Philippine LNG Investors Line up for Contract
A tender winner could come forward this month and implement its plan to build an import terminal for liquefied natural gas in the Philippines, linked to power generation projects.
There have been plans for a liquefied natural gas (LNG) import terminal in the Philippines for three or four years, devised by the well-entrenched industry player First Gen Corporation of the Lopez group.
Nothing happened to advance these plans until this October, when, on the sidelines of the Association of Southeast Asian Nations' ministerial meeting on energy in Singapore, Philippine energy secretary Alfonso Cusi announced that the government has shortlisted three potential investors: First Gen in partnership with Tokyo Gas; Tanglawan Philippines LNG, a joint venture between China National Offshore Oil Corporation (Cnooc) and Duterte-linked businessman Dennis Uy; and state-run Philippine National Oil Company (PNOC) which at that time was searching for a strategic partner – perhaps an entity with equity LNG or trading experience – to join it.
PNOC was the first one to pull the plug on its LNG investment proposition, sending a notice to bidders that its scheduled pre-eligibility conference on December 4 and the bid submission on January 22, 2019 “are postponed until further notice.”
Cusi, who is also the state-owned company’s board chairman, explained: “PNOC has been very delayed in its search for a partner, so I told them, we can no longer wait for them to finish their process.” He, nevertheless, qualified that, saying that once the government has chosen the investor-group that will construct the commercial-scale LNG terminal, “PNOC can still have its place in the consortium.”
Early lead for CNOOC-Uy JV
In a further announcement to the media November 22, Cusi's deputy Donato Marcos specified that the Cnooc-Uy tandem was so far “the leading investing party,” and had been the most aggressive bidder.
Beyond the shortlisted firms, the DOE logged at least 23 interested parties, many of which are major investors in the global LNG sector: the likes of Chevron, Japanese firm Jera, Dubai-headquartered Lloyds Energy, Korea Electric Power Corporation, Excelerate Energy, French Total and South Korea’s SK E&S Co to name a few.
The Cnooc-Uy joint venture pencilled in investments worth up to $2.0bn – integrating an LNG import facility investment of $1.0bn for a plant of 5.0mn metric tons/yr capacity and another $1.0bn capital outlay on a proposed power plant of more than 1-GW capacity.
First Gen also stepped up on its investment bid – unveiling on December 5 the joint development agreement it finally sealed with long-rumoured partner Tokyo Gas. But since the Japanese firm has only 20% equity in the project, industry sources hinted that First Gen is still in search for several more partners. Houston-headquartered Cheniere Energy was among those reported seeking discussion for a partnership deal with the Lopez firm.
Own-use or merchant plant?
As emphasised by Marcos, the government will only choose one investor “to put up the country’s commercial LNG import terminal” – qualifying that this will be the asset that can sell to other end-users such as power plants, industries and the transport sector. And all the hints of the Philippine energy ministry point to Tanglawan LNG as the likeliest winner. The bid is in the hands of the Centralised Review and Evaluation Committee (C-REC) of the department. The energy secretary himself indicated that announcement is due this month.
On the recent signing of a partnership deal between First Gen and Tokyo Gas, Cusi stressed “their terminal will just be for their own use,” meaning the gas that they will import will only be fed to the gas plants of First Gen” – the 1-GW Santa Rita plant; the 500-MW San Lorenzo plant; the 414-MW San Gabriel plant; and the 97-MW Avion plant, so a sizeable fleet of 2 GW.
Conversely, Tanglawan if finally announced as the winning party, could sell to other targeted markets like the 650-MW plant of Energy World Corporation; the 1-GW gas-fired power plant being developed by Limay LNG Power Corporation; the 1.2-GW Ilijan plant of San Miguel Corporation and the proposed 1-GW-2-GW of gas plants that the CNOOC-Uy pair will be developing along with the energy investment group of businessman Manuel Pangilinan.
“There could only be one LNG terminal in the country,” Marcos said; and the rest of the power plant operators will just be given third party access so they can purchase gas fuel from the government-sanctioned import facility. Under the Philippine Downstream Natural Gas Industry Regulation, “it is only the DOE that can issue notice-to-proceed and permit to the chosen LNG investor that can also sell commercially to other end-users,” he said.
First Gen’s handicaps
For First Gen in particular, it is apparent that its main constraint is on market expansion beyond its gas plants – plus it also faces the predicament of how to sign power supply agreements when its contracts with Meralco will lapse: 2022 for the San Gabriel plant; 2025 for Santa Rita; and 2027 for the San Lorenzo plant.
The Lopez company will need to find new markets for its generated electricity – a whopping 2-GW capacity that it will eventually be risking either on the electricity spot market or marketing directly at end-users.
Financing is another big question: the banks might not want to lend to a project that will operate as a merchant plant, according to industry players.
In terms of power plant development and off-take or power supply agreement, Tanglawan is gaining traction, offering Pangilinan the preferential investment rights on its planned LNG projects. Meralco, which Pangilinan chairs, carries enough heft to underwrite new power supply contracts.
First Gen chairman Federico Lopez, in an interview, has admitted that “scale is very important for the proposed LNG terminal,” because that’s the only way that gas can beat coal on costs, he said. “Scale is one thing – so you also have look at the ramp up – the number of megawatts that you’re going to support at different points in time. If the off-take volume is large, the throughput price of the LNG terminal will be lower – and the resulting power cost will also be cheaper and that will enable you to compete, so that’s very important,” he stressed.
He added an LNG import facility could only end up viable “with that kind of flexibility – and a number of LNG suppliers would be willing to do it.”
Nevertheless, on the “own use limitation” that may be enforced on First Gen’s planned import terminal, company executives are tightlipped, and they can only assert this time that they intend to file their application with the DOE in due time.