Malampaya issues and dynamics

"It’s always consumers who feel the pinch."


According to estimates by the Department of Energy, the natural gas (natgas) reserves of the Malampaya plant located west of the Palawan coast is expected to be exhausted by around the first quarter of 2027.

This means that in six years, if adequate alternative power generation capacity is not operational to catch-up with fast growing demand and new sources of natgas supply are not found, many major power plants fueled by Malampaya will either be forced to shift to more expensive liquid gas or even shut down. We will have a serious power crisis that will crash the prospects of a fast recovery to regain pre-pandemic economic growth trajectories.

However, Malampaya suddenly shut down this September 11-12, a few weeks ahead of its scheduled 20-day maintenance in October. Depleting natgas output has been causing dependent power plants supplying the Luzon grid to operate below its rated capacity and affecting the already tight power supply. Industry experts and watchdogs are seeing these as ominous indications that should call for the re-evaluation of remaining natgas reserves. More importantly, the building of new generation capacities should be a top priority.

Every time power generation is disrupted, whether by schedule or forced by breakdowns, it’s consumers who feel the pinch. Distribution utilities (DUs) and electricity cooperatives have to buy power from the Wholesale Electricity Spot Market (WESM) to at least close the supply gap with enough buffer to avoid debilitating power outages. When this happens, the law of supply and demand comes into play, and you can expect a bump-up in generation costs as WESM prices will always be higher than the rates in ongoing Power Supply Agreements of DUs. This generation price hike will be felt beyond Luzon and by all consumers being supplied all over the country; their power is sourced through the WESM.

Some of the biggest baseload power plants were affected. The 414-megawatt (MW) San Gabriel plant was temporarily shut down, the 1,000-MW Sta. Rita and the 500-MW San Lorenzo had to shift to the more expensive liquid gas. These companies are owned by First Gen Corporation.

Approximately 1,900 MW were affected after three days due to the untimely disruption which will then cause an increase in the generation charge in the next billing cycle.

Some might say that it’s the reality of our situation, but the DOE and the power and energy industry have been warning about the country’s power and energy outlook even before the global pandemic. Between 2012 and 2017, the demand in the Luzon grid was already outpacing capacity. New capacity was only at 2,600 MW while demand was at around 2,900 MW). The DOE’s pre-pandemic prediction was an annual increase in demand of approximately 4.9 percent—almost 25,000 MW in new capacity will be needed.

Before the lockdowns started, the DOE warned of very tight power supply in the summer months of 2020. The extensive disruption of economic activities averted this power shortage. Now that pandemic restrictions have been adjusted to allow manufacturing and supply chains unhampered to keep the economy going, power consumption has returned to pre-lockdown levels and has even increased. Many consumers felt this with the resurgence of brownouts in recent months.

Going into the 19th month of recurring lockdowns that this administration’s pandemic managers now realize as ineffective because of so many reasons, so-called “alert levels” with granular lockdown are now being imposed as the newest anti-pandemic experiment to reverse the over 20,000-a-day infection rate. More businesses are being allowed to operate—albeit in limited capacities—to at least sustain millions of income-strapped workers.

Going back to Malampaya on another issue, a re-evaluation of the sales purchase agreement between Chevron and Udenna Corporation’s subsidiary UC Malampaya Philippines has been ordered by Energy Secretary Alfonso Cusi. This came after the Senate questioned DOE officials when it was disclosed in a hearing that the Malampaya Energy XP Pte., Ltd. owned by the President’s campaign funder and close ally Dennis Uy, the winning bidder to purchase 45 percent of Shell Philippines Exploration, only had a paid up capital of US$100 or about 5,000 pesos.

Malampaya Energy wants to develop new natural gas resources in the area. I wonder how Beijing is going to take this. Perhaps there’s already a hidden deal on this? Just speculating.

Interestingly, this looks very familiar and even similar to the raging pandemic corruption issue of Pharmally. The plot is indeed thickening on this one.

That aside, energy regulators need to act faster on power plant builds to move our power situation from barely sufficient to surplus. Before economic recovery can take off, our energy supply must be at a level of stability and affordability to attract new investments that we will need to compete versus other economies that experts already predict will recover earlier than ours.

Topics: Orlando Oxales , Department of Energy , natural gas , Malampaya plant
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