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    Philippines downsizes its LNG aims [NGW Magazine]

Summary

Competitive LNG markets enable smaller and quicker projects, giving the comfort that Manila needs before taking the plunge. [NGW Magazine Volume 5, Issue 2]

by: Myrna Velasco

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Featured Articles, Asia/Pacific, Premium, NGW Magazine Articles, Volume 5, Issue 2, Philippines

Philippines downsizes its LNG aims [NGW Magazine]

The race to build the Philippines' first liquefied natural gas import facility has gone from a marathon to a sprint: the aim is no longer the distant prospect of a land-based terminal but a much nearer floating storage and regasification unit (FSRU).

The Department of Energy (DOE) explained this change of pace, saying that the project sponsors had a pressing need to meet the gas demand of the 1.2-GW Ilijan natural gas-fired power facility within two years.
According to the department, the gas sale and purchase agreement (GSPA) with the Ilijan plant “will expire first quarter of 2022, that's why the LNG project developers refocused their development targets, that's what they are competing on at this point.”
Meanwhile, the project blueprints for onshore LNG terminals are being re-wired within the 2024-2025 timeframe – and these targeted projects will serve the country's longer term need for gas following the 2024 expiration of the service contract of the Malampaya deep water gas-to-power venture.

“With our continuing efforts to provide energy security, especially since we are anticipating the depletion of the Malampaya gas, the establishment of LNG facilities bring a promising future for the country” With “We need to think of how we can ride this LNG wave, to ensure that we can safeguard our energy security. We've started doing just that in the Philippines, to safeguard against the anticipated depletion of the Malampaya gas facility in 2024,” energy minister Alfonso Cusi has said.

From FSRU to onshore terminals

The initial development plans of the proposed LNG facilities had faced huge challenges, including indefensible project delays and project sites blocked, and these hurdles were what prompted the DOE to undertake an agonising reappraisal of how the gas market might look in the next two to four years.

Cusi has admitted that he is still not very sure that the proposed LNG facilities will actually reach commercial fruition.
Following the 'request for suspension' of the LNG terminal project, operated by China National Offshore Oil Corporation (Cnooc) acting in tandem with local businessman Dennis Uy of Phoenix Petroleum Philippines, two more project developers are still competing to set up the country's LNG facility: FGEN LNG Corporation, a joint venture of Lopez-owned First Gen Corporation and Tokyo Gas; and Texas-headquartered US Excelerate Energy.

The executive vice president and chief commercial officer of First Gen, Jonathan Russell, said the company's FSRU would enter commercial operations by 2021 – and that it will be an interim LNG import facility. Operating until 2024, it will be replaced when FGN LNG advances to its permanent onshore terminal.

The First Gen-Tokyo Gas duo announced in September 2019 the selection of JGC of Japan as the engineering, procurement and construction (EPC) contractor for their planned $1.0bn LNG terminal – and the first task the Japanese firm is to perform will be to “modify First Gen's existing jetty to enable LNG to be brought in via FSRU on an interim basis during the term of president Duterte.”

The sitting president's term will lapse in June 2022, and as noted by Russell, the goal is to ship in LNG to the Philippines by the latter part of next year. The portfolio of First Gen's gas-fired power plants to be served by the FSRU facility would include the 1 GW Santa Rita plant, the 500 MW San Lorenzo plant, the 414 MW San Gabriel plant and the 97 MW Avion plant, or just over 2 GW in all.

Meanwhile, Excelerate Energy's FSRU project proposal was granted its notice to proceed (NTP) by the DOE last September. The American company is similarly aiming to complete the facility's construction and begin commercial operations in 2021.
“The proposed FSRU LNG facility in the Philippines will have a storage capacity of 150,000 m³ and be located about 9.5 km offshore in the bay of Batangas,” Excelerate Energy has stipulated in a project brief that was submitted to the DOE.

Cusi said: “Within six months from the issuance of NTP (or until March 2020), Excelerate has to comply with the permit to construct (PTC) requirements – which are the submission of permits from various government agencies and endorsements from local government units.” In addition, the US firm will be required “to submit the proof of financial closing to the DOE.”

Cusi said that, based on Excelerate’s submitted work programme, “the completion of construction and commissioning of the facility will take around two years – from October 2019 to June 2021 – and the scheduled commercial operation date is in the third quarter of 2021.”

The proposed facility is assuming that among its customers will be the 1.2 GW Ilijan plant owned by SMC Global Power Holdings, a part of the diversifying San Miguel conglomerate.

Another land-based LNG import facility has also been applied for by Lucio Tan Energy and Resources, which will cost about $735mn. The LNG import terminal is targeted on stream in 2025 and will be sited in Pinamucan, Batangas. That is near to the Asia Brewery, a company also owned by billionaire and Philippine Airlines owner Lucio Tan. “That LNG import terminal will cater for its own targeted markets, including industrial end-users like a petrochemical facility in Batangas,” the DOE said.

Notwithstanding delays of more than five years, still in the lists is Energy World Corporation (EWC) which is building an amalgamated import facility and a 650 MW combined-cycle gas plant in Pagbilao, Quezon.

Malampaya fizzles out

Russell said that First Gen had opted for an interim FSRU facility primarily “to reduce the strain on Malampaya as its reliability continues to decline up to 2024.”

Malampaya’s gas production started tapering off last year, with the nine-month output of the field just at 96.472bn ft³, which is not even two-thirds of the field’s full-year production of 150.804bn ft³ in 2018.

Of the total gas extraction from the field in January-September inclusive last year, 90.760bn ft³, or 93%, had been delivered to the country's 3.21 GW gas-fired power generating fleets and 1.567bn ft³ had been sold to industrial end-users.
The DOE previously forecast that Malampaya’s output will significantly dwindle in 2022, two years ahead of the expiration of the gas field's service contract 38 (SC 38) in 2024.

Anglo-Dutch major Shell, the gas field operator, stipulated that additional gas might still be extracted until the end of the decade but only if more money is spent and its licence is extended.

But Cusi said the energy department still cannot decide on the proposed extension because the legal parameters for this move are still being studied by the agency's Energy Resource Development Bureau.

Cnooc-Uy’s Malampaya foray

A friend of the president, the businessman Uy has tendered $565mn for US major Chevron’s 45% stake in the Malampaya gas venture. For that investment, Uy has partly leaned on state-run Philippine National Oil Company-Exploration Corporation (PNOC-EC), with Cusi disclosing to the media the government-owned firm’s willingness to increase its equity in Malampaya.

The energy chief said the board of PNOC-EC, which he chairs, had already green-lighted the company's plan to corner 10% of the Chevron shareholdings that is due for divestment to Uy's UC Malampaya Philippines Pte, leaving Uy to find the other 90% of $565mn.

PNOC-EC owns 10% of the Malampaya project, so its total shareholdings may already be raised to 14.5% once the transaction for another 10% (of 45%) is closed.

The energy chief similarly hinted that Uy may still tap another partner for the venture and hinted it would be a Chinese entity. But he could not say if it will be Cnooc – Uy's current partner also in upstream petroleum investments in the Philippines – or another company.

The mention of a prospective Chinese partner for Uy in the Malampaya venture has raised hackles at home, given the diplomatic tensions between Philippines and China in the West Philippine Sea. There are contentious questions raised, such as: why is Uy buying an asset that is already nearing its contract expiration and whose gas supplies are depleting? Uy's camp and the DOE cannot give definitive answers.

The DOE further announced that Uy's buy-in into the Malampaya gas field venture prompted him to withdraw from its earlier proposed LNG ventures. But according to Cusi, the LNG investment strategy may be recast once Uy firms up his entry into the Malampaya field.

Uy noted “the acquisition of Chevron's interest in the Malampaya gas field marks an important milestone for Udenna, fitting strategically with our long-term ambitions of developing a sustainable clean energy business in the Philippines.”
PXP Energy, the upstream petroleum firm under the control of business tycoon Manuel Pangilinan also submitted an “unsolicited proposal” to the DOE to acquire Chevron's stake and to eventually transform the Malampaya field into an LNG hub. However, this was initially turned down by the DOE noting that the venture is covered by an existing service contract and so the government cannot have it offered to another party at this time. PXP Energy appealed for a reconsideration on the grounds that its bid was predicated on the lapsing of Malampaya's contract, but a decision has yet to be rendered on it.