Under the leadership of President Gloria Macapagal-Arroyo, the Philippines has undergone an economic transformation, deregulating its energy sector and offering new incentives for foreign investment. President Macapagal-Arroyo came into power when former President Joseph Estrada was forced to resign in 2001. In May 2004, President Arroyo was re-elected to another six-year term.
Real gross domestic product (GDP) grew by 6.1% in 2004, the highest level of real GDP growth in 15 years. High oil prices also contributed to a jump in remittances from Filipino workers in the Middle East, though the net effect of higher oil prices on the Philippine economy is considered to be negative. Real GDP growth is projected at 4.5% for 2005 and 4.4% for 2006, with the slowdown due in part to the impact of higher oil prices on domestic consumer demand.
The Philippines is one of the claimants, along with China, Taiwan, Malaysia, and Vietnam, to the Spratly Islands, located in the South China Sea. Potential oil and natural gas reserves surrounding the islands have sparked the interest of all the littoral states. In September 2004, the Chinese and Philippine governments reached an agreement to jointly pursue seismic survey work in the Spratlys, but without giving up their respective territorial claims. Vietnam joined the agreement in March 2005, and it was formalized with a memorandum of understanding between the three governments.
The Philippines began in 2001 producing an average of only 1,000 barrels per day (bbl/d) of crude oil. In 2002, however, crude oil production averaged nearly 24,000 bbl/d, and has been steady at 25,000 bbl/d since 2003. This increase was due primarily to the development of new deep-sea oil deposits beneath the natural gas-bearing structures in the Malampaya field. The increased production volume is still modest, however, in relation to the countrys needs.
The Philippines consumed 333,000 bbl/d on average in 2004, with net oil imports of 307,000 bbl/d. This dependence on imported oil makes the Philippine economy vulnerable to sudden spikes in world oil prices. Oil consumption is relatively stable, despite the countrys economic growth, due to reduced reliance on oil for electric power generation following development of the Malampaya natural gas deposit.
In October 2001, exploration underneath the Malampaya gas field revealed an estimated 85 million barrels of oil. Shell Philippines Exploration (SPEX) has committed about $2 billion to the upstream components of the combined oil/natural gas project, currently operating the joint venture with partners Texaco Philippines and the Philippines National Oil Company (PNOC). Production currently is around 25,000 bbl/d. In addition, six new offshore exploration projects have commenced in the Malampaya basin, led by Nido Petroleum, Philippines National Oil Company Exploration Corp., Trans-Asia Oil, Unocal Corp., and Philodril. In June 2004, however, Shell and ChevronTexaco announced that they had determined the amount of oil in the vicinity of Malampaya to be too small to develop economically, and relinquished their development rights. The Philippine government is seeking other firms which may be interested in developing the reserve, but no agreements have been concluded.
Petronas was awarded a contract in January 2005 for exploration in the Mindoro Basin. After initial seismic survey work, the company plans to drill at least one exploratory well. Nido Petroleum was awarded a contract for exploration off the northwest coast of Palawan in August 2005. The company expects to begin exploratory drilling in 2006. Bids on four additional blocks were solicited by the Philippine Department of Energy in September 2005, due by the end of November.
The Philippines downstream oil industry is dominated by three companies: Petron; Pilipinas Shell (Royal Dutch/Shells Philippine subsidiary); and Caltex (Philippines). Petron is the Philippines largest oil refining and marketing company. The company was a wholly owned subsidiary of the state-owned PNOC until 1994. Currently, the Philippine government and Saudi Aramco each own 40% of the company, with the remaining 20% held by portfolio and institutional investors, making it the only publicly listed firm amongst the three oil majors. Petrons Limay, Bataan refinery has a crude processing capacity of 180,000 bbl/d. Petrons market share is around 40%. Caltex (Philippines), a subsidiary of Caltex, the ChevronTexaco subsidiary based in Singapore, operates a 86,500-bbl/d refinery, two import terminals, and more than 1,000 retail gasoline stations throughout the Philippines. Caltex announced in 2003, however, that it would be shutting down its refinery in late 2004 and replacing it with an oil import terminal. Pilipinas Shell has a 153,000-bbl/d refinery, one of the largest foreign investments in the Philippines, and operates some 1,000 Shell gasoline stations. Overall, Philippine refineries run at around 80% of capacity, and there is not a great deal of demand for new refinery construction.
Oil market deregulation, beginning in 1998, continues to have a significant effect on the industry. Since deregulation started, 62 new firms, including TotalFinaElf, Flying V, SeaOil (Philippines), Eastern Petroleum, Trans-Asia Energy and Unioil Petroleum Philippines Inc., have invested heavily and built several hundred new retail stations. While the three original companies still dominate the market, these firms have captured a steadily growing share of the petroleum products market, rising from around 10% in 2000 to more than 20% in 2005. These new entrants have organized the "New Players Petroleum Association of the Philippines" (NPPAP), and have been credited with putting significant downward pressure on retail fuel prices in the country. Currently, the Philippines enjoys the lowest fuel prices of any non oil-exporting Asian country. However, price swings associated with deregulation and higher world oil prices have angered many Filipinos. Despite recurring public calls for price controls, the government has remained committed to deregulation. In December 1999, the Supreme Court upheld the constitutionality of the countrys deregulation program.