Philippine natural gas future uncertain with Malampaya depletion
The Philippines’ reliance on local natural gas output is coming to an end owing to the expected depletion of the Malampaya gas field by 2024, Fitch Solutions said.
In its analysis, Fitch Solutions said uncertainty remains in terms of the country’s capability of producing gas in the near-to-medium term despite plans to scale up exploration activities.
Because of this, the research firm described the situation as “bleak” despite the lifting of the moratorium on oil and gas activities in the West Philippine Sea.
“Unless gas can be produced from domestic sources, the Philippines will need to rely exclusively on imported LNG (liquefied natural gas) going forward,” it said, adding the country will depend on LNG imports come 2025.
“The potential upside to Philippines’ LNG imports could be hampered by its significant exposure to spot prices as none of the power producers has secured term supply agreements,” it added.
The Malampaya gas facility has been the country’s only source of gas since its operations commenced in the early 2000s.
The Department of Energy, however, estimated that resources from this gas platform will be depleted by 2024, “which could result in permanent loss of gas supplies from domestic sources, leaving the country with a considerable natural gas deficit.”
The report noted there has not been a strong policy push to promote the use of gas use in the country.
“Lack of adequate gas supplies from domestic sources is one of the key reasons that the government has promoted gas in industrial, residential and commercial sectors,” it said.
While the government is still supportive of gas-fired power generation, Fitch Solutions noted the aggressive push for increasing renewable energy’s (RE) share in the energy mix could pose significant downside risks.
“The Philippines’ renewables industry remains a bright spot for investment given the favorable regulatory environment for private and foreign investment, including cost-reflective electricity tariffs,” it said.
The Philippine energy plan of 2020 to 2040 seeks to expand the capacity of gas-fired power plants to 24.3 gigawatts (GW) in the reference scenario and lower its share to 18.9 GW in the clean energy scenario (CES).
On the other hand, the same energy blueprint aims to grow RE capacity to 53.2 GW in the reference scenario and 81.5 GW in the CES.
“The outlook for gas consumption remains bullish in both reference and CES scenarios, but there are downside risks to gas consumption if the government chooses to pursue renewables under the CES scenario rather than natural gas,” it added.
Citing government data, it said gas consumption averaged 3.5 billion cubic feet (bcf) to 4.4 bcf from 2010 to 2021, with the power sector accounting for more than 90 percent of the total consumption.
Fitch Solutions sees upside risks to gas consumption in the near-to-medium term on the back of LNG facilities in the pipeline although its long-term demand growth will hinge on the government’s policies to promote investments in gas-fired power projects.
Planned LNG import terminals are moving ahead but the research firm does not expect the local LNG space “to grow at an unprecedented rate.”
“Potential growth in gas consumption means there is strong incentive for expansion of import capacity, but we do not expect the country’s LNG infrastructure to grow at an unprecedented rate and approved terminals could face delays unless the gas-fired power plants are completed,” it said.
Linseed Field Power, a local firm under Singapore-based Atlantic, Gulf & Pacific International Holdings, and FGEN LNG, a subsidiary of Lopez-led First Gen Corp., are slated to commission their respective LNG projects in the middle of this year.
Other firms have joined the LNG party such as Luzon LNG Terminal Inc., Energy World Gas Operations Philippines Inc., Shell Energy Philippines Inc., Vires Energy Corp. and Samat LNG Corp.
