Falling oil prices to halve PH gains from Malampaya

LOW OIL prices will likely halve government revenues from the Malampaya deep water gas-to-power project off Palawan, its operator said.

For 2015, the Malampaya consortium led by Shell Philippines

Exploration B.V. (SPEX) is set to remit about half of the $900 million it gave the government last year. The royalties remitted in 2014 were already lower than the $1 billion the consortium has been regularly paying since the project began in 2001.

SPEX managing director Sebastian Quiniones said the amount that will be remitted this year is to approximate the

sustained decline in international oil prices since the second half of 2014.

“Oil prices have dropped by half. Roughly speaking, [the Malampaya revenue] will probably be half also. We follow, more or less, international prices, based on a certain formula,” he said.

The Malampaya consortium said it has already given its supervising agency and other economic managers a heads up on the impact of low oil prices on revenues.

“The DOE (Department of Energy), BIR (Bureau of Internal Revenue) and DOF (Department of Finance) asked us already. They are trying to [budget] the revenues that are coming in. So we have to give them a projection based on what [the] prices of oil are at the moment and how the pricing of Malampaya goes,” Quiniones said.

Oil prices started declining in small increments in the middle of last year. The trend gained momentum in the fourth quarter.

By the end of 2014, prices had crashed more than 40 percent to about $60 per barrel compared to the $110 to $115 per barrel range when the year started.

The Malampaya consortium has turned over $8.5 billion to the national government between 2001 and 2014.

The amount represents the government’s revenue over the years from the pioneering natural gas project that supplies 2,700 megawatts to the national grid, or roughly 45 percent of Luzon’s power requirements.

The natural gas field is projected to be depleted by 2024 unless new drilling activities or new production technologies are put in place.

The Malampaya project, which       ends in 2024 under the current Service Contract 38 (SC 38), is a joint undertaking between the Philippine government and the private sector. Besides SPEX, the Malampaya consortium is also composed of Chevron LLC and state-owned PNOC Exploration Corp.

Under SC 38, the government gets 60 percent of the net proceeds while the rest goes to the consortium.

Remittances from the Malampaya project are earmarked for the government’s energy projects.

So far, according to the DOE, funds have been used for the fuel requirements of the National Power Corp.’s Small Power Utilities Group (SPUG), the Pantawid Pasada program, and the purchase of a marine vessel to secure the perimeter of the Malampaya project.