Top 8 energy news of 2017

* This is my article in BusinessWorld last January 2.

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This should have been a “Top 10” list but due to space constraints, I limited it to only eight, divided into four news stories each for global and national.

GLOBAL

1 “Non-news” to many media outlets but good and big news to me: NO major energy catastrophes in 2017. No major oil spill, no gas blowouts, no reactor meltdowns, no major infrastructure destroyed by natural disasters, and energy prices did not rebound to their 2014-2015 levels.

2 In June 2017, the British Petroleum (BP) Statistical Review of World Energy 2017 was released and among the highlights of that report are: (a) China and US remain the planet’s biggest energy consumers, (b) increases in oil, natural gas, nuclear and renewable energies (REs) but decline in coal use, (c) for big Asian economies, coal use remain very high especially in China, India, Japan, South Korea and Indonesia (see chart).

EnergyConsumption_010218

3 In September 2017, the US Energy Information Administration (EIA) released its “International Energy Outlook 2017” and among its projections are (a) In 2040, fossil fuels (oil, natural gas and coal) and nuclear will supply about 83% of global total energy consumption; 8% from hydro and 9% combined from wind, solar, geothermal, other REs, and (b) coal use is projected to be stable until 2040 and declines in China to be offset by increased use in India.

4 In November 2017, the “America First Energy Conference” was organized by the Heartland Institute in Houston Texas to analyze US President Trump’s pronouncement of US global “energy dominance”. “Energy dominance” is defined on two key goals: (a) meet all US domestic demand and (b) export to markets around the world at a level where they can “influence the market.” The important lessons from the papers presented are that (i) the US can have energy dominance in oil, natural gas and coal, but (ii) US cannot and should not aspire to have dominance in nuclear and REs. It was a very educational conference and I was the only Asian in the conference hall.

NATIONAL

5 Hike in excise tax for oil products and coal under TRAIN but zero excise tax for natural gas even if it is also a fossil fuel. Diesel tax will increase from zero in 2017 to P2.50/liter in 2018, P4.50 in 2019, and P6.00 in 2020. Gasoline tax will increase from P4.35/liter in 2017 to P7 in 2018, P9 in 2019, and P10 in 2020. Coal tax will increase from P10/ton in 2017 to P50 in 2018, P100 in 2019, P150 in 2020. There was successful maneuver by some senators, a known economist and some leftist organizations to spare natural gas from higher taxation, benefitting a big energy gas firm.

6 The feed-in-tariff (FiT) or guaranteed high price for 20 years for wind-solar and other renewables keeps rising, from only 4 centavos/kWh in 2015, became 12.40 centavos in 2016, 18 centavos in mid-2017 and petition for 22 centavos by late 2017 not granted. A pending 29 to 32 centavos/kWh by early 2018 is awaiting approval by the Energy Regulatory Commission (ERC).

7 Continued exemptions from VAT of the energy output of intermittent wind-solar and other renewables but stable fossil fuel sources were still slapped with 12% VAT under TRAIN. Government continues its multiple treatment of energy pricing: High favoritism for wind-solar, medium-favoritism for natgas, and zero favor for oil and coal.

8 Supreme Court issuance of TRO in the implementation of Retail Competition and Open Access (RCOA) provision of the Electric Power Industry Reform Act (EPIRA) of 2001. In particular, the SC TRO covered five ERC Resolutions from June 2015 to November 2016, affecting the voluntary participation of contestable customers (CCs) for 750-999 kW and many Retail Electricity Suppliers (RES) with expiring licenses cannot get new ones yet, reducing potential competition. Data from the Philippine Electricity Market Corporation (PEMC) show that as of Nov. 26, 2017, there were 28 RES, 12 local RES, 862 CCs for 1 MW and higher, and only 78 CCs for 750-999 KW. There should be thousands of CCs in the lower threshold, there should be several dozens of RES nationwide to spur tight competition in electricity supply and distribution.

Overall, EPIRA of 2001 was a good law that introduced competition, broke government monopoly in power generation, broke private geographical monopolies in power distribution. The RE law of 2008, SC TRO 2017 and TRAIN 2017 are partly reversing the gains of EPIRA.

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When both world oil prices and domestic oil taxes are rising

Dutertenomics’ tax-tax-tax implementation is off to bad timing. Raising oil taxes on already high and rising global oil prices — $64 a barrel for WTI, nearly $70 for Brent — is insensitive. But then again, even if the tax hike is P20 or P50/liter, the “money will go to the poor” naman daw is always a convenient, hollow, cavalier and opportunistic alibi.

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“Diesel tax will increase from zero in 2017 to P2.50/liter in 2018, P4.50 in 2019, and P6.00 in 2020. Gasoline tax will increase from P4.35/liter in 2017 to P7 in 2018, P9 in 2019, and P10 in 2020. Coal tax will increase from P10/ton in 2017 to P50 in 2018, P100 in 2019, P150 in 2020.” http://bworldonline.com/top-eight-energy-news-2017/

“the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products…. I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes.” http://bworldonline.com/energy-favoritism-train/

Among the lousy supporters of “more taxes for oil please” and among the chief rah-rah cheerleaders of tax-tax-tax is the Action for Economic Reforms (AER). See for instance,

“Excise taxes on fuel products will be justifiably raised after 20 years of non-adjustment to inflation except for fuel that is primarily used for air travel, which can only be maximized by those who have more disposable income.”http://bworldonline.com/public-interest-vested-interest/

Yes, poor farmers moving away from cow de carabao and using oil-guzzling tractors, moving away from manual harvest to oil-guzzling harvester-thresher combine machines should be penalized with higher oil taxes. Fisherfolks moving away from banka de sagwan and using motorboats to increase their fish harvest should be penalized with higher oil taxes. Great NGOs.

In one Senate comm. Hearing by Sen. Sonny Angara where I was also invited, the domestic shipping lines, airlines, bus lines, truckers, etc were saying the same thing — if govt will push the high oil taxes, they will follow and obey the law but they will pass any price hike to the public. So even vegetables, fish, chicken, rice, etc consumed by the poor will experience price hikes. And DOF, AER, etc think this is fine and pro-poor daw.

LPG, from zero to P3/kilo. So the 11 kg LPG tank will experience P33/tank increase. The original DOF proposal was increase to P10/kilo or P110/tank. Even carinderias will also increase their food prices, or the less visible option — serve smaller viand for the same price.

Energy favoritism under TRAIN

* This is my column in BusinessWorld last December 19, 2017.

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The recently approved tax reform for acceleration and inclusion (TRAIN) by the Congressional Bicameral Committee exhibits a number of favoritism for some energy products and players while penalizing others. In particular, among the three fossil fuels, only petroleum products and coal received tax hike while natural gas was not mentioned and hence, not taxed.

In the VAT base expansion, expensive, unstable and intermittent renewable energy (RE) like wind-solar is again exempted (see table).

TRAIN_121917

Here are the possible implications:

  1. Since petroleum products are a public good, many goods and services will experience price hikes. Not only fares for jeepneys, buses, taxi, boats, and airplanes but also for agricultural products because most farmers now no longer use carabaos in tilling their farms, they use tractors, big and small; more farmers now also do not use human labor for harvesting rice, they use harvest + threshing combiner machines. Fishermen hardly use manual paddle boats, they use motorboats. Traders no longer use animals in transporting cargo, they use trucks.
  1. Since coal power contributes 48% of total electricity production nationwide (2016 data) despite having only 34% of total installed power capacity, electricity prices will further go up, slowly but surely. Most apologists of raising coal taxes cite the “minimal impact” on households consuming 200 kWh/month. This may be true but those households work in factories, malls and hotels, schools and universities, hospitals and residential condos, airports and seaports. These establishments consume hundreds or thousands of MWh per month, not kWh of electricity. The additional cost will be passed on to the consumers.
  1. Natural gas is also fossil fuel but it was never slapped with excise taxes. The Malampaya gas royalty is a tax on exploitation of a natural resource, the same way that the price of our imported petroleum and coal already include royalties. There is favoritism in exempting natural gas from excise tax. And there are some connections between some legislators and a known economist who pushed for high coal tax but silent on natural gas tax, with a big energy company whose main product is natural gas power generation.
  1. Exempting RE from VAT but retaining VAT for fossil fuels. These REs are enjoying favoritism three times. First, this exemption from a high 12% VAT. Second, they are given guaranteed high prices for 20 years via feed-in-tariff (FiT). Third, they are given priority or mandatory dispatch to the grid even if they are expensive. For instance, FiT for solar1 is P10+/kWh, FiT for wind1 is P9+/kWh, average coal price is P4/kWh, can go down to P1.50/kWh on off-demand hours like midnight.

Oplas-121917-768x402Soon, REs will be given a fourth privilege via the renewable portfolio standards (RPS), or minimum percentage of REs that electric cooperatives (ECs) and private distribution utilities (DUs) must purchase and distribute to households. REs then can price their electricity output high because these ECs and DUs have no choice, they will be penalized if they will not buy those expensive and intermittent REs.

Meanwhile, the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

I have been intrigued by that repeated statement since last year and I am wondering what papers or studies justify this?

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products.

The DoF is saying then that anytime in EDSA, NLEx, SLEx, roads in Visayas and Mindanao, etc. on average, about 50% of the cars, buses and trucks there transport the two million rich families and their goods? And that about half of domestic flights and the inter-island boat rides transport the richest two million families? This is absurd.

I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes. If such DoF claim has indeed objective basis, I am willing to apologize for this remark. For now, that statement is not backed up by solid numbers and hence, deceptive and opportunist.

Top 10 myths for oil tax hike

* This is my article in BusinessWorld last January 17, 2017.

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An excise tax is defined by the Department of Finance (DoF) as “a tax on products that have a negative effect on health or the environment… on nonessentials and luxury items.” With this definition, the DoF therefore, should abolish the tax on oil products, not increase it.

Here also are the 10 myths and alibi why the DoF and other sectors tend to demonize oil and are proposing oil tax to be as high as possible.

MYTH 1
OIL IS BAD FOR THE ENVIRONMENT.

Truth: Transportation of people and goods via cars, jeepneys, buses, and trucks that use oil is good for the environment because there will be no need for millions of cows, carabaos, or horses that produce tons of animal manure on the roads daily. Sure, there are particulates and other polluting gases but they are minor compared to tons of animal manure everywhere, more dirt, flies and worms in the environment. Also, cheaper LPG will encourage poor households to stop using firewood and charcoal for cooking which will result in more trees being saved.

MYTH 2
OIL IS BAD FOR PEOPLE’S HEALTH.

Truth: Cars, vans, jeepneys, and buses that use oil spare the oldies, sick, babies, pregnant women, etc. of hard labor and more diseases due to exposure to heat, rains, dust, and exhaustion if they were to ride bicycles or skateboards or animals that do not use oil. Also, transport of agricultural products from Ilocos, Cordillera, Cagayan Valley, or Bicol to Manila via animals not trucks will only lead to food spoilage. People will have little or no access to fresh vegetables and fruits, resulting in poor health.

MYTH 3
OIL IS NOT A PUBLIC GOOD.

Truth: Oil is a public good. As shown above, no petroleum, no modern and comfortable life, no mass production of food and transportation of people and goods. Public goods like public education, public health care, roads, bridges, etc. are either provided to the people for free or highly subsidized prices. Oil as a public good only needs zero tax, or at least low tax.

MYTH 4
MORE CO2 EMISSION FROM OIL MEANS MORE POLLUTION, MORE “MAN-MADE” CLIMATE CHANGE.

Truth: CO2 is not a pollutant gas; it is a useful gas. It is the gas that humans exhale, the gas that our pets and farm animals exhale, the gas that plants use to produce their own food via photosynthesis. Climate change is natural and cyclical. Planet Earth is 4.6B years old, there was climate change ever since marked by warming and cooling cycles.

MYTH 5
INCREASING THE OIL TAX IS NECESSARY TO FINANCE MORE PUBLIC INFRASTRUCTURE.

Truth: Government has trillions of pesos already from income taxes (corporate and individual), VAT; excise tax from alcohol, tobacco, mining, new vehicles; from documentary stamp tax, franchise tax, from annual vehicle registration tax, withholding tax, capital gains tax, travel tax. And from various regulatory fees (passport fees, driver’s licenses, terminal fees, etc.)

Government simply has too many personnel, officials, employees, consultants and pensioners; too many offices, travels, trainings, and meetings. Perhaps these items alone constitute about 70%-80% of the annual budget. So little is left for public infra, school buildings, government hospitals, etc.

MYTH 6
THE OIL TAX INCREASE WILL HAVE MINIMAL IMPACT ON THE POOR.

Truth: Oil is used by the poor not only in jeepneys but also in tricycles, farm tractors and harvesters, irrigation pumps, fishing boats, interisland boats, generator sets in off-grid islands. While the DoF plans to introduce “Pantawid Pasada” for jeepneys, nothing has been allotted for farm tractors and other equipment used by poorer farmers, fisherfolks, hunters, etc.

As shown below, fishing boats that use gasoline, tractors and irrigation pumps that use diesel, tricycles that also use gasoline, will be slapped with 12%-19% price hike simply because of the proposed tax hike (see table).

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MYTH 7
THE OIL TAX INCREASE WILL HIT THE RICH MORE THAN THE POOR.

Truth: Oil use is a small portion of the overall consumption of the rich. The rich buy more expensive but more fuel-efficient cars and SUVs, they spend more on expensive restaurants, hotels, schools and universities, condos and subdivisions, etc.

MYTH 8
FOOD PRICES WILL NOT GO UP SIGNIFICANTLY WITH OIL TAX HIKE.

As mentioned above, oil is used not only by trucks, jeeps, and boats that transport agriculture, meat and fishery products. Oil is also used by farm tractors and harvesters, fishing boats. A 3.6% food inflation in 2016 (despite around 50% hike in diesel prices) is not small for the poor.

MYTH 9
NO OR LOW EXCISE TAX MEANS SUBSIDIZING THE OIL CONSUMPTION OF THE MIDDLE CLASS AND RICH.

Truth: There is no subsidy, zero, unlike subsidies for public education and health care or rice price subsidies using tax money. When you walk down the street and encounter a mugger who didn’t demand your money, you do not owe that mugger anything.

MYTH 10
GOVERNMENT IS LOSING SOME P145 BILLION/YEAR POTENTIAL OIL TAX REVENUES.

Truth: Government has no entitlement to more income and savings of the people other than income taxes that are already high, and other existing taxes. Government is losing more from wasteful spending or stolen money via corruption. Government can save more money for infrastructure by reducing too many personnel and consultants and by abolishing and defunding old welfare programs that do not work before it creates new welfare programs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both are members of Economic Freedom Network (EFN) Asia.

Cheap oil, natural gas and coal prices

Last Saturday, a $35 a barrel oil at West Texas Intermediate (WTI) was breached. Airlines and shipping lines’ fares should go down, more tourism. More farm mechanization, more cows and carabaos will be spared of heavy farm work.

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http://oil-price.net/

Some oil products other than WTI and Brent are actually cheaper than these. Like Western Canada, Iraq heavy, etc.

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Source: http://www.bloomberg.com/news/articles/2015-12-14/never-mind-35-the-world-s-cheapest-oil-is-already-close-to-20

The anti-fossil fuel planet saviours

Many of the tens of thousands of planet saviours and climate hangers who went to the UNFCCC COP 21 meeting in Paris who hate fossil fuel may be shivering with this development. They want the world to cut petroleum use while they do their frequent jet-setting global meetings and junkets on airplanes that fly and cars that run on petroleum.

They will dislike that there will be more trucks, more buses, more cars, more planes, more ships that move more people and goods across cities, islands, countries and continents, as oil prices keep falling.

The animal rights activists should welcome this development too. Millions of cows, carabaos, horses, other big animals will be spared of heavy and punishing farm work as it is cheaper and faster to use more tractors and machines than those animals.

OPEC now a price taker, not price dictator

The old, tested greed by OPEC member-governments have been shattered by heavy competition from shale gas/oil drillers and producers in the US, Canada, etc. Before, whenever oil prices fall down, OPEC would quickly cut their output from 30 M barrels per day (bpd) to around 29 M bpd. Now they cannot and will not do that. They are forced to keep producing at 30-31 M bpd, accept low prices and lower revenues, just to keep their market share.

The rest of us, oil consumers around the world, benefit from this global competition among oil and gas producers. In the Philippines, the minor Peso/$ depreciation contributed to small price rollback. Besides, the $35 per barrel is for 1 or 2 months delivery, meaning by January or February 2016, not December 2015.

Peak Oil theory is discredited

Peak oil, along with peak food and Malthusian hypothesis, climate alarmism, discredited. The short- and medium-term scenario is that world oil prices will hover between $40-$60, still low compared to 2012-2013 levels of nearly $100. And lower than the past decade’s prices.

We are in a period of cheaper energy, cheaper food, longer lifespan, healthier people. The problem of many economies now is more fat/obese people than thin and undernourished people. When people die at 50 or 60 yrs old, some would say, “he/she died young”. In 1900, when a person dies at 40 or 50 yrs old, that’s “long” already because life expectancy was only around 33 years.

So few decades from now, if a person dies at 70-80 yrs old, other people will say, “he/she died young.” Why, because average life expectancy then will be at around 100, 110 yrs old.

Regulated fares and the LTFRB

But why despite oil and fuel prices going down, public vehicles in the Philippines do not automatically bring down their fares?  When fuel prices go up, PUV operators and drivers ask for a fare hike again.

The Land Transport Franchising Regulatory Board (LTFRB) of the DOTC is a jerk government agency. MARINA (regulator for shipping companies and operators) and CAB (regulator for airlines) allow fare deregulation. So airlines’ fares can go up or down depending on the travel season. The LTFRB officials, past and present, are among the hard-core central planning bureaucrats. No fares can go up or down unless they give permits, unless they affix their signatures.

Not only world oil prices, natural gas prices are also falling, chart over the last 7 1/2 years. More energy at cheaper price, more prosperity.

NG
http://www.infomine.com/investment/metal-prices/natural-gas/all/

And world coal prices too. Since the Paris climate agreement is non-binding, no penalties for countries that do not obey their promised emission cuts, then more developing countries like India, China, Indonesia, Philippines, Brazil, etc. will be using this energy source to further empower their economy. Rich countries too like Japan and the US. Prices chart over the last 14 years.

coal
http://www.infomine.com/investment/metal-prices/coal/all/

Global capitalist competition will spring us more surprises, for the better. There are lots of shale gas/oil rigs that have been temporarily closed because of low prices. But there are lots more shale oil and gas deposits around. More global prosperity is the game.

Deflation

Yes, cheap energy prices can contribute to deflation or declining overall prices of commodities and services. But it will be a good type of deflation. More output per unit of input. In this case, more oil, more natural gas, per rig.

There is a distinction between good and bad deflation. The good is productivity-driven (cheap oil, cheaper mobile phones and flat tv, cheaper food and shoes, etc.). The bad deflation is due to poor economic outlook in the future (people seldom spend even if they have the money).

There is little role for governments in this type of deflation, and they should not intervene more, like imposing higher petroleum taxes. The WB and IMF have been lobbying for this tax hike for sometime now. They believe that petroleum being a “public bad” should be taxed more. Nehh? Those WB, IMF, UN, other multilaterals’ officials and bureaucrats love to jet-set and travel a lot, on petroleum-powered planes and SUVs, meaning it is useful for them, then declare petroleum as a “public bad”?

Oil prices and taxes, 2012

* This is my article in the online magazine last August 24, 2012.

http://www.thelobbyist.biz/perspectives/less-gorvernment/1345-oil-prices-and-taxes

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Oil Prices and Taxes

Local oil prices have significantly jumped the past few days by about P3 per liter. This reflected the upward movement of oil prices in the world market over the past few weeks. As usual, the left-leaning groups raised howl and criticized the oil companies for their “greed” and called on the government to have another round of tax hikes on oil or other products and services.

Last July 11, 2012, I attended the “Platts Forum on Oil, Coal and LNG” at Edsa Shangrila Hotel. Among the speakers there was Ms. Zenaida Monzada of the Department of Energy. Below are among the slide presentations she gave in the said forum.

Taxes that contribute to the higher retail prices of petroleum products are (a) excise tax, P4.35 per liter for gasoline, P3.67 per liter for jet fuel, P1.63 per liter for diesel, and (b) value added tax (VAT) 12 percent. This means that for the P54 per liter unleaded gasoline, about P10 of it goes to excise tax and VAT alone. Or the government is directly accountable for expensive oil by about P10 per liter. There are other indirect taxes of course, like corporate income tax, documentary stamp tax, real property tax, etc. of the oil companies, trucking and gas stations.

The lower chart shows that the Pesos per liter retail price has moved along with the world crude oil price, from 1984 onwards.

 Below, the same story is shown. From 1999 to June 2012, local gasoline and diesel prices have moved generally in steep with international crude and refined product prices. And world oil prices are dictated by the governments of the major oil exporting countries, both OPEC and non-OPEC member countries.

The conspiracy theory therefore, of oil companies dictating local oil prices to satisfy their greed is standing on a hollow ground.

Below, “prevailing prices” refer to early July 2012 prices. Prices across various oil dealers and retailers are generally similar, with minor price differential that can be attributed to other business costs like land lease or rent, and/or varying profit ratio.

The lower table shows comparative prices across major capital cities, converted into Pesos per liter. Philippine oil prices are not among the highest in the region. The most proximate explanation would be that those countries that have higher oil prices than us have higher taxes and fees, direct and indirect, that are slapped on oil products and oil producers and retailers.

The bottomline is that contrary to common public perception that the oil companies are the main instigator of oil price hikes, it is not. It is more due to the (a) governments of oil exporting countries like those in OPEN-member countries that set the price of crude oil, and (b) governments of net oil importing countries like the Philippines, for the various taxes and fees imposed both on the oil products and the companies that import, refine, transport and retail oil products.

Repeated calls to re-regulate if not nationalize the local oil industry are misguided and wrong. Instead of having more government involvement and intervention in local oil price setting, there should instead be lesser government taxes and involvement. The excise tax on oil products should in fact be abolished, instead of raising it as proposed by some sectors.