The COVID-19 pandemic has slowed down demand for petroleum and other energy products as global economic activities virtually grounded to a halt. The low demand naturally depressed oil and gas prices and electricity rates, with energy consumers heaving a sigh of relief amid these trying times.
Here in the Philippines, the weak demand for petroleum products in the aftermath of severe travel restrictions from March to April has led to the forced shutdown of at least 10 percent of the country’s 9,400 gasoline stations. Energy Secretary Alfonso Cusi has noted that gasoline retailers, in areas where few people travel because of the enhanced community quarantine restrictions, decided to shutter their operations.
Gas retailers are not alone in their dilemma. Pilipinas Shell Petroleum Corp. in August announced it was permanently shutting down its refinery operations in Tabangao, Batangas due to the impact of the coronavirus pandemic.
“We have the technical capability and financial flexibility to manage and adapt to disruptive conditions. Due to the impact of the COVID-19 pandemic on the global, regional and local economies, and the oil supply-demand imbalance in the region, it is no longer economically viable for us to run the refinery,” says Pilipinas Shell president and chief executive officer Cesar Romero.
Low oil prices in the international market are forcing global giants like ExxonMobil to reduce 1,600 jobs in Europe, or more than 11 percent of its workforce in the continent, following the coronavirus downturn. Its market competitors, Anglo-Dutch group Royal Dutch Shell and BP, are making similar moves. Shell is slashing 9,000 jobs, or more than 10 percent of its workforce, by 2022 to reduce costs, while BP is cutting 15 percent of staff equivalent to 10,000 jobs.
Depressed oil prices provide relief to consumers worldwide. But they are also a reflection of a weak global economy where the increasing number of jobless persons is worrisome to policymakers.
Many consumers for the moment are benefiting from the market forces in play. Electricity rates in the Philippines, for one, are going down due to the combination of competitive power supply sources and low demand.
Manila Electric Co., the country’s biggest retailer, reduced its rates to consumers for the fifth straight month in September after generation charges successively fell. The rate for a typical household, thus, decreased by P0.0623 per kWh in September to P8.4288 per kilowatt from P8.4911 per kWh in August, equivalent to a reduction of around P12 in the monthly bill of residential customers consuming 200 kWh. The rate in September is the lowest in three years, or since September 2017.
Meralco is charging lower rates after declaring force majeure in some of its power supply agreements with generators. The generation charge decreased P0.0381 per kWh to P4.0860 per kWh in September, the sixth straight month it dropped.
The force majeure provision in the supply contracts applies when power demand in Meralco’s service area is reduced, specifically because of community quarantine rules that restricted economic activities and lowered electricity consumption.
Meralco is invoking the force majeure provision in some of its power supply agreements due to an extraordinary event beyond its control, in this case the pandemic, that prevented it from selling electricity at a desired volume under the contract.
Meralco’s September force majeure claim amounted to about P463 million, or equivalent to customer savings of P0.1710 per kWh in the generation charge. Without the claims, the generation charge and the total rate would have increased by P0.13 and P0.14, respectively. Meralco’s force majeure claims in the past six months led to savings of around P2.4 billion.
The rates of Meralco under the helm of president and chief executive officer Ray Espinosa have sunk to their lowest levels in three years. The competitive supply agreements forged by Espinosa have largely contributed to lower Meralco rates.
Meralco’s rates will still remain competitive once the economic situation normalizes and when more businesses reopen. The competitive selection process governing power contracts and introduced by the Department of Energy some four years ago will assure fair electricity rates.
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