Natural gas import projects slow out of the gate — Fitch Solutions

DECLINING PRODUCTION from the Malampaya deepwater gas project has left the Philippines needing to import liquefied natural gas (LNG), but projects to allow the fuel to come in are facing delays, Fitch Solutions Macro Research said.

The lack of emphasis on natural gas, LNG and renewables in the Philippines’ Energy Plan covering 2017-2040 is also a source of concern, added the research unit of UK company Fitch Solutions Group Ltd.

These are among the observation of the firm after the Philippines embarked on a plan to make the country a regional hub for imported LNG under the current political leadership, which is into its fourth year of a six-year term.

“Given clear need for alternative gas sources, the Philippines’ plan to commence LNG imports is making gradual headway, although risks of project delays continue to be prominent,” Fitch Solutions said.

It said the Malampaya field’s output is widely expected to be depleted by 2027 at the latest, based on the projection of the Department of Energy (DoE). The country’s only gas production site accounts for 15% of its electricity. It powers 20% of Luzon island.

“Royal Dutch Shell has submitted a request to extend its current contract for Service Contract (SC) 38, which contains Malampaya, believing it can extend the life of the field to 2030 (15 years), based on recent satellite finds,” it said.

However, the DoE has been reluctant to extend the contract in its current form, it added.

“Simultaneous attempts to boost exploration remains ongoing, although is expected to take time, prompting the Philippines to seek a quicker solution to declining indigenous gas supply through imports,” it said.

It noted that the industry’s response to the Philippines’ latest licensing round, the Philippine Conventional Energy Contracting Program (PCECP) launched in November 2018, had been lukewarm, with only five out of the government’s 14 pre-designated areas awarded to prospective investors.

“A potential joint exploration with China’s CNOOC (China National Offshore Oil Corp.) offshore South China Sea (West Philippine Sea) has also yet to pan out, as talks continue to progress at a gradual pace,” it said.

Fitch Solutions said a number of LNG regasification projects have been proposed by a combination of domestic and foreign private firms in the race to fill an imminent gas deficit.

It said in spite of securing “Energy Projects of National Significance” (EPNS) status in July 2019, progress at Energy World Corp. (EWC)’s Pagbilao LNG project had been “painfully slow, hampered by funding concerns, regulatory hold ups and delays to gaining approval to connect to the national grid.”

“Indeed, the project had originally planned to come online by end-2017, although is not aiming for start-up sometime within 2020,” it said.

Upon commissioning, Pagbilao will enable imports of up to 3 million tons per annum of LNG, mainly to supply gas-fired power generation units of 650 megawatts (MW) in the area, it added.

Sought for comment, an official of the Energy Regulatory Commission (ERC) said EWC had applied for a certificate of compliance (CoC) in April 2019, showing some progress in its project. The certificate is proof that a power plant complies with the applicable regulations clearing it as safe to switch on and operate.

“Wala pa siyang target testing and operation (There is no target for testing and operations). They already applied for a CoC but we will be notified (by EWC) before testing and commissioning. After that, saka kami magi-inspect (that is a point at which we plan to inspect),” Sharon O. Montañer, who heads ERC’s financial and administrative service, when asked about the status of the EWC project.

Other companies with ongoing LNG projects are First Gen Corp., LT Group, Inc., and Phoenix Petroleum Philippines, Inc.

Fitch Solutions said from a price standpoint, “the next few years is likely to prove an opportune time for the Philippines to commence LNG imports” in view of accelerating supply growth and liquefaction capacity increases led by the US, Russia and Asia.

“The Philippines has yet to enter into any LNG supply contracts for its terminals, and as such, will prove an attractive market for the growing legion of LNG suppliers globally. To date, several options have been mulled, mostly centered on shorter-term contracts from portfolio players and existing overseas assets by project developers,” it said.

Fitch Solutions also said “the lack of emphasis on natural gas, LNG and renewables in the Philippines’ Energy Plan (PEP 2017-2040) remains a source of concern.”

“While promoting ‘a low carbon future’ remains one of eight strategic directions outlined in the PEP, the plan does not include specific targets for clean energy development. This creates the risk that strategic pillars such as ‘improving energy security’ and ‘expanding energy access’ that are also outlined in the PEP may not necessarily be achieved by stronger gas off-take, particularly in light of cheaper coal,” it said.

Officials of the Energy department did not immediately reply when asked to comment on Fitch Solutions’ report. — Victor V. Saulon