The robust economic growth promised by the “Build, Build, Build” infrastructure program will give rise to a new dominant source of power supply in the Philippines.
The Philippines is moving to develop a liquefied natural gas project to meet an ever-increasing demand for power in the so-called golden age of infrastructure.
Energy Secretary Alfonso Cusi said while sustainable renewable sources of power will come to dominate the future, there is still a need for a stable source of electricity that can bridge this transition.
“Without this, we will not be able to secure our energy security. I would like to draw your attention to the second emerging trend that is changing our energy landscape—the revolution in gas that promises to make it the bridging fuel in the short to medium-term,” Cusi said.
He said the gas revolution, changing at a fast pace, is defined by three major developments: higher demand, cheaper cost and increasing available supply.
“The first is increasing demand from Asia—where our players will eventually transition from net exporters to net importers. The second is increasing supply from the rest of the world: where new supplies have come on stream, especially from the United States. The third is cheaper gas. … the reconfigurations of these supply and demand mechanics (is) changing the way gas is purchased and pushing costs down in the process,” the energy chief said.
Cusi said nowhere are the prospects higher for the demand of gas than in Asia and the “thirst for gas is set to grow further.”
He cited data that in the first half of this year when Chinese LNG imports jumped 38 percent from the same period in 2016.
Cusi noted the forecasts by British Petroleum stating that China and India alone were expected to account for half of the 30 percent increase in global energy demand between today and 2035.
“The same trends are happening in Asean, where the situation is such that as gas fields continue to deplete, we will eventually transition from net exporters to net importers,” he said.
Cusi also cited a report by the Oxford Institute for Energy, which anticipates that by 2021, Asean countries will be net importers requiring 20 million tons. This is set to rise to at least 45 million tons in 2030.
“As demand continues to grow, things look promising on the supply side as well. Indeed, global supplies of LNG are on course to increase by 50 percent between 2014 and 2021,” he said.
Cusi said US LNG exports will have a strong impact on the global LNG market due to the shale gas revolution in the United States.
Once a net importer, Cusi said, US is now a net exporter of natural gas and is expected to become the world’s third biggest exporter of LNG by 2020.
Disruptive effect
“This has had a disruptive effect on the markets, as the prospects of rising US gas exports has put pressure on the pricing formula of several existing long-term contracts. What is happening is that a market once-dominated by long-term contracts between a small number of suppliers, and an equally exclusive club of buyers such as Japan and South Korea, have been blown open by the influx of US gas,” Cusi said.
He said over 95 percent of LNG contracts a decade ago covered 10 years or more.
“Today, that figure is down to about 60 percent. Given these new developments, Asean needs to start planning for this future. We need to think of how we can ride this LNG wave, to ensure that we can safeguard our energy security,” Cusi said.
LNG wave
He said the Philippines has made preparations to join the global LNG wave and expects to start its first LNG terminal project by next year.
“We’ve started with the rollout of the Batangas LNG Terminal by 2020 to safeguard against the anticipated depletion of the Malampaya gas facility in 2024,” he said.
“The buy-in is there. The investors are in. And we expect to commence groundbreaking of this project in 2018.”
The government is now readying the LNG framework that will provide the policy guide for investors in the emerging LNG industry. The draft framework is set to come out this month and go through public consultations before it is finalized.
The government’s thrust to develop an integrated LNG terminal is led by state-owned Philippine National Oil Co.
PNOC has been in talks with dozens of potential investors for a planned $2-billion LNG terminal. PNOC president Reuben Lista wants to utilize its banked gas from the Malampaya gas project to bankroll the project and avoid incurring interest from loans.
Lista earlier said around 12 foreign companies had expressed interest to acquire the government’s banked gas.
“We want to monetize the banked gas so that we do not have to borrow. There are around a dozen serious ones for the banked gas,” he said.
PNOC wants to trade the government’s banked gas in the international market to provide funding for the LNG facility.
“NEDA (National Economic and Development Authority) will not likely approve if we borrow $2 billion. We have equity from the banked gas and that is the direction we are tying to adapt. We are looking for a partner willing to monetize my banked gas. There are 12 interested… all foreign,” Lista said.
The government earlier estimated that the planned integrated LNG facility will cost around $2 billion to construct. PNOC estimates the value of the banked gas at around P11.9 billion.
The unused Malampaya natural gas, or banked gas’ is stored in the Malampaya reservoir and owned by PNOC. It was contracted, paid for by the government and reserved for future use. The banked gas has accumulated in the past several years.
PNOC said with the impending depletion of the Malampaya gas field by 2024, “it becomes imperative that PNOC extract and fully recover the remaining purchase cost as well as optimize its potential value at the earliest time possible which should be before the end of 2024.”
PNOC want the utilization of the banked gas preparatory to the full development of the proposed PNOC Batangas LNG Hub Project.