Malampaya_17_2001
Malampaya

Philippines’ LNG imports seen rising as maritime dispute thwarts exploration

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THE PHILIPPINES’ reliance on imported liquefied natural gas (LNG) will rise in the coming decade as its sole source in the Malampaya gas field “nears the end of its production cycle” and a maritime dispute prevents the country from tapping other sites in the South China Sea, Fitch Group’s BMI research said in an Aug. 7 note released on Tuesday.

“The Philippines’ natural gas production is set to be nearly depleted by the end of our 10-year forecast period, as low oil prices and ongoing maritime disputes in the South China Sea hamper exploration in its most prospective offshore blocks,” the note read.

“This will entail greater reliance on LNG imports over the coming years,” it added.

“Once self-sufficient in natural gas, the Philippines’ natural gas production is set to decline rapidly over the coming years at an average annual rate of 20%, as its sole-producing Malampaya gas field enters the end of its production cycle.”

Latest available Energy department data show that natural gas was the third-biggest contributor to power generation in the country last year at 21.9%, against coal’s 47.7%, renewable energy’s 24.2% and oil-based fuels’ 6.2%. That compares to contributions of 24.8%, 28.2%, 33.4% and 13.5% of natural gas, coal, renewable energy and oil-based fuels, respectively, in 2003.

In his speech at the 3rd LNG Supply, Storage and Transport Philippines Forum 2016 at the SMX Convention Center in SM Aura Premier in Taguig City in October last year, Energy Undersecretary Benito L. Ranque had noted that “the country has only one productive gas field” and that “about 98% of its production is currently used for power generation.”

Malampaya fuels the three gas-fired power plants that account for nearly a fifth of Luzon’s installed generating capacity: the 1,271-megawatt (MW) Ilijan Power Plant of KEPCO Ilijan Corp., as well as the 1,060-MW Sta. Rita Power Plant and the 500-MW San Lorenzo Power Plant of First Gas Power Corp. These three facilities in Batangas City provide the minimum supply Luzon consumers need.

“While we expect the Malampaya gas field to continue production well beyond the mid-2020s, it is unlikely that its current output will increase significantly: that is, unless additional resources are discovered and tapped within the area,” Mr. Ranque had said in his speech last October.

“At the moment, there are no significant natural gas discoveries in the country that can feasibly be brought into production,” he noted.

“If ever, incremental gas supplies will have to come from the international LNG market.”

Hence, Mr. Ranque said, the government has been pushing its plan to build a $2-billion LNG import terminal and distribution network that include a floating storage facility, regasification units and onshore terminals in Luzon.

The network includes Philippine National Oil Co.’s Batangas-Manila natural gas pipeline. In its preliminary configuration as of June 2015, this project was estimated to cost some P10.528 billion and will involve a 121-kilometer pipeline that will convey natural gas to Batangas, Laguna, Cavite and Metro Manila.

IMPORTS BEGIN THIS YEAR
BMI noted that the Philippines will begin importing LNG this year for the first time through the 4.1 billion-cubic-meter gas-to-power facility of Hong Kong’s Energy World Corporation Limited in Pagbilao, Quezon that includes a 300-MW power station.

“Development of new projects to replace Malampaya has been inadequate, not least due to low oil prices and an industry-wide spending pullback that led firms to rein in investment in frontier and emerging markets, such as the Philippines,” BMI said in its Aug. 7 note.

“Tellingly, interest in its latest block offer (2015) was disappointing, with tenders for 11 oil and gas blocks attracting only three bids, as projects in countries with proven prospectivity and lower operational risks were preferred,” it added.

“Further dragging on exploration prospects in the Philippines is the fact that many of its most promising hydrocarbon blocks lie… in the disputed waters of the South China Sea that are being claimed by numerous… claimants, led by China.”

The dispute, and Beijing’s aggressive stance against other claimants that have questioned its moves to reclaim land and militarize the area, “has darkened the outlook on Forum Energy (plc)’s exploration in the Reed Bank [about 80 nautical miles west of Palawan], where it holds two exploration concessions”, BMI noted, citing Service Contracts (SC) 72 and 75 that were awarded to the London-based company.

“SC 72 is believed to hold as much as 2.6-8.8 trillion cubic feet of natural gas, three times that of Malampaya, according to an independent estimate,” BMI said, while “SC 75 covers offshore area of 610,000 hectares in the Northwest Palawan basin and believed to be oil-rich.”

Even strides made by Association of Southeast Asian Nations (ASEAN) members and China in the just-concluded ASEAN meetings in Manila towards a negotiating framework for a code of conduct in the South China Sea (SCS) will likely do little to alter current prospects for LNG exploration and development.

“… [D]espite Manila’s hopes that this would lead to future joint-exploration campaigns in the area with China, any amicable resolution to the dispute appears far off, not least due to the US and Vietnam’s vehement opposition to Beijing’s insistence for noninterference by ‘outside parties’ in subsequent SCS talks and the ASEAN’s inability to agree on whether the new Code of Conduct will be made legally binding and enforceable.”

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