance of accreditation and acknowledgment. The importation and transportation of gas need to be communicated to the Department and once acknowledged, this will be part of the documentation that is a requirement of other government agencies such as the Bureau of Customs (BOC). It is also essential for an LNG importer to apply for accreditation prior to the arrival of LNG supply in the country. Another component of this action plan is the monitoring of the facility-related activities to ensure adherence to the requirements of the HSSE. The PIA-HSSE-IMIT is tasked to conduct regular inspection schedules in existing and upcoming gas facilities. Vo l u m e 2 19 === pep-2023-2050-vol2-section-b-page-030.pdf === Communication Initiative. The conduct of information, education, and communication campaigns (IEC) is a continuing effort to convey natural gas as a clean and reliable fuel. These campaigns have been conducted to target locators in economic zones, particularly in Southern Luzon (e.g., Laguna, Batangas, and Quezon) where the existing and planned natural gas facilities are located. Accordingly, the DOE’s local government counterparts (e.g., city / municipal planning, engineering, health and safety, business permit licensing, etc.) also formed part of the stakeholders in IECs as these offices are responsible for issuing permits to natural gas projects. The market survey delving on the willingness of converting to natural gas is also included in the IECs. The results likewise provided useful analysis and insights on the possible additional market for natural gas (either local or imported) and in line with market expansion (other than power generation). The plan of continually educating stakeholders on natural gas’ non-power applications will include manufacturers that are mostly located in industrial zones. These industries are known to be highly energy intensive especially cement, glass, steel, and food manufacturing, where there is high demand for fuel in the furnaces and boilers. There are manufacturers that rely on pure electricity processes. However, to ensure the uninterruptable supply of electricity, natural gas is a reliable option as it is known to be a fast start-up fuel. Small-scale LNG. Forming part of the sector’s plan is the promotion of small-scale LNG (SSLNG) facilities to provide power in off-grid areas. The SSLNG facilities are seen as a possible replacement to heavy reliance on oil-based generation in missionary areas. One of the advantages of SSLNG is lower initial investment cost compared with conventional LNG. In addition, the supply can come online in a relatively shorter period and the flexibility of logistics and operation will not be relying on the existence of gas pipelines. The SSLNG facilities could make a big difference in setting the goal of efficient and low-carbon power generation in off-grid areas. As defined by the International Gas Union, a small-scale LNG facility has a liquefaction and/ or regasification capacity of 0.05-1.0 MTPA and a vessel with a capacity of 60,000 cubic meters (m3) or less.19 Investment and Employment Opportunities The investments in natural gas facilities are critical to the industry’s advancement, and to facilitate this, the DOE approved an additional five LNG projects with a total investment cost of USD865.4 million20 (PhP43.3 billion) (Table 8).21 Considered a flexible fuel, LNG can support the grid’s demand from baseload to mid-merit and peaking. It will also assist the sector in furthering the development of intermittent RE technologies such as solar and wind. Apart from investments directed by these projects, another tangible benefit is employment generation. A total of 4,507 jobs are expected to be created from these LNG projects, providing a significant contribution to both the local and national economy. Table 8. List of Ongoing LNG Projects with Job Generation Target Operation Location Total Construction Cost (Php Million)22 Project Energy World Gas Operations Philippines Inc. LNG Storage and Regasification Terminal December 2023 Pagbilao, Quezon 3,115 145 7,250 Luzon LNG Terminal Inc. Floating Storage and Regasification Unit (FSRU) December 2025 Batangas City 160 480 24,000 Vires Energy Corporation Floating Storage and Regasification Unit (FSRU) April 2026 Batangas City 782 123 6,150 Shell Energy Philippines, Inc. Floating Storage and Regasification Unit (FSRU) September 2025 Batangas City 290 49.40 2,470 Samat LNG Corporation Small – Scale LNG Terminal Project Phase 1 - March 2024 Mariveles, Bataan 160 68 3,400 4,507 865.4 43,270 Phase 2 - May 2025 Total APEC Small-scale LNG in Asia Pacific, APEC Energy Working Group – September 2019 Forex used is USD 1 = PhP 50 DOE NGMD LNG Project Status Matrix Report as of 07 July 2023 22 1 USD = PhP50, Based on DOE’s Project Status Matrix as of 07 July 2023 19 20 21 20 Total Construction Cost (USD Million) Job Generation Proponent Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-031.pdf === On top of the ongoing LNG projects, the Reference (REF) scenario needs an additional capacity of 3.98 MTPA of LNG facilities to meet the projected supply requirements by 2050. If this additional capacity is provided by an Onshore LNG Terminal, it will necessitate a total investment of PhP47.3 billion. Alternatively, if sourced from an FSRU, a lower investment cost of PhP11.1 billion is required. The construction of these new LNG facilities is expected to create employment opportunities for 907 Filipinos. In the Clean Energy Scenario (CES), no additional LNG capacity is needed, as ongoing projects are sufficient to meet the country’s requirements. Table 9. Additional LNG Facilities Capacity Addition (MTPA) On-shore LNG Terminal with Storage Job Generation 47,32223 3.98 FSRU with Storage Total Aggregate Investment (PhP Million) 907 11,13524 3.98 58,457 907 Oil Industry The global economy including the oil market is on the path of recapturing what it lost during the COVID-19 pandemic because of lockdowns, mobility restrictions, and supply surplus. The oil prices then were also on a decline, a result of the excess in production of supply. With economies already opening and the easing and lifting of restrictions implemented, supply was met with an uptrend in oil demand. Apart from the pandemic, the geopolitical conflict between Russia and Ukraine also impacted oil prices resulting in competition in securing the required supply from importing countries. In 2021, oil’s share in global primary energy consumption comprised 30.95 percent.25 The International Energy Agency (IEA) in its Global Energy Review 202226 cited that “global oil demand surpasses 2019 levels by 2023, undeterred by high oil prices. Demand peaks in the mid-2030s at 103 million barrels per day (MB/D)” under its Stated Policies Scenario (STEPS). As indicated in STEPS, road transport will have the biggest demand for oil from 40.5 percent to 41.9 percent in the period 2021 to 2030. This will be followed by industry/petrochemicals and aviation and shipping from 20.5 percent to 23.7 percent and from 9.9 percent to 14.0 percent, respectively. In the Philippine context, oil accounted for the largest share in the total primary energy supply (TPES) for 2022, registering 32.2 percent equivalent to 19.8 million tonnes of oil equivalent (MTOE) (indigenous at 0.36 MTOE and imported at 19.47 MTOE). As the country remains oil import dependent, the Department of Energy (DOE) is vested with the mandate27 of securing sufficient oil and petroleum products supply, ensuring the product’s quality in adherence to the Philippine National Standards (PNS), and overseeing a fair and competitive market for oil industry players. Downstream Oil Participants Retail Marketing Business. The number of operating liquid fuel retail outlets (LFROs) or gasoline stations increased by 10.4 percent, from 10,802 in 2021 to 11,923 in 2022. The constant growth in retail facilities can be attributed to the government’s policy of modernizing these including the services as contained under Department Circular (DC) No. 2017-11-0011 or the “Revised Retail Rules.” Among the country’s major islands, Luzon remains to have the greatest number of LFROs comprising almost 53.0 percent (6,282) of the total in 2022. Mindanao and Visayas both have a share of 24.0 percent and 23.3 percent, respectively (Table 10). Table 10. Number of LFROs (cumulative) Region 2021 2022 NCR 1,032 1,056 Luzon 5,802 6,282 2,780 Visayas 2,423 Mindanao 2,577 2,861 Total 10,802 11,923 Note: Luzon includes the LFROs in NCR Onshore Investment per MTPA: PhP11,900 million; Job Generation per MTPA: 228 jobs Offshore Investment per MTPA: PhP2,800 million; Job Generation per MTPA: 228 jobs bp Statistical Review of World Energy 2022 71st edition 26 Source: https://www.iea.org/reports/global-energy-review-2022 27 As provided by Republic Act (RA) No. 8479 or the Downstream Oil Industry Deregulation Act of 1998 23 24 25 Vo l u m e 2 21 === pep-2023-2050-vol2-section-b-page-032.pdf === On the other hand, liquefied petroleum gas (LPG) establishments recorded a growth of 27.1 percent, reaching 13,924 in 2022. Similarly, Luzon posted the highest number of LPG establishments with 6,864 in 2022 (Table 11), which is almost 50.0 percent of the total. Table 11. Number of LPG Establishments Region 2021 2022 NCR 1,237 1,910 Luzon 4,583 6,864 Visayas 2,746 2,751 Mindanao 2,393 2,399 Total 10,959 13,924 Total Country Storage Facility. Forming part of ensuring supply security is having the required storage facilities to maintain the supply inventory needed to support the various economic activities. To date, 151 storage facilities – 58 import terminals, one (1) refinery, and 92 depots serving as distribution facilities/networks – are situated throughout the country. Aggregating these facilities indicates a total storage capacity of 41,634 thousand barrels (MB) in 2022 (Table 12). The import terminals comprise almost 64.0 percent of the total at 41,634 MB. The sole remaining refinery, Petron’s Bataan Refinery, has a storage capacity of 9,609 MB, and its refinery storage capacity includes crude, intermediate stocks, and finished petroleum products. The 92 oil depots are distribution facilities, which summed up the entirety of the nation’s existing downstream oil storage facilities. A close look on both storage capacity and sales among the regions implies Luzon’s large overall contribution (Table 13). In 2022, capacity and sales were registered at 22,776.9 MB and 109,513.7 MB, respectively. Region IV-A (CALABARZON) posted the highest storage capacity (12,923.3 MB), while NCR registered the highest sales (36,824.7 MB). This was closely followed by Region III (Central Luzon) with 7,638.8 MB (storage capacity) and 26,430.5 MB (sales). Visayas is purely led by Region VII (Central Visayas) with 1,709.8 MB total storage capacity with 9,678.6 MB of total sales and this can be correlated to the various economic development-related activities present in the provinces of Cebu, Bohol, and Negros Oriental. In the case of Mindanao, both Region X (Northern Mindanao) and Region XI (Davao Region) combine for almost 11.0 percent and 9.0 percent of the capacity and sales on the island. 22 Table 12. Existing Downstream Oil Facilities No. of Facilities Capacities, MB Percent Share Depots Facility Type 92 5,422 13.02 Major 34 2,928 7.03 Others 56 2,177 5.23 End-User Import Terminals 2 317 0.76 58 26,602 63.90 Major 9 8,986 21.58 Others 48 15,723 37.77 End-User 1 1,893 4.55 1 9,609 23.08 Refinery Petron – Limay, Bataan 1 9,609 23.08 Grand Total 151 41,634 100.00 Table 13. Depot/Storage Facility and Sales per Region Region Storage Capacity, MB Storage Capacity Share (%) 9,610.14 23.17 Sales, MB Share by Region (%) I. Refineries Region III Total 9,610.14 II. Bulk Plants NCR 584.10 1.41 36,824.72 23.85 Region I 1,070.41 2.58 5,566.59 3.60 Region II - - 3,955.62 2.56 Region III 7,638.77 18.41 26,430.49 17.12 Region IV-A 12,923.25 31.15 28,850.87 18.68 Region IV-B 262.70 0.63 2,152.88 1.40 Region V 297.43 0.72 4,603.91 2.98 0.25 0.00 1,128.59 0.73 CAR Total Luzon 22,776.91 109,513.67 Region VI 1,132.0 2.73 7,090.37 4.60 Region VII 1,709.77 4.12 9,678.62 6.27 Region VIII 519.38 1.25 3,063.64 1.98 Total Visayas 3,361.15 19,832.63 Region IX 641.21 1.55 4,265.33 2.76 Region X 2,746.41 6.62 7,593.77 4.92 Region XI 1,804.65 4.35 7,011.44 4.54 Region XII 393.99 0.95 3,538.11 2.29 CARAGA 127.09 0.31 1,998.28 1.29 ARMM 22.41 0.05 669.01 0.43 Total Mindanao 5,735.76 Total Bulk Plants 31,873.82 Grand Total 41,483.96 Philippine Energy Plan 25,075.94 100 154,422.24 100 === pep-2023-2050-vol2-section-b-page-033.pdf === Petroleum Products and Facilities Standards OIMB-OISMD Depot Product Sampling and Testing Standards Development. The Philippine National Standards (PNS) for petroleum products and facilities as set by the DOE ensures the applicability and compatibility of fuels to the current requirement of consumers, the public transport sector, and manufacturers served by the downstream oil industry. The PNS also ensures that the Philippines adheres to global harmonization, as well as maintains consonance with international trends towards economic growth and environmental protection i.e., improves fuel composition for increased efficiency and reduced emission, and initiates biofuels and biofuel-blends programs. Further, the PNS serves as an engineering design on safety guide and practices for petroleum facility workers in reference to safety, health, and environmental protection, as well as appropriate mitigation measures as observed and practiced in the downstream oil industry sector. The PNS formulation is anchored on Republic Act (RA) No. 8749 or the Philippine Clean Air Act of 1999, RA 9367 or the Biofuels Act of 2006, and RA 8479 or the Downstream Oil Industry Deregulation Act of 1998 thereby ensuring better fuel quality standards. Tables 14 to 15 show the PNS for Petroleum Products and Facilities and Department Circulars (DCs) that were developed and issued in 2021 and 2022. Table 14. Quality of Petroleum Products Title Biofuels -Coconut Methyl Ester (CME) B100 Specification PNS Number/ DC Number Date of PNS/DC Issuance PNS/DOE QS 002:2021 27 December 2021 Petroleum Products - CMEblended automotive diesel oil (ADOB3)- Specification PNS/DOE QS 015:2021 27 December 2021 Petroleum Products – CMEblended industrial diesel oil (IDOB3) –Specification PNS/DOE QS 016:2021 Petroleum Products - CMEblended automotive diesel oil (ADOB4) Specification PNS/DOE QS 017:2021 Petroleum Products – CMEblended industrial diesel oil (IDOB4) - Specification PNS/DOE QS 018:2021 27 December 2021 Implementing the Philippine National Standard Specification for Biofuels – Coconut Methyl Ester (B100), PNS/DOE QS 002:2021 Department Circular No. DC2022-06-0020 20 June 2022 Effective: 27 August 2022 27 December 2021 27 December 2021 Description Purpose/significance This standard specifies the requirements for CME (B100) suitable for blending to diesel fuel for use in various types of compression ignition engines and other similar types of engines. This standard cancel and replaces PNS/DOE QS 002:2015. The following improvements and revisions were made: This standard addresses the technical requirement of automotive diesel oil containing 3.0 percent v/v CME or CME-blended automotive diesel oil (ADOB3) and suitable test methods. This standard supports future energy policies towards the integration of higher biofuels blends in the petroleum/fuel sector. This standard addresses the technical requirement of industrial diesel oil containing 3.0 percent v/v CME or CME-blended industrial diesel oil (ADOB3) and suitable test methods. This standard supports future energy policies towards the integration of higher biofuels blends in the petroleum/fuel sector. This standard addresses the technical requirement of automotive diesel oil containing 4.0 percent v/v CME or CME –blended automotive diesel oil (ADOB4) and suitable test methods. This standard supports future energy policies towards the integration of higher biofuels blends in the petroleum/fuel sector. a) Inclusion of new property, the Cold Soak Filterability Test (CSFT) – a limit set adopting the ASTM D6751 at 360 seconds maximum; b) Improvement of Monoglyceride content from 0.8 to 0.7 percent, maximum; c) Inclusion on provision on good housekeeping; and, d) Updating of test methods. This is also in line with the continuing program of the government towards the use of cleaner fuels and promoting the use of indigenous and renewable energy resources with the end view of reducing dependence on imported oil. This is also in line with the continuing program of the government towards the use of cleaner fuels and promoting the use of indigenous and renewable energy resources with the end view of reducing dependence on imported oil. This is also in line with the continuing program of the government towards the use of cleaner fuels and promoting the use of indigenous and renewable energy resources with the end view of reducing dependence on imported oil. This department circular implements the PNS/DOE QS 002:2021 in which the said PNS cancels and replaces the 2015 version. It includes additional parameters to reduce or eliminate the formation of flakes after production and improve storage conditions and good housekeeping practices Vo l u m e 2 23 === pep-2023-2050-vol2-section-b-page-034.pdf === Table 15. Facility Standards Title Tank truck – Bulk liquid fuel – Requirements and safe operating practice LPG transport –Bulk and cylinders –Requirements and safe operating practices PNS Number Date of final draft PNS Endorsement for Promulgation/DC Issuance Description This Standard provides for the minimum requirements of tank truck vehicle design and specifications to ensure worker-safe, environment-friendly and quality assured transport of bulk liquid fuels. PNS/DOE 01:2023 12 May 2023 Additionally, in case of hazardous and similar incidents, emergency response procedures and guidelines are also outlined herewith. Furthermore, this Standard also provides for all existing government regulations and requirements at the time of publication, in the operation and maintenance of tank trucks used for liquid fuels. This Standard provides for the minimum requirements for vehicle design and specifications to ensure safe, workersafe, environment-friendly and quality assured transport of LPG in Cylinders and in bulk. PNS/DOE 02:2023 12 May 2023 Additionally, in case of hazardous and similar incidents, emergency response procedures and guidelines are also outlined herewith. Furthermore, this Standard also provides for all existing government regulations and requirements at the time of publication, in the operation and maintenance of Tank Truck used for the transport of LPG in Cylinders and in Bulk. Tank truck – Mobile liquid fuel dispensing system – Requirements and safe operating practices PNS/DOE 03:2023 12 May 2023 This Standard covers the minimum requirements for the transportation of Liquid Fuels Mobile Vehicle Dispensing System (LF-MVDS) used for the dispensing of diesel and/or gasoline during emergency situations in the aftermath of such as typhoon, earthquake, flood, etc., when the operations of the existing Retail Outlets are temporarily non-operational. Under this Standard specification, an LF-MVDS shall not be used or deployed to conduct retailing business in areas where existing retail outlets can operate normally even under calamity. DPNS on LPG Dealer’s Showroom And Warehouse Requirements with Safety Practices On-going development with concerned stakeholders and government agencies (For circulation) This Standard covers the minimum facility requirements for LPG Dealers to ensure safe and proper storage of LPG cylinders and canisters during retail operations. An LPG Dealer’s facility may be a showroom, or a showroom and a warehouse. The Showroom consists of the LPG display area, office space for business transactions, and stock area for LPG cylinders available for sale, and empty or returned cylinders/ canisters. This Standard also incorporates the Safety Practices that must be observed in the operations and upkeep of warehouses and showrooms used for the storage and sale of LPG in cylinders. Covered in the Safety Practices are Cylinder Storage, Cylinder Stacking, Handling of LPG Cylinders, Personnel Safety and Informational Signages. Supervision and Monitoring. The DOE is carefully monitoring the compliance of all downstream oil participants through the conduct of sampling of liquid petroleum products (LPP) in terminals/depots and LFROs and from various inspections nationwide. Onsite inspection activities are consistently performed to confirm compliance of industry participants with the PNS. The DOE has undertaken the following monitoring and supervision activities in 2022: • • • • Inspected/monitored 296 LFROs and 319 LPG establishments; Gathered 446 samples of liquid fuel products from LFROs for further testing of the DOE; and, Conducted product sampling/testing for 62 depots. Communication Initiatives. The DOE consistently conducts information, education, and communication (IEC) activities to improve public awareness, address knowledge gaps, and change behaviors. These activities intend to provide first-hand information on the downstream oil industry (DOI) to its target audience or stakeholders. In 2022, 18 IEC activities were undertaken by the DOE which focused on the various aspects of downstream oil (e.g. oil supply-demand outlook, DOI rules and regulations, and Safe LPG Project among others). Relatedly, said IECs also covered topics concerning the safe handling of petroleum products, the role of Local Government Units, and investment opportunities for prospective DOI Players and other government agencies. 24 Philippine Energy Plan Technology Solution Retail Outlets (TSRO) Inspection in Palawan === pep-2023-2050-vol2-section-b-page-035.pdf === Policy Advocacy. The DOE crafted several Circulars to support the passage of RA 11592 or the LPG Industry Regulation Act of 2021 and regulate the domestic LPG industry and ensure consumer protection against malpractices. From 2021 to 2023, the DOE promulgated the following policies: • DC2022-11-0037,28 titled Guidelines on the Registration and Issuance of License to Operate to Qualified DOE-Regulated LPG Industry Participants and Penalizing Certain Prohibited Acts, mandates LPG industry players to convert their standards compliance certificate (SCC) into a registration certificate with License to Operate (LTO). Additionally, the responsibilities of LPG industry stakeholders, registration, standards, and reportorial requirements are also included in the Circular. • DC2022-11-0033,29 titled Rules of Procedure for Administrative Cases in the Downstream Oil Industry, wherein the DOE can initiate administrative actions against LPG industry participants and liquid fuels industry participants through the issuance of a Show Cause Order. • RA 11592- Implementing Rules and Regulations Joint Department Circular (JDC) JDC 2022-05-0001,30 titled Implementing Rules and Regulations (IRR) of Republic Act No. 11592. The JDC establishes the regulatory framework for the safe operations of the liquefied petroleum gas industry, delineating the powers and functions of various government agencies, defining, and penalizing certain prohibited acts. • JDC 2022-11-0002,31 titled LPG Cylinder Exchange, Swapping, and Improvement Programs. Said Circular expounds the mandatory requirements for the establishment of a Swapping Center and provides a system allowing end-users to exchange or swap their LPG cylinders at authorized Swapping Centers. The program ensures that only safe cylinders will circulate within the consuming public and helps prevent the occurrence of LPG-related accidents. • DC 2021-10-0035,32 titled Revised Circular for Impounding & Disposal of Philippine Downstream Oil Industry Confiscated Items. The DC updates the proper handling, labeling, recording storage and disposal of impounded petroleum and paraphernalia to ensure accountability, health, safety, and environmental protection. • DC 2023-08-0025,33 titled Guidelines on the Recognition of Training Organizations for Qualified Service Persons Of DOERegulated Liquified Petroleum Gas (LPG) Industry Participants. The Circular recognizes Training Organization as accredited by the DOE to conduct training courses for individuals who will be working as Qualified Service Persons in any activities or facilities of the DOEregulated LPG industry participants. Information Exchange and Data Reconciliation Initiatives. Memorandum of Agreement (MOA) was executed and signed between the DOE, the Bureau of Customs (BOC), and the Bureau of Internal Revenue (BIR) on 27 May 2021 to enhance information exchange among the three (3) agencies regarding the importation of petroleum products. Building on the gains from the prior years, the DOE aims to consistently submit importation acknowledgment to BOC to facilitate advance information on arriving imported petroleum products. The DOE likewise continuously submits a quarterly reconciliation report to BOC and BIR for data uniformity. Inspection activities are also to be conducted by the DOE and BOC for LFROs as part of the coordinated efforts to eradicate petroleum products smuggling and encourage proper tax payments. Digital Transformation. The Downstream Oil Online Platform (DOOP) is a collaborative project between the DOE and Appcentric Solutions Inc. The DOOP shall serve as a platform for the submission of reportorial requirements of DOI participants and function as depository for database monitoring. It is targeted to be implemented early 2024. On the specifics, the DOOP is also an end-to-end solution that provides the following: a) online registration; b) service application; c) facility profile management; d) inspection report management; e) oil products information management; (f) document processing; g) workflow management; and h) executive dashboard reporting services for the DOE. 28 Issued on 22 November 2022 29 Issued on 08 November 2022 30 Promulgated 20 May 2022 by both Secretaries of DOE and DTI 31 Approved by DTI Secretary on 24 November 2022 and signed by DOE on 25 November 2022 32 Issued on 22 October 2021 33 Promulgated 03 August 2023 Vo l u m e 2 25 === pep-2023-2050-vol2-section-b-page-036.pdf === Legislative Agenda Voluntary Implementation of 20.0 percent bioethanol blend for gasoline products. The DOE is advocating for the voluntary use of gasoline with 20.0 percent bioethanol blend (E20). This will serve as a price mitigation measure because ethanol is cheaper than the price of gasoline. Relatedly, the introduction of the voluntary E20 in the market will result in the utilization of a higher percentage share of imported ethanol with a much cheaper price compared to locally produced ethanol. Thus, it is expected to lower pump price as compared to the 10.0 percent bioethanol blend (E10). Additionally, the DOE plans to increase the biodiesel blend (CME) from the current 2.0 percent blend (B2) to 3.0 percent (B3) in 2024, 4.0 percent (B4) in 2025, and 5.0 percent (B5) in 2026 to promote cleaner air and increase the benefits provided to coconut farmers. Other amendments to be pursued include fair trade practices and safeguards, additional powers for the DOE Secretary, and the authority of the President to suspend or reduce excise taxes on fuels. On fair trade practices and safeguards, the objective is to apply the provisions of the Philippine Competition Act34 and to ensure fair market competition in the industry with the Philippine Competition Commission (PCC), DTI, and DOE as oversight. The additional power sought for the DOE Secretary pertains to having access to information as there are limits on disclosure being shared by the oil players. The authority of the President will be guided by the recommendations from the Development Budget Coordination Committee (DBCC) and the suspension or reduction will be considered and be triggered by the average Dubai crude price in Mean of Platts Singapore (MOPS) for three consecutive months (greater than USD80/barrel). Fuel Subsidy Project As a continuing project that mitigates the adverse effects of increasing oil prices to the vulnerable sectors, particularly public transport, and agriculture, the government allotted PhP4.0 billion for “Fuel Subsidies”. About PhP3.0 billion would be allotted for the public transport sector (Pantawid Pasada), while the remaining PhP1.0 billion would be for farmers and fisherfolks (fuel discount). The program’s funding is lodged under the regular budgets of the Department of Transportation (DOTr) and the Department of Agriculture (DA) under the 2023 General Appropriations Act (GAA). The DOE for its part must certify that the average price of crude oil surpassed USD 80/barrel in the past three months to implement the fuel subsidy program. Relative to this, President Ferdinand Marcos, Jr. gave a directive to change the trigger mechanism of the 2024 General Appropriations Act (GAA) provision on fuel subsidies. Said changes aim to shorten the trigger mechanism from the current three months to one (1) month and simplify the release requirements. On the other hand, the guidelines for implementation of the fuel subsidy program will be based on the conditions set by the Department of Budget and Management (DBM), DOTr, and DA. Plans and Programs The sector envisions that within the planning horizon, there will be an improved policy governing the downstream oil industry to ensure continuous supply of high quality and right quantity of petroleum products in the market (Figure 6). This will be supported by the action plans on the core areas of legislative agenda and policy advocacy campaign, standards development, program management monitoring and implementation, and communication activities. Republic Act (RA) No. 10667 is the primary competition policy of the Philippines for promoting and protecting competitive market. It will protect the well-being of consumers and preserve the efficiency of competition in the marketplace. 34 26 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-037.pdf === Figure 6. Downstream Oil Roadmap Short Term 2023-2024 Legislative Agenda and Policy Advocacy Campaign DOI Standards Development Communication Initiatives • Review and revise/update the regulation on Liquid Petroleum Products (LPP) Industry Rules • Issue the Inspectors Manual for both the LPP and LPG • Update of National Oil & Gas Contingency Plan • Improve process systems (e.g., on-line application, etc.) • Policy Review on the Development of Downstream Oil Stockpiling Program • • • • • Petroleum Products: New: E20 Euro 4 New: E10 Euro 5; ADO (B3/B4/B5) Euro 5; E20 Euro 5 Review/Update: Residual Marine Fuel Review/Update: E100 • Petroleum Processes and Facilities: • New:LPG Related Facilities for Dealers and Retailers • New: LPG Import Terminal/Depot Long Term 2025-2028 2029-2050 • Continuous updating of policies and programs in response and in compliance to amendments made on existing laws, regulations, technology, fuel quality and facility engineering standards, and international commitments • Incorporating energy efficiency and resiliency standards in facility designs, engineering, and operations • Continuous updating of policies and programs in response and in compliance to amendments made on existing laws, regulations, technology, fuel quality and facility engineering standards, and international commitments • Incorporating energy efficiency and resiliency standards in facility designs, engineering, and operations • Petroleum Processes and Facilities: • New: Liquid Petroleum Product Hanging Type Dispensing System • New: LPG Piping System • Continuous updating of product quality and facility standards. • Research potential emerging fuel technologies, e.g. Sustainable Aviation Fuel (SAF), and other alternative fuels. • Incorporating energy efficiency and resiliency standards in facility designs, engineering, and operations. • Conduct of nationwide information, Education and Communication (IEC) Campaign on the following: a. Consumer Awareness on Safe Handling and Use of LPG and LF Use b. Focused Inspection - related IECs c. Oil price issues as requested by different Local Government Units and other government agencies d. Information drives to DOI players on the implementation of new legislation e. Familiarization of the Philippine National Standards (PNS) for Petroleum Products and Facilities; and Code of Safety Practices • Department Circular on Setting the Reference Standards for E20 Euro 4 & Bx Euro 4 • Department Circular on Implementing Industrial Fuel Oil Standard DOI Program Management Monitoring & Implementation Medium Term • Department Circular on implementing Residual Marine Fuel Standard in support of the requirements under IMO 2020 • Department Circular on Implementing E10 Euro 5, ADO (B3/B4/B5) Euro 5, & E20 Euro 5 Standards • Monitor the Downstream Oil Industry activities (i.e. supply/demand situation, price adjustments, inspection of new players, facilities and stations offering discounts, etc.) • Monitor/Assess oil price movements (international thru MOPS) and ensure the reasonableness of domestic price adjustments • Conduct monitoring and enforcement activities (product quality, quantity, facility standards, and safety practices standards) at the bulk and retail levels • Process/Issue certifications, permits, and endorsements for DOI facilities/activities (retail and bulk), including One-Stop-Shop for LF and LPG establishments • Promote retail competition through the Gasoline Station Lending and Financial Assistance Program • Encourage investments in DOI thru issuance of DOE-OIMB Certificate of Endorsement to the BOI • Verification and monitoring of the Minimum Inventory Requirement • Develop and implement DOI Capacity Building Programs; Downstream Oil Development Plan • Prepare for and implement ISO/ARTA Accreditation on Quality Management System • Continuous monitoring of the Downstream Oil Industry activities (i.e. supply/demand situation, price adjustments, inspection of new players, facilities and stations offering discounts, etc.) • Continuous monitoring/assessment oil price movements (international thru MOPS) and ensure the reasonableness of domestic price adjustments • Continuous monitoring and enforcement activities (product quality, quantity, facility standards, and safety practices standards) at the bulk and retail levels (including the enforcement of Safety Standards and Regulatory Requirements through periodic inspections/verification on the month-end inventory to ensure that inventory reports submitted are accurate) • Continuous processing/issuance of certifications, permits, and endorsements for DOI facilities/activities (retail and bulk), including One-Stop-Shop for LF and LPG establishments • Continuous promotion of retail competition through the Gasoline Station Lending and Financial Assistance Program • Continuous encouragement for investments in the DOI thru issuance of DOE-OIMB Certificate of Endorsement to the BOI • Continuous verification and monitoring of the Minimum Inventory Requirement • Develop and implement DOI Capacity Building Programs; Downstream Oil Development Plan • Prepare for and implement ISO/ARTA Accreditation on Quality Management System • Development of technical modules for certification of DOI workers • Research on potential and emerging fuels and technologies 2050 OBJECTIVE Improved policy governing the downstream oil industry to ensure continuous supply of high quality and right quantity of petroleum products in the market. Vo l u m e 2 27 === pep-2023-2050-vol2-section-b-page-038.pdf === SHORT-TO-MEDIUM TERM Legislative Agenda and Policy Advocacy Campaign. In the short-term, promulgation of the LPP and LPG inspection manuals to standardize the conduct of onsite inspections will be pursued. The DOE will also work on issuing the Revised LPP Inventory Rules to update the outdated requirements and penalties. For the medium-term, continuous review and update of policies and programs regulating the downstream oil sector will be undertaken to facilitate private sector participation, mitigate challenges, and align with global trends. The evolution of policies and programs governing the industry will also ensure the security of petroleum products supply in the market and enforce compliance with the country’s existing laws and regulations. Relatedly, the government’s prevailing rules and regulations must adapt to this fast-paced sector and find complementing technology innovations to attract investors, enabling a more conducive climate for the industry. Further, the updating of the National Oil and Gas Contingency Plan (NOGCP) will focus on continuous supply, particularly in times of calamities and disaster. Standards Development. As indicated in the roadmap, standards development includes both products and facilities. Several PNS for higher biofuel blends are in the development stage (e.g., E20 Euro 4, E10 Euro 5, ADO (B3/B4/B5) Euro 5, E20 Euro 5, etc.). Further, updates and reviews for PNS covering residual marine fuel, and E100 are also targeted to be done during the short- to medium-term. Meanwhile, facility standards formulation will concentrate on LPG import terminals, depots, and piping systems together with facilities of retailers and dealers for the LPG Sector, and Ceiling Type Dispensers for the Liquid Fuel Sector, during the planning period. The draft Downstream Oil Resiliency Plan is targeted to be completed in the same period to ensure adequate and continuous fuel supply. Lastly, the DOI Training Institute through the Technical Education and Skills Development Authority (TESDA) will conduct skills training and technical education for Filipinos and contribute to nation-building, particularly by producing individuals with excellent industrial skills. DOI Program Management. With fuel standards development undertaken in the short-term, the DOE will craft the necessary circulars to provide information, guidance, and rules for E20 Euro 4, Bx Euro 4, and Industrial Fuel Oil Standards. Meanwhile, the policies for implementing the Residual Marine Fuel35 Standard in support of the requirements under International Maritime Organization (IMO) 202036, E10 Euro 5, ADO (B3/B4/B5) Euro 5, and E20 Euro 5 Standards37 are targeted to be completed until 2028. Communication Initiatives. Since the passage of the Downstream Oil Industry Deregulation Act, the DOE has been promoting the Gasoline Station Lending and Financial Assistance Program (GSLFAP). The GSLFAP is in line with the deregulated market environment that aims to encourage the entry of new industry participants. It provides credit assistance to prospective participants whose owners have completed a two-fold program on management and skills training in the retailing of petroleum products including LPG. The DOE also plans to issue updated guidelines on the Gasoline Station Training and Loan Fund (GSTLF) to further enhance GSLFAP’s availment. In addition, IEC campaigns are to be conducted nationwide for the safe handling and use of LPG and liquid fuels. Safety is one of the top priorities when using and handling petroleum products. In compliance with RA 11592, the LPG Cylinder Improvement Program (LCIP) will ensure the quality of all cylinders in circulation with the goal of protecting consumers. 35 Target Start of Deliberation: March 2024 36 Source: https://www.imo.org/en/MediaCentre/PressBriefings/pages/02-IMO-2020.aspx 37 Emission standards requirements to be set by the DENR through the National Air Quality Action Plan / Target Start of Deliberation: June 2024 Conduct of LPG Summit on RA 11592 or the LPG Industry Regulation Act 28 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-039.pdf === LONG-TERM The foundation built during the short- to medium-term are the necessary steps for the realization of the sector’s vision within the planning period. To advance the sector’s action plans, the continuous update, revision, and amendment of policies in response to the evolving industry climate in both local and international is critical. Moreover, the DOE will always recognize the importance of protecting consumer welfare thereby ensuring that petroleum products are complying with quality and quantity. Legislative Agenda and Policy Advocacy Campaign. The DOI environment is constantly evolving and to respond to this, the DOE will continue to update policies and programs to keep abreast with amendments made on existing laws, regulations, technology, international commitments, and best practices. The DOE will also actively participate in the crafting of the NOGCP to gain a better insight in securing national fuel supply, especially during severe interruptions. Standards Development. For the long-term, the continuous updating of petroleum product quality and facility standards will ensure that the country is at par with international standards. Additionally, new facilities in the industry will have to incorporate resiliency standards in their design to be better equipped in dealing and mitigating the challenges posed by climate change. On the other hand, research studies are to be carried out for potential emerging fuel technologies (i.e., Sustainable Aviation Fuel or SAF) and other alternative fuels to improve efficiency and to reduce harmful emissions. These actions are consistent with the DOE’s vision of a low-carbon future, improved energy security, and decrease dependency on imported petroleum products. Scoping workshop on National Oil and Gas Contingency Plan DOI Program Management. The DOE will also continue to perform its regular functions in line with the Oil Deregulation Act, LPG Industry Regulation Act, Biofuels Act, and the Comprehensive Recovery and Tax Incentives for Enterprises Act or CREATE. The development of accreditation criteria and technical modules will be pursued for DOI training schools consistent with the certification of DOI workers. The participation in various investment fora will promote and encourage investments for the sector. The DOE will also develop and implement the Downstream Oil Development Plan (DODP). This will further develop the downstream oil industry which includes existing policy framework, legal requirements, oil outlook, standards (e.g. petroleum products, facilities, and code of safety practice), and way forward. Communication Initiatives. The DOE is of the firm belief that “a well-informed and vigilant consumer is the best-protected consumer” in terms of handling petroleum products. Petroleum products and LPG pose potential hazards from production, distribution, and consumption. In line with this, continuous conduct of IECs to highlight safety of all stakeholders including safety guidelines when using LPG and liquid petroleum products is essential. It is fundamental that all end-users are aware and equipped with safety information to prevent injuries, minimize damage to properties, and avoid the loss of lives due to unsafe practices. Vo l u m e 2 29 === pep-2023-2050-vol2-section-b-page-040.pdf === Investment and Employment Opportunities The projected increase in oil demand within the planning period implies that investments are necessary for additional storage capacity. Putting up these facilities necessitates measures to attract and entice investments that will assist in ensuring security of oil supply. Oil Storage Capacity Requirement. The DOE is constantly promoting and monitoring downstream oil industryrelated activities particularly on supply, logistics, marketing, distribution, and pricing. The additional investments for facilities to be secured in the planning period will shield the country from oil supply disruption in times of disaster (e.g., typhoon, volcanic eruption, etc.) and geopolitical tensions (i.e., Russia-Ukraine War). The Philippines’ total oil requirement (including crude oil) by 2050 under the Clean Energy Scenario (CES) is projected at 384,389 MB, 13.1 percent lower than the Reference Scenario’s (REF) total oil requirement of 442,525 MB for the same period (Table 22). It should be noted that the total supply requirement includes jet fuel and marine bunker for international passage, which are not captured in the country’s TPES and total final energy consumption (TFEC) but are considered for additional storage capacity requirements. The international aircraft and marine vehicles refueling in the Philippines should be included in the computation of additional depots to be set up in the short- to long-term. Table 16 shows the additional cumulative depot requirement based on the total oil requirement including its equivalent cumulative investments and job generation from 2025 to 2050. The cumulative depot capacity requirement accelerates by 157.7 percent from the 2025 level of 10,582 MB to 27,268 MB in 2050 under REF. On the other hand, an increase of 133.5 percent from the 2025 level of 9,597 MB to 22,408 MB in 2050 is seen under the CES. Both scenarios will require the country to more than double its depot capacity requirement in the planning period with an additional capacity of 16,686 MB for REF and 12,811 MB for CES. For the additional depots, the inventory level assumption is at 30 days for petroleum products and 15 days for LPG, and with 80.0 percent capacity utilization rate for the storage facilities. However, if the MIR is to be considered, only half of the depot capacity requirement (as shown in Table 16) is needed over the planning horizon. The estimated investment requirement for the depot capacity additions under REF stands at PhP98.6 billion by 2050 and this is 17.8 percent higher than CES with PhP81.05 billion. Equivalently, these investments will generate jobs totaling 18,474 (REF) and 15,181 (CES), respectively. Table 16. Additional Depot Requirement, Investment and Job Generation Additional Cumulative Depot Capacity Requirement (MB) Year Total Oil Requirement (MB) Cumulative Investment (Million PhP) REF CES REF CES REF CES REF 2023 219,269 217,832 - - - - - - 2025 230,243 224,331 10,582 9,597 38,274 34,711 7,169 6,502 Cumulative Jobs Generation CES 2028 253,527 240,001 14,030 11,708 50,748 42,347 9,505 7,932 2030 268,307 249,403 14,030 11,708 50,748 42,347 9,505 7,932 2035 307,567 277,455 17,399 13,895 62,933 50,260 11,788 9,414 2040 352,144 307,842 20,493 16,448 74,123 59,492 13,884 11,143 2045 393,886 342,982 23,786 19,370 86,037 70,063 16,115 13,123 2050 442,525 384,389 27,268 22,408 98,629 81,050 18,474 15,181 The total oil import requirement of the country is set to increase from its 2023 level of 157,272 MB to 341,222 MB in 2050 under REF. For CES, this is seen to escalate to 286,911 MB in 2050. Given the similar assumptions for the oil depot, the country’s import terminal is sufficient to accommodate the country's oil requirement within the planning horizon (Table 17). 30 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-041.pdf === In consideration of the assumption that import terminals operate at 80.0 percent utilization rate, an additional capacity requirement of 6,913 MB would be needed in the REF by 2050 on the assumption of at least a 30-day inventory. Similarly, half of the additional capacity would be required if MIR is considered. In the REF scenario, the annual growth rate of domestic oil demand is gradually decreasing, from around 5.1 percent in 2023 to 2.7 percent in 2050 or 3.2 percent average annual growth rate (AAGR) due to energy efficiency measures in the transport sector and the 10.0 percent electric vehicle (EV) penetration in road transport. On the other hand, no additional capacity is needed over the planning period for CES considering a lower oil demand in this scenario with 2.6 percent AAGR due to higher energy efficiency impacts on transport and higher EV penetration rate at 50.0 percent. The country will need an estimated investment requirement of PhP25.0 billion by 2050 under the REF and expected to create additional 1,312 jobs. Table 17. Additional Cumulative Import Terminal Requirement, Investment and Job Generation Year Total Oil Import Requirement (MB) Total Import Terminal Capacity Requirement (MB) Cumulative Investment (Million PhP) Cumulative Jobs Generation REF CES REF CES REF CES REF CES 2023 157,272 155,985 - - - - - - 2025 166,317 158,639 - - - - - - 2028 186,495 172,021 - - - - - - 2030 199,108 179,779 - - - - - - 2035 232,269 202,781 - - - - - - 2040 269,312 227,168 - - - - - - 2045 302,870 254,868 - - - - - - 2050 341,222 286,911 6,913 - 25,005 - 1,312 - ENHANCING CONSUMER AWARENESS AND PROTECTION The downstream oil sector is cognizant of protecting consumers and this remains a core priority of the DOE. Consumers that are well-informed make better choices and decisions that benefit their day-to-day activities. Keeping the consuming public informed warrants the DOE to continuously monitor oil supply, demand, and prices. The activities in support of these are: a) oil price monitor, oil supply-demand situationer report, and list of retail stations offering discounts and freebies posted at the price watch tab of the DOE website; b) assessment report submission and presentation to the Cabinet and Senate/Congress’ Committee on Energy; c) appearances with the LGUs and other government agencies when warranted; and d) media interviews. Relatedly, the DOE renewed its partnership with Angkas in the monitoring of retail pump prices for the period 07 June to 16 November 202238 which aimed to inform consumers which LFROs offer better fuel prices and services. Under the program partnership, an estimated 700 LFROs were monitored by Angkas riders in the National Capital Region (NCR) and Metro Cebu. Further, authorized Angkas riders reported fuel prices and assessed the services and facilities of LFROs via Retail Pump Prices and Quality Service Dashboard 2022 as reflected at the DOE website. On the promotion of awareness on the health, safety, security, environmental, and quality standards for the proper use of LPP and LPG, the DOE will be unwavering in the conduct of feedback consultation meetings with the local government units (LGUs) regarding the result of focused inspection in their jurisdiction. Moreover, the “Safe Use of LPP and LPG Campaign Program” will be part of this consultation meeting to instill responsiveness and behavior change. On the other hand, the DOE website reflects the oil companies implementing the fuel discount program, which helps cushion the impact of the increases in fuel prices to consumers. The discount ranges from PhP1.00 – PhP4.00 per liter at participating gasoline station outlets. 38 Retail Pump Prices and Quality Service Dashboard 2022: https://www.doe.gov.ph/downstream-oil/advisory?q=retail-pump-prices-quality service-dashboard2022 Vo l u m e 2 31 === pep-2023-2050-vol2-section-b-page-042.pdf === PHILIPPINES AS A RISING OIL HUB IN SOUTHEAST ASIA In recent years, the refining subsector saw a decline in the number of industry participants. Prior to the promulgation of the Oil Deregulation Law, the country had three refineries owned by Petron, Shell, and Caltex. To date, only Petron’s refinery stands as both Caltex and Shell converted and transformed their refineries into import terminals. On the other hand, Pilipinas Shell, a subsidiary of Royal Dutch Shell, said that it permanently shut down its Tabangao Refinery in Batangas City, Philippines, and converted it to a full import terminal. The company said that the decision will help streamline its asset portfolio and boost its cost and supply chain competitiveness. The Philippines, with its strategic location, is envisioned to be an Oil Hub for Southeast Asia. The realization of this vision involves putting in place various policies by the government to encourage investments and promote oil refining again as an industry, such as providing better incentives and attractive market environment (i.e. taxation). The presence of refineries will lessen the impact of global oil price movement since the refining activities for petroleum products are to be done within the country. Additionally, the refining subsector needs to grow and flourish by considering energy resiliency, oil stockpiling, and oil contingency plan, particularly in times of disasters and geopolitical tensions. Taxation. The pursuit of positioning the country as a refining hub involves taking the first step, which is having a better understanding of how neighboring countries tax petroleum products. The following countries of interest to be studied are China, Korea, and Singapore. The comparative matrix on taxes levied on petroleum products by these countries and the Philippines is shown in Table 18. • China. In 2022, the country’s estimated refining capacity is at 18.4 MB/D39. The Chinese Central Government primarily collects consumption tax. This constitutes 40.0 percent of the retail price of road fuels in China as this is comprised of a consumption tax of 2,110 Yuan/ton (USD39/barrel) for gasoline and 1,411 Yuan/ton (USD29/barrel) for diesel, 17.0 percent value-added tax (VAT), an urban construction tax and education surcharges. The consumption tax applies to prescribe nonessential and luxury or resource-intensive goods (e.g., alcohol, fuel oil, motor vehicles, petrol, yachts, golf products, luxury watches). The tax is calculated based on the sales value of the goods, sales volume, or a combination of the two. Categorically, the tax is considered “state tax” with 100 percent of the proceeds going to the central government. On the other hand, VAT is considered a “shared tax” that is collected and shared by both central and local governments. Consequently, a call for reforms in the tax system has been raised to give local governments a substantial portion of the tax receipts.40 China implemented a new consumption tax policy in June 2021 thereby affecting its imports of mixed aromatics and light cycle oil, which are used in blending gasoline and diesel. The new tax policy treats mixed aromatics and light cycle oil (previously exempted from consumption taxes) as similar to gasoline and diesel, which are now subject to consumption tax. It also aims to correct a loophole that result in unfair price advantage to some fuel sellers, as well as to help the country meets its emission goals.41 • Republic of Korea. The country has five (5) large refineries with an estimated refining capacity of 3.5 MB/D42. Import taxes are imposed on crude oil and refined petroleum products. In Korea’s taxation system, finished petroleum products are taxed more by the government. The tax system thereby gives an advantage for Korean refineries compared to product importers. A flat-rate VAT of 10.0 percent is imposed on all sales of fuels and energy services. The imposition of excise taxes is also applied on oil products and gas sales to both households and businesses. Relatedly, transport fuels are subjected also to additional taxes, including an education tax and an array of transport taxes (i.e., traffic, energy, and environmental).43 Source: https://www.reuters.com/business/energy/china-takes-top-spot-global-refining-capacity-output-lags-us-2023-02-17/ Source: https://www.argusmedia.com/en/news/2194921-chinese-majors-push-for-oil-tax-reforms Source: https://www.eia.gov/petroleum/weekly/archive/2021/210929/includes/analysis_print.php 42 Source: https://www.iea.org/articles/korea-oil-security-policy 43 Source: https://www.oecd.org/fossil-fuels/KOR.pdf 39 40 41 32 Philippine Energy Plan === pep-2023-2050-vol2-section-b-page-043.pdf === • Singapore. The island city-state has three large refineries with a total crude oil refining capacity of 1.5 (MB/D)44. Singapore is a free port and has relatively few excise and import duties. Excise taxes are imposed principally on liquors, tobacco, motor vehicles, and petroleum products. Also, very few products are subject to import duties. According to Inland Revenue Authority of Singapore, the current VAT or Goods and Services Tax (GST) rate is 9.0 percent.45 The Singaporean government’s vision and provision of a conducive market environment for refining (i.e. supporting infrastructure) establishes the support for the industry to thrive and grow. Table 18. Taxes Levied on Petroleum Products VAT (%) Excise Tax China Country 17.0 USD 0.21/liter Import Duty-free (%)46 94.3 Republic of Korea 10.0 USD 0.25 to 0.36/liter 100.0 Singapore 9.0 USD 0.015 to 0.53/liter 100.0 Philippines 12.0 USD 0.054 to 0.18/liter 100.0 *Conversion rate: USD 1 = PhP 55 Potential Studies. The oil refining industry is a private sector driven activity in the Philippines and the role of the government is to set fair and equitable rules and prepare a conducive investment market environment in the country. In the past years, the country has seen the withdrawal of Caltex and Shell from the refining business and Saudi Aramco from investment in Petron. As the demand for petroleum products is expected to increase steadily, the current refining capacity level and the supply/demand balance will require a constant increase of finished petroleum products importation. To help the refining sector, the government needs to study its components to set out guidelines regarding the outlook of oil refining in the country. Some of the studies that can be undertaken by research institutions are the following: a) maintenance in the downstream oil industry; b) inspection and maintenance for oil refineries; c) energy conservation in refineries; and d) risk assessment and safety of an oil refinery. C. RENEWABLE ENERGY BIOFUELS Mainstreaming national efforts to reduce oil dependence is among the major priorities in the energy sector. This reflects the government’s unwavering commitment in achieving the objective of veering away from oil through research and development (R&D) initiatives. In accordance with Section 547 of the Biofuels Act of 2006, the DOE, in collaboration with the National Biofuels Board (NBB) continues to optimize the utilization of feedstocks as a viable and clean alternative energy source. This collaborative effort has further boosted the country’s biofuel production capacity, effectively meeting the escalating demand for sustainable energy solutions. Source: https://www.trade.gov/energy-resource-guide-singapore-oil-and-gas Source: https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/basics-of-gst/current-gst rates#:~:text=GST%2Dregistered%20businesses%20are%2 required,exempted%20under%20the%20GST%20law. Source: https://www.wto.org/english/res_e/publications_e/world_tariff_profiles23_e.htm 47 Section 5: Mandating all liquid fuels for motors and engines sold in the Philippines shall contain locally sourced biofuel components. 44 45 46 Vo l u m e 2 33