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PHL exposed to LNG spot market volatility as Malampaya supply dwindles — Fitch 


THE PHILIPPINES will need to turn to the volatile spot market for liquefied natural gas (LNG) with major power producers currently dependent on dwindling Malampaya gas yet to conclude long-term import agreements, Fitch Solutions Country Risk and Industry Research said in a report.

“None of the power producers has secured long-term LNG supply agreements, which could leave the Philippines entirely exposed to spot prices. The Philippines needs to ramp up LNG imports for long-term supply security but the levels of imports will be dependent on its ability and willingness to pay for LNG,” Fitch Solutions said in a Feb. 14 report.

Fitch Solutions warned that Philippine self-sufficiency in natural gas is expected to come to an end as the Malampaya gas field, the country’s only indigenous commercial source of natural gas, will soon be unable to supply easy-to-extract gas.

Service Contract (SC) 38, which covers the Malampaya gas field, is set to expire next year, though a 15-year renewal has been sought by the concession holders.

The Malampaya gas field, which began commercial operations in 2002, supplies power plants in Batangas accounting for 20% of Luzon’s total electricity requirements, the Department of Energy (DoE) said. Depletion of the easily-extracted gas is expected by 2027, possibly forcing the SC 38 operators to resort to more costly methods for tapping the remaining gas.

Fitch Solutions said that the Malampaya depletion may result in permanent loss of domestic gas supplies, leaving the Philippines with a significant natural gas deficit.

“Unless gas can be produced from domestic sources, the Philippines will need to rely exclusively on imported LNG going forward,” it added.

To date, the DoE has approved seven LNG receiving terminal projects.

 Last month, Samat LNG Corp. was given notice to proceed with the construction of its small-scale LNG receiving terminal and regasification facility in Mariveles, Bataan. It is expected to start operations in 2024.

The other LNG projects are by Linseed Field Power Corp.; First Gen Corp.; Luzon LNG Terminal, Inc.; Energy World Gas Operations Philippines, Inc.; Shell Energy Philippines, Inc.; and Vires Energy Corp.

Linseed, an arm of Atlantic Gulf & Pacific Co., said that it has completed the conversion of a vessel into a floating storage unit for gas. The company is expected to start taking delivery of gas by March.

First Gen Corp., through its subsidiary FGEN LNG Corp. has announced that its LNG terminal will also be completed by the first quarter.

“The Philippines needs to ramp up LNG imports for long-term supply security but the level of imports will be dependent on its ability and willingness to pay for LNG. Any upside risk to LNG prices could derail the LNG import outlook given the power sector’s inherent sensitivity to fuel price increases in combination with the government’s policy to keep electricity prices affordable for consumers,” Fitch Solutions said.

Fitch Solutions warned that the government’s push to expand the share of renewable energy in the power mix could pose risks to natural gas consumption by the power sector.

The Philippine Energy Plan targets an increase in the share of renewables to 35% by 2030 and 50% by 2040.

“The outlook for gas consumption remains bullish in both reference and clean energy scenario (CES), but there are downside risks to gas consumption if the government chooses to pursue renewables under the CES scenario rather than natural gas,” the report said.

The report said imports of about 9 million tons per annum will be needed to power about 12 gas-fired power plants when Malampaya stops production.

Currently, five existing power plants with combined capacity of 3,453 megawatts are supplied by Malampaya.

The DoE has approved another seven gas-fired power plants with a combined capacity of 7.1 gigawatts.

Prime Infrastructure Capital, Inc. (Prime Infra), which holds a 45% share of the Malampaya concession, downplayed talk of the gas field’s depletion.

Last week, Prime Infra President and Chief Executive Officer Guillaume Lucci said “depletion” refers only to declining pressure in the Malampaya gas field, with the option open to use other methods for extracting the remaining gas.

Prime Infra holds its 45% stake via subsidiary Prime Energy Resources Development BV (Prime Energy). The other consortium members are UC38 LLC and PNOC Exploration Corp., with 45% and 10% stakes, respectively. — Ashley Erika O. Jose

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