Conclusion
Last week, we discussed the situations and conditions that could lead to switching from current energy source to alternatives. We concluded that energy-intensive manufacturing firms with more expensive fuel sources are more likely to switch. We continue the discussion by further looking into specific characteristics that could make firms switch to natural gas.
Compatibility of machines and equipment emerged as the top consideration for economic zone firms to switch to natural gas. Naturally, firms take into account the upfront capital cost of switching including the stranding cost of replaced equipment. This gives us an indicator that the use of natural gas is more feasible among firms that operate boilers and other heating equipment in their production process. Firms that mainly depend on electricity for their operations are unlikely to shift to natural gas. Safety and security tallied second.
Other top considerations are price, supply stability and reliability, and environmental concerns for firms who show willingness to switch to natural gas. Price offered to the end-user would be influenced by several factors including the LNG virtual pipeline delivery system; the capital and operating expenditures of satellite or the small-scale LNG storage and regasification terminals to be located inside the SEZs; among others.
We also considered the likelihood of moving to natural gas by location of the Special Economic Zones. Ranking according to probability of switching by city or municipality, SEZs in Bauan, Batangas are very highly likely to consider natural gas as fuel followed by highly-likely-to-switch in Malvar and Lipa, Batangas. Pasay; Balamban, Cebu; Carmona, Cavite; and Mabalacat, Pampanga SEZs are also highly likely to switch to natural gas. SEZs in Angeles, Pampanga, and San Rafael, Bulacan on average, consider natural gas as a feasible fuel but at a low likelihood.
Taking the role as a bridge fuel, natural gas can help facilitate the efficient transition to cleaner energy. Pollutants from dirtier fossil fuels not only harm the environment but also cause serious respiratory health problems. The estimated monetary cost of all damages emanating from local pollutants can be substantial, insofar as these induce respiratory problems including coughing, wheezing, etc. (Jandoc et al., 2018). There are several ways in which natural gas reduces damages: First, if the firm uses diesel in the production process and switches to natural gas, there is a reduction in harm. Second, if natural gas can be used as fuel in generating electricity inside the SEZs, damage cost associated with the use of diesel, oil, and coal in generating electricity could potentially be avoided. Switching to electricity generation using natural gas is possible, especially if the natural gas power plant is located inside the SEZ and is able to offer a lower rate than their current electricity distribution utility outside of the SEZs.
Policy implication. The study revealed that the potential use of LNG is greatest among firms that require intense heat for their production such as boilers, which is generated by burning less environmentally friendly fuels (e.g. diesel or coal) other than natural gas. We confirm that switching is least likely among firms whose power needs are supplied by electric utilities.
While the study covers only manufacturing and agro-industrial firms in ecozones, the results provides an indication that markets for natural gas outside of electricity generation exist. It also provides a gauge of the minimum size of the market and illustrates a greater market potential given the number of manufacturing and agro-industrial firms outside of ecozones. Our survey and methodology offer potential to scale the size of data collection to include other firms outside the special economic zones.
From a policy point of view, the results of our study suggest a potential growing market for LNG in the Philippines in addition to the requirement to fill the need due to the depletion of Malampaya gas field. The LNG industry is responding to these market signals, but its development should be nurtured by appropriate regulation and market-creating activities such as investment coordination. There will also be a need for more intense information drive on the minutiae of switching if and when natural gas becomes available.
Ravago from Department of Economics, Ateneo de Manila University; Fabella and Jandoc from School of Economics, University of the Philippines; Frias from School of Statistics, University of the Philippines; and Magadia from Gas Policy Development Project.