The Philippines will soon lift its moratorium on oil and gas exploration in the disputed West Philippine Sea waters as part of a “strategic, win-win” solution with China, Energy Secretary Alfonso Cusi said as the country tries to court China and Japan for $135 billion worth of investments to stabilize the country’s power supply.
Cusi said his office is seeking to allow the Manny V. Pangilinan-led consortium PXP Energy Corp., one of the companies whose Reed Bank operations were disrupted in 2014, to resume drilling at Service Contract 72, which contains the Sampaguita gas discovery that holds an estimated 11.4 trillion cubic feet of reserves.
“We would really like to be pragmatic in our approach to joint exploration,” Cusi said in a Bloomberg interview. “Now, the pathway is becoming clearer.”
Cusi noted that the country’s energy reserves were already “at that level where we have a very thin reserve.”
The energy chief likewise noted that the Philippines had planned to sign a contract with China National Offshore Oil Corp., Beijing’s third largest state-run oil company, but “was never completed, for joint exploration in uncontested areas.” A spokesman for the Chinese company didn’t respond to Bloomberg’s requests for comment.
Earlier, President Rodrigo Duterte said that Manila and Beijing may conduct a “joint venture” in the disputed waters, but declined to provide details about the joint exploration as he revealed that the talks were already ongoing.
“Wala pa sila pero [They are not yet here but] we are into it already. We are there already, may partner na [There’s a partner already],” the President said in a media interview following his second State of the Nation Address.
“‘Di ko lang masabi kung sino. Nandoon na ang atin pati kanila [I just cannot reveal the partner. Our representatives and their representatives are there]. They are talking and they are exploring,” he added.
Reed Bank, an underwater mountain off the Philippine coast is believed to hold significant oil and gas deposits which falls exclusively within the country’s exclusive economic zone, which according to the UN Convention on the Law of the Seas (UNCLOS), places it firmly in the Philippines’ possession.
Supreme Court Senior Associate Justice Antonio Carpio, however, warned that the Philippine Constitution bans “joint development” within the country’s exclusive economic zone (EEZ)—adding that while companies are allowed to drill in the sea, given certain guidelines—state-to-state arrangements violates the charter.
China has long sought to exploit what it believes could be more than 100 billion barrels of oil and hundreds of trillions of cubic feet of natural gas lurking beneath the South China Sea while claiming the entire sea in a so-called “nine-dash line,” a move rejected by the Philippines, Vietnam, Malaysia, Brunei and Taiwan.
In the same interview, Cusi said that they are working to fast-track $135 billion worth of power projects, which were already in the negotiating table to help in boosting generation capacity by 43 gigawatts in the coming decades.
Projects endorsed by his office will be approved within 30 days under an order recently signed by Duterte, instead of the months or even years it had taken proponents in the past, he said.
“There’s a lot of expressions of interest to invest in the Philippines, and we’re going to make it easy for investors,” Cusi said in an interview Wednesday in Taguig City. “We are open to all parties, all countries. In all the trips we had, we made the sales pitch.”
The world’s two biggest economies after the U.S. have poured billions into the region’s energy development. Japan has either sponsored or financed 21 projects with a combined value of $23.7 billion that are currently under construction or planned in Southeast Asia, while China has backed 21 projects worth $32.8 billion, according to BMI Research.
Duterte has tried to develop closer ties with China since taking power last year as he seeks both new power plants and offshore gas resources, particularly for the island of Luzon that accounts for about two-thirds of the economy but has precarious electricity supplies. The forecast power needed through 2040—roughly three times the generation capacity of Singapore—will support economic growth encouraged by airports, railways and bridges that the president has promised to build, Cusi said.
The Philippines also plans to start building by next year a 100 billion-peso ($1.95 billion) liquefied natural gas terminal to supply plants that generate a combined 3.5 gigawatts of power. The facilities now rely on the Malampaya gas field off Palawan province, which is expected to be depleted by 2024.
The LNG terminal project, to be built in Batangas province south of the capital Manila, will have an initial annual capacity of 5 million metric tons when it starts by 2021 and will include a power plant with a capacity of between 200 megawatts and 800 megawatts, Cusi said. It will later be expanded to 10 million tons, as the nation has ambitions to be a LNG trading hub for Asia, Cusi said.
Tokyo Gas Co., Osaka Gas Co. and Mitsui & Co. have been “nominated” by the Japanese government for the LNG project, which will be developed by a consortium headed by state-run Philippine National Oil Co., Cusi said. Private Philippine companies are welcome to join, he added.
Tokyo Gas and Osaka Gas don’t have firm plans to join Philippine power projects, but are looking at the opportunity, spokesmen from both companies said Thursday. The two firms, along with Mitsui, signed an agreement in June to consider joining the LNG project, the spokesmen said. A spokesman for Mitsui didn’t respond to a request for comment.
China has committed to a $6 billion investment in the Philippine energy sector. Building fossil fuel-fired power plants and renewable energy projects were “extensively” discussed with Chinese companies, which were also invited to take part in the LNG project, Cusi said.
The Philippines will decide on its LNG terminal partner this year. “I think we can only marry one,” Cusi said, when asked if both Japanese and Chinese investors can be part of the consortium.
The Southeast Asian nation’s total installed capacity rose 14 percent to about 21.4 gigawatts last year, with Mindanao posting the highest growth at 31 percent, according to Department of Energy data.
That left the southern island with a 33 percent power-reserve margin, which measures the amount of maximum capacity available above peak demand. Visayas has 22 percent, while Luzon only has 7 percent. The government is planning to spend 52 billion pesos to link the three island regions so they can share power, Cusi said. With John Paolo Bencito