PRECIOUS gas from the Malampaya Deep Water Gas-to-Power Project is depleting faster than anticipated.
Power plant operators that source fuel from Malampaya and the soon-to-be operator of the country’s sole natural gas field observed that gas production shortfall is bound to happen very soon. And with that, another power crisis could hit the country.
“It has started already. It was supposed to happen in 2027. First Gen, the biggest buyer of Malampaya gas, reached out to us. They gave us a briefer. I am puzzled as to why there had been gas restrictions. Dire-diretso na iyan [There’s no stopping that]. Hindi na babalik sa [It won’t return to] normal level. It’s six years earlier. This is very worrisome for all of us,” said Senate Energy Committee chairman Sherwin Gatchalian in an interview.
According to Gatchalian, the Malampaya gas field will be completely exhausted by the first quarter of 2027. Citing data from the DOE, the remaining gas in the Malampaya field as of end-September last year stood at 858,834 million standard cubic feet (MMscf).
The Malampaya gas restriction occurred late March up to mid-June this year. This resulted in the derating of the country’s largest natural gas plant—the 1,200-megawatt (MW) Ilijan plant—to 716MW, which prompted the issuance of red alerts in the Luzon grid. Thereafter, rotating power outage occurred.
There was no clear reason provided by the Malampaya consortium as to why this happened. The Department of Energy (DOE) was supposed to meet industry stakeholders to address the gas restriction, but the situation improved ahead of the meeting.
According to First Gen Executive Vice President and Chief Commercial Officer Jonathan Russell, the gas field is currently producing less than required by all of the existing gas-fired plants.
Malampaya currently supplies five gas plants with a combined capacity of 3.2 gigawatts under term supply deals due to expire in 2024. These are Ilijan, 1,000MW Santa Rita, 500MW San Lorenzo, 97MW Avion and the 420MW San Gabriel. Except for Ilijan, all four gas plants are owned by First Gen.
“Based on the experience this year, Malampaya supply seems to be declining faster than previously suggested, way ahead of the expiry of First Gen’s plants’ gas supply contracts with Malampaya in 2024.
“Today, Malampaya produces less than 400 MMscfd which is lower than the average total demand of all of the existing gas-fired plants of around 450 MMscfd,” said Russell via e-mail.
Liquid fuel imported
The gas restrictions have forced First Gen to import liquid fuel to ensure continued supply of all their plants’ full capacity to the grid.
“Although liquid fuel such as condensate may be more expensive than natural gas, the ability of First Gen’s plants to run on liquid fuel enables continued availability of electricity supply to the grid and minimizes price spikes in the WESM [Wholesale Electricity Spot Market] that would result if the gas-fired plants did not run due to Malampaya gas supply restrictions,” explained Russell.
Even Dennis Uy-led Malampaya Energy XP Pte Ltd., which acquired the 45-percent stake of Shell Philippines Exploration (SPEX), sounded the alarm.
“The country will surely be short of natural gas by 2022,” it said in a statement.
To make matters worse, the gas field is set to undergo maintenance shutdown in October this year.
“Certain Meralco suppliers that source fuel from the Malampaya project informed us of the scheduled maintenance at the Malampaya facilities from October 2 to 22. During that period, gas supply will be completely curtailed, as per their advisory,” said Meralco utility economics head Lawrence Fernandez in an interview.
More than a quarter of Luzon is powered by natural gas. The gas plants generated 56 percent of the 2.5-billion-kilowatt-hours purchased by Meralco in April this year, making natural gas the single most impactful electric power source for Metro Manila.
Meralco has supply contracts with First Gen’s Santa Rita, San Lorenzo, San Gabriel and with Ilijan plant.
The utility firm, which distributes electricity to more than seven million subscribers, is bracing for an increase in power-generation charge after the Malampaya gas facility shuts down in October.
“Yes, we anticipate that there will be an increase in generation charge as always because the 1,500 megawatts of natural gas will be replaced by liquid fuel. But, as of this time, it’s very difficult to speculate how much exactly the increase will be because we are actually using blended supply mix,” said Meralco First Vice President and Regulatory Management Head Jose Ronald Valles.
The Ilijan plant, however, will continue to supply Meralco even when there is no gas from the Malampaya facility, as such is stipulated in their contract.
“They would have to continue delivery of power even when there’s no fuel, so they are supposed to be 100 percent available. Ilijan will continue to deliver supply under the same contracted rate, so there will have to be no additional increase to the consumers,” said Valles.
Meralco gave assurances that it has sufficient power requirements during the Malampaya shutdown.
Contingency
The DOE, for its part, said stakeholders would be convened to discuss contingency measures ahead of the October shutdown.
“The first strategy is the transition to e-diesel. There are plants that can utilize e-diesel when Malampaya shuts down in October. We are assessing the impact of this and the resulting effects on megawatts and capacity. This will be thoroughly discussed,” said DOE Undersecretary Felix William Fuentebella in an interview.
Another short-term solution is for First Gen’s Santa Rita and San Lorenzo power plants to use condensate to substitute for Malampaya gas when the latter is unavailable. The liquid fuel is ordered on a spot basis and delivered by tanker to its existing jetty at the First Gen Clean Energy Complex in Batangas.
However, the country is in dire need of medium- to long-term solutions to address the gas depletion.
“As early as now, we should already have a strategy to address the gas depletion. We may have one,” said Gatchalian.
The lawmaker was referring to First Gen’s Interim Offshore LNG Terminal, which involves modifying its existing liquid fuel jetty to become a multipurpose jetty capable of receiving both liquid fuel and LNG.
First Gen’s offshore LNG terminal project is expected to be completed by third or last quarter of 2022, which will then allow for the entry of a Floating Storage and Regasification Unit (FSRU).
An FSRU is a special LNG carrier that is capable of storing LNG and which has an onboard regasification plant capable of returning LNG into a gaseous state and then supplying it directly into the gas network. First Gen will utilize the BW Paris FSRU.
“Once First Gen’s Interim Offshore LNG Terminal is completed and the FSRU is in place, LNG can be received to supply the San Gabriel and Avion plants and to supplement shortfalls of Malampaya gas under the respective firm gas supply agreements of the Santa Rita and San Lorenzo plants,” said Russell.
More importantly, once the terminal project commences operation, the Malampaya gas restrictions should no longer affect the output of the First Gen gas plants. “In fact, the peak demand of the existing gas-fired plants is approximately 530 MMscfd, with an average demand of approximately 450 MMscfd. The BW Paris has a long-term sendout capability of 500 MMscfd, which is 25 percent greater than Malampaya’s sendout, and which can be increased to 750 MMscfd for short durations,” added Russell.
Drill new wells
Malampaya Energy, meanwhile, proposed to drill new wells while there is still gas left.
“Malampaya Energy is all out to rejuvenate Malampaya through a drilling campaign once the transaction is completed,” it said, referring to its purchase of SPEX’s 45-percent operating stake in the gas field. The DOE has yet to approve the deal. “Further delay will exacerbate the worsening electricity situation,” it added.
It has been seven years since the last drilling activity. Malampaya Energy said no drilling has been taken to arrest the depletion of the Malampaya field.
“The situation is now urgent and requires new investment and the industry’s best exploration and development capabilities to drive growth from the currently depleting asset,” said Malampaya Energy executive Belinda Racela. “It’s clear that any further delay is hugely detrimental to Filipino consumers and to the economic prospects of the nation. We need to focus on augmenting Malampaya gas supply now to ensure fewer brownouts and safeguard long-term energy security.”
Aside from tapping foreign experts, Malampaya Energy will retain SPEX experts to continue to run and maintain the gas field.
“The company is 100-percent committed to continue delivering safe, reliable and sustainable energy supply at Malampaya by retaining the world-class SPEX team and immediately reversing the seven-year hiatus on exploration activities. There is a great team already in place at SPEX who will continue to run and maintain Malampaya.
“What Malampaya Energy brings is not only our own highly qualified team with hundreds of years of combined upstream experience, but also agility and a willingness to invest in growth together with our SC38 partner PNOC-EC,” Racela added.
The Malampaya consortium is now composed of UC Malampaya Philippines Pte. Ltd., which bought Chevron’s 45-percent stake; Malampaya Energy, which bought the 45-percent stake of SPEX; and PNOC-EC (Philippine National Oil Company Exploration Corp.), which holds the remaining 10 percent. UC Malampaya and Malampaya Energy are under the Udenna Group led by Davao businessman Dennis Uy.
But Gatchalian would prefer an operation and maintenance (O&M) operator rather than allow Malampaya Energy to operate the gas field located off the coast of Palawan.
“The plan of Malampaya Energy of the Udenna Group is to also engage a technical contractor to operate the facility, because it lacks experience and the expertise when it comes to upstream facility operations. So, why not bid out an O&M instead of hiring consultants and technical experts?
“Perhaps, PNOC-EC could also take over since it already has a stake there, albeit minimal. If it can’t do it, then PNOC-EC could tap a technical contractor to take charge in the operation and exploration activities,” said Gatchalian.
The DOE has not responded to Gatchalian’s proposal. It is, however, aware of the repercussions of the depleting supply of the Malampaya gas field.
“They say that the Malampaya supply can go as far as 2027, but it does not have enough gas for the further expansion needed to provide future natural gas requirements, particularly with the plan to expand application of LNG in the industrial, commercial, residential and transport sectors,” DOE Secretary Alfonso Cusi said.
The DOE said there is an urgent need to attract more investments in the downstream LNG industry. Thus, it is aggressively pushing for LNG investments. “While the LNG industry in the country is still in its infancy stage, importation of LNG remains the best option at the moment to assure the country’s future energy requirements will be sufficiently met,” he said.
There are solutions laid on the table. These could work or not. But industry stakeholders need to plan, decide and act fast to avoid an energy crisis that may happen in less than six years, said Gatchalian.
The DOE is saying otherwise. Fuentebella said there is no crisis. “We do not call it a crisis because there are solutions and strategies to be put in place.”