High fuel prices, limited supply may derail LNG projects in PH

The global energy crisis, heightened by the ongoing Russia-Ukraine war, may hamper plans to develop liquefied natural gas (LNG) projects in the Philippines, a study showed.

The Institute for Energy Economics and Financial Analysis (IEEFA), in its latest report, said high imported fuel prices and limited global supplies make the country’s pipeline of LNG projects increasingly uncompetitive.

“Risks surrounding limited global LNG supply and exorbitant costs are expected to persist over the next decade,” according to the report penned by IEEFA energy finance analyst Sam Reynolds.

“If passed on to consumers, high imported fuel prices would result in higher power prices for Filipino household and businesses, potentially stunting economic development,” it added.

The institute said the country is entering the global LNG arena at a time of “extreme uncertainty” as LNG supply worldwide is constrained partly by the Russian invasion of Ukraine and as prices continue to hit record highs.

With the world scrambling for limited supplies, the Philippines will be forced to outbid wealthy buyers in Europe and Northeast Asia to dip its hands into the insufficient stockpile which, in turn, will expose the country to “high prices and extreme volatility.”

The IEEFA said that Europe, for instance, has turned to purchasing more LNG and reducing its dependence on Russian gas after the conflict erupted in late February.

Some LNG importing countries have existing long-term purchase contracts that require sellers to deliver LNG on predetermined schedule and prices. The Philippines, however, does not have any such contract, based on International Energy Agency’s recent gas market update.

“Inability to buy LNG at competitive rates could leave new terminals and LNG-fired power plants unused and stranded,” Reynolds said.

“Without access to affordable fuel, LNG-to-power proposals in the Philippines could be delayed, cancelled, or stranded,” he added.

Prices of LNG are expected to remain high until 2026 when significant new supply capacity comes online.

The Ohio-based independent think tank noted current LNG prices of about $35 per MMBtu (British thermal unit) would translate to power price of almost P12.33-15.70 per kilowatt-hour for the fuel alone.

“This is already much higher than the country’s average price for power, even before adding any capital costs to build the power plant,” it added.

A report by think tank Center for Energy, Ecology and Development said the country has 36.5 million tons a year of LNG import capacity under development. It also has 29.9 gigawatts of gas-fired power projects in the pipeline, with conglomerate San Miguel Corp. accounting for 14.1 GW of the planned expansion.

First Gen Corp. and Atlantic Gulf & Pacific (AG&P) were targeting to commence commercial operations of their respective LNG terminals, which will rise in Batangas.x

Lopez-led First Gen, however, requested the Department of Energy to extend the validity of its permit to build an interim offshore LNG terminal to March next year due to a projected delay in the completion of its project due to circumstances beyond its control.

AG&P announced earlier the commissioning of its LNG terminal this year.