Coastal Corp aims big in RP oil market

Coastal Corp aims big in RP oil market

SINGAPORE (Reuters): U.S.-based Coastal Corp plans to use its large 2.4 million-barrel Subic Bay oil storage center as the hub to become a major player in the Philippines' market, a senior company official said yesterday.

"In five years, I will be equal to everybody. All of us will have 25-percent of market share," Jess Medina, Coastal Corp's Philippines country manager and chief executive officer of Subic Bay Distribution Co., said.

The storage complex is equally owned by Petroleum Authority of Thailand (PTT).

The Philippines' oil market has been a three-refinery oligopoly since the 1970s, made up by Petron Corp and Caltex.

But the market was eventually deregulated earlier this year, so now there was room for at least four main players in the 390,000 barrels-per-day (bpd) oil products market, Medina said.

In just a few months of full market liberalization, Coastal has grabbed around five-percent of the Philippines' market, Medina said.

"When they woke up, I was already in the market and they didn't even know it," Medina told Reuters in a telephone interview from Manila.

The deregulation set uniform tariffs for importing products and crude. Previously, tariffs were higher for products imports, which helped support refinery businesses.

In response to the new tariff structure, Philippines' petroleum product imports surged 124-percent to 8.376 million barrels for the first quarter of 1998 compared with a year- earlier 3.732 million, the Department of Energy (DOE) said.

Another sign of the deregulation came from Philippines National Power Corp (Napocor), the country's largest fuel oil buyer, which called in April on the refineries to re-negotiate exclusive contracts because of falling prices.

With margins coming under pressure, partly because of a weak global market, the country's largest refiner, Petron lowered output in July at its 180,000-barrel-per-day (bpd) Bataan refinery to 140,000-150,000-bpd.

Medina said Coastal intended to make use of the US$70 million storage facility to import cheap international oil and fill the supply gaps left by such cutbacks as Petron's.

"The guys here who are big, are the ones with existing facilities, and Coastal has the biggest storage in this entire country...on products," he said.

Coastal will tackle commerce and industrial buyers and look to back PTT in entering the retail sector, Medina said.

PTT plans a 9.6-billion-peso ($230 million) investment to set up 140 retail outlets in the next five years and another 110 by 2007, the DOE said.

Due to it's early entry into the market, the Coastal/PTT venture will have an edge over other new international oil companies like French major Total SA and Malaysia's Petronas, which were also keen on the Philippines market, Medina said.

"We invested when this country was very, very down. Nobody wanted to touch this country," he said.

Petronas, a previous 50/50 joint-venture partner with Coastal, in Subic Bay terminals, pulled out in 1995.

"You need huge storage to bring in economical-sized cargoes, period. You cannot just make press releases and say you are entering the market," Medina said.

Coastal also plans to make use of Subic Bay as a swing supplier to the Asia but this strategy was hostage to the Asian economic downturn which has seen oil demand fall, Medina said.

"We are just starting from a low volume (of sales)," Medina said. "In the meantime, we have a lot of storage capacity and we are leasing it out. Every square inch of that storage is generating revenue."

Around 1.4 million barrels of diesel, fuel oil and jet fuel storage in Subic Bay was currently leased out, he said, partly because of cargoes getting rejected at Chinese customs.