The Philippine oil and gas industry faces the risk of losing steam, unless the government takes action to address the issues plaguing the industry.
The low oil price environment slowed down oil and gas activities in the country. This is compounded by a host of other issues such as the West Philippine Sea territorial dispute, a controversial Commission on Audit report, the Supreme Court ruling on service contracts and the new effluent standards.
“These issues are actually killing the industry,” Energy Department director Rino Abad said.
The need to find another Malampaya gas project has become crucial as the natural gas from Malampaya field in northwest Palawan is expected to be depleted by 2024.
The $4.5-billion Malampaya gas to power project, which started operations in 2001, provides fuel to the country’s natural gas power projects in Batangas with a combined capacity of 2,700 megawatts.
The West Philippine Sea territorial dispute with China and other claimants also hampered the country’s ability to find other large oil and gas reserves.
Forum Energy Plc., operator of service contract 72 which is viewed as rich in petroleum reserves that could exceed the Malampaya gas find, was unable to conduct exploratory drilling operations in the area.
“In particular areas at the moment, there’s a moratorium. So some of the members have been told to pause for the meantime because of the issues. So currently, we have zero exploration within the West Philippine Sea,” Sebastian Quinones, president of the Petroleum Association of the Philippines, said during a recent Senate energy hearing.
Abad said the government was unable to develop SC 72 “which could be twice the size of Malampaya” because of the territorial dispute.
Abad said 11 service contracts were affected by the West Philippine Sea and COA notice of charge issues.
He said the government also failed to award new petroleum service contracts to winning bidders under the 5th Philippine Energy Contract Round due to these issues.
The Commission on Audit issued a notice of charge to the Malampaya contractors to pay the government P150 billion, saying the corporate income tax of the project should not form a part of the government’s share.
Shell Philippines Exploration B.V., operator of the Malampaya gas project, filed two arbitration cases with the international arbitration courts to protect its interest.
Energy Secretary Alfonso Cusi elevated the arbitration case to the economic Cabinet cluster to come up with a more decisive action.
“We see the urgency of resolving this matter once and for all. That’s why we are rushing it and we have conferred with the SolGen [Solicitor General]. We have brought this to the economic cluster…We need one national position,” Cusi said.
Abad, meanwhile, said another issue that needed to be resolved was the Constitutional challenge involving SC 46 or the case involving Japex Philippines Ltd.
The department filed a motion for reconsideration with the Supreme Court “citing the validity of qualified political agency principle when the President allowed the DOE Secretary to sign [contracts] by virtue of a special authority,” said Abad.
Abad said the department’s position was that the income tax paid to the Bureau of International Revenue was not a tax exemption, but rather formed a part of the government’s share under President Decree 87 and PD 1459.
Abad also expressed concern over the Environment Department’s effluent standards, which meat that water discharges of service contractors would be tested under certain parameters.
The energy official said more studies should be conducted before the effluent standards could be released by the Environment Department.
Spex sought assistance from the Energy Department as it could not comply with the Environment Department’s administrative order on effluent standards which could lead to its eventual shutdown due to its inability to comply.
“There are certain chemicals which have very short half life which do not do any damage. Unfortunately, it’s part of the new regulations. And Malampaya on this particular case cannot comply with it because it’s naturally coming from the well and there is no available technology which can remove it,” Quinones, who also serves as Spex managing director, said.
Abad said the department was aggressively finding ways “to resolve the pending issues affecting the stability of petroleum service contracts so we can proceed to the award of PECR 5 and PECR 4 and of course, for the certainty of the investment climate of the petroleum industry.”