The Department of Energy (DOE) on Wednesday said there is no problem with the supply of liquefied natural gas (LNG) but the Red Sea shipping constraint could have an impact on freight costs and push LNG prices domestically, an official said.
“Firstly, there is no supply disruption, there is no problem with supply. Supply is there. How do we ship that is the problem and where? Europe will have a problem, not the Philippines. The problem is the Red Sea going to the Suez Canal,” DOE Director for the Oil Industry Management Bureau Rino Abad said when sought for comment.
Qatar’s prime minister earlier warned that LNG shipments will be affected by the ongoing Red Sea tensions.
According to Abad, “There is a possibility that the cost of freight will increase because instead of seven days, it will become 15 days. They will have to circle to Cape of Good Hope. The problem is, if it takes you longer, the frequency of orders will also go up because you will have to catch up with the time.”
“Before, if you contract one ship every week, now because that is two weeks, you will need two ships to run. … Som there will be tightness in ships so prices will go up. That is the threat to us. It will become a price bidding,” the official added.
He said First Gen Corp. and San Miguel Corp.’s LNG contracts are spot contracts but hopes they can have long-term contracts to avoid price volatilities.
First Gen do not have long term and SPPC [South Premiere Power Corp.] is still stabilizing,” Abad said.
“FGEN’s LNG supply is not currently impacted by the disruption in the Red Sea but we will continue to monitor the situation,” First Gen executive vice president and chief commercial officer Jon Russell said.
A report by BMI, a Fitch Solutions company in December said the Philippines is emerging as a new frontier LNG market attracting strong interest from LNG producers and traders.
BMI said lower spot LNG prices could encourage potential LNG importers to accelerate construction of LNG import terminals.
“Uncertainties surround the levels of LNG demand and the volumes the Philippines will be importing. We anticipate LNG imports will vary depending on the buyers’ ability to pay and projected demand from power and industrial sectors. Any upside gains to prices will slow down LNG imports while a drop will encourage increased imports. Currently, none of the potential LNG consumers has signed a long-term sale and purchase agreements (SPAs) with LNG producers and traders, making them entirely exposed to spot LNG market,” BMI said.
It said future LNG demand growth will depend to a large extent on further expansion of gas-fired power generation capacities.
Meanwhile, BMI said that like Indonesia, the Philippines also presents opportunities to develop small-scale LNG projects given the geographic location of small power plants.
“Given the country’s geographical features, such small-scale LNG import terminals could become more suitable to accelerate fuel switching in the power sector, but the long-term sustainability of these projects remains uncertain given its lower economies of scale and limited ability to supply LNG at lower prices compared to larger LNG import terminals integrated with power plants. Small-scale projects may solve gas shortages in gas-deficit regions to some extent, but the impact on overall supply will remain limited,” the report said.
