Gambling on energy security

The race is on! Or so observers have declared, referring to who would be allowed to build and who could complete a liquefied natural gas (LNG) terminal in the Philippines. All this with the backdrop of the Malampaya natural gas field in Palawan nearing depletion.

Indeed, there appeared to have been a frenzy over the past 12 months or so, with a slew of prospective partners rallying around PNOC (Philippine National Oil Co.).

For much of 2017, PNOC seemed to have been the go-to guy for entities that wanted to get involved in the domestic LNG business—which international experts said would ride a regional boom that would see the Asian market rivaling those of Europe and elsewhere.

Game of maneuvering

But this assumption fizzled out a few weeks ago as the wind changed and the dust settled. From an aggressive stance that exudes “no one does LNG without partnering with us,” PNOC backed down—some would say ordered to do so—even after having enlisted the likes of the Asian Development Bank as consultant for its planned project.

The changes have revealed a picture that suggested more of a game of maneuvering rather than a straightforward race.

“PNOC has toned down their (position, but they are) still in the process of soliciting a partner,” Energy Undersecretary Donato Marcos said in an interview.

Marcos said PNOC “has deferred” its stance as project leader and was now interested in merely investing in a 10 percent to 15 percent interest in “whoever will win” or secure the prize—a notice to proceed with the LNG project.

“PNOC has banked gas (stored natural gas from Malampaya, being part of the Malampaya consortium) that they need to sell to whomever will build the terminal, so why compete?” Marcos said.

The explanation for PNOC’s changed stance is convenient if not convincing. Possession of the unsold banked gas did not dissuade PNOC from acting like a project boss, in the first place.

What is more notable is that PNOC changed demeanor at the same time as a new “strong” player entered the picture. This is Tanglawan Philippines LNG Inc., a partnership between Phoenix Petroleum Philippines led by Davao-based business man Dennis Uy and CNOOC (China National Offshore Oil Corp.) based in Beijing, President Duterte’s favored ally.

Emergence of new player

Marcos said Tanglawan “has the upper hand” in the game, with its application under technical evaluation at the DOE. “Tanglawan is ahead because they are too aggressive,” he added.

Even then, aggressiveness is not something lacking in First Gen Corp., whose subsidiary FGEN LNG Corp. has submitted to the DOE an application for a notice to proceed with its own LNG project in Batangas.

This was soon after First Gen announced that it had teamed up with Tokyo Gas Corp. for the very same purpose.

If there’s any player that is very much invested in the prospect of an LNG facility, it would be First Gen mainly because it has four existing gas-fed power plants that are in need of an alternative source of fuel once Malampaya runs low —which Malampaya consortium officials say would be sometime between 2026 and 2029.

Heavily invested

It is easy to believe First Gen when its officials say that the company has continued to progress with the development of its LNG regasification facility, which its has been doing for the past five years.

“We are still of the view today that the option that we have at the First Gen Clean Energy Complex is probably the most realistic option today and (at the) most advanced state of development,” First Gen president and chief operating officer Francis Giles B. Puno said earlier.

Belief is something that is needed when appraising the fourth player in the LNG game —Energy World Corp.—considering that its own project in Quezon province is supposed to have “ground to a halt” according to certain quarters.

The Australian firm has been building since 2011 an LNG terminal facility anchored with a 650-megawatt power plant complex in Pagbilao town. The project is now nearly complete, the company says, although the date for full completion of the project had been moved several times over the past few years.

Still, EWC tells the Australian Securities Exchange that this is due to matters beyond its control—which is mainly the availability of transmission facilities that would allow the gas-fed power plant to deliver electricity to the grid.

Importation route

And while the LNG game unravels, Fitch Solutions Macro Research says in a commentary the Philippines should take advantage of favorable LNG prices and start importation in the next quarters, especially with the expected operation of the country’s first LNG facility before end-2019, referring to EWC’s project.

Fitch Solutions said global LNG prices were projected to stabilize over the next two years amid accelerating supply growth and liquefaction capacity additions across the globe.

“From a price standpoint, the next few quarters will be an opportune time for the Philippines to commence LNG imports,” Fitch Solutions said.

The Philippines has yet to enter into any LNG supply contracts for its terminals, and as such, will have plenty of contracting opportunities amid a positive backdrop of competitive spot prices and a wave of new supplies emerging from the United States, Russia and Asia during the first few years of LNG imports, it added.

As an alternative to LNG imports, the government is banking on renewed exploration activities. The most promising to date arguably is the Sampaguita prospect in Northwest Palawan, where drilling is still under moratorium due to the territorial dispute with China.

For reference, it took the Malampaya project seven years to attain commerciality after the gas field was discovered in 1991. Add to that four years until commercial production was achieved in 2002.