THE government is now searching for “the fastest and best” option to build the country’s first liquefied natural gas (LNG) facility before the term of President Duterte ends in 2022.
“We are restudying [our options] to achieve our goals,” Philippine National Oil Co. (PNOC) President Reuben S. Lista said in an interview. This was his reply when asked how the state firm will move forward following unsuccessful discussions with six countries for a possible government-to-government (G2G) partnership for such an ambitious project. “There are plenty of options,” he said. “But we have to find the fastest and the best one.”
Initially, there were 26 interested countries, but only six have submitted proposals: China, Indonesia, Japan, Singapore, South Korea and the United Arab Emirates (UAE). However, discussions did not prosper before the July 30 deadline because there was no acceptable proposal put on the table.
PNOC was planning to utilize the banked gas from the Malampaya gas field. It was eyeing to utilize $640 million worth of banked gas and land as forward equity. Lista said the state firm continues to “reevaluate their offers”, though there is no commitment if PNOC was still in pursuit of a G2G arrangement.
One option being seriously considered is to start accepting proposals from the private sector, which was reluctant, at first, to build one because of the huge investment cost and uncertainty in policy direction. Energy Secretary Alfonso G. Cusi said the plan to build the country’s first LNG facility is now open to unsolicited proposals. “Yes, so we can get what is really beneficial for the country,” Cusi replied, when asked if the government is now considering this approach.
The agency has tasked PNOC to develop an integrated LNG hub with storage, liquefaction, regassification and distribution facility, as well as a reserve initial power-plant capacity of 200 megawatts (MW). The plan is to make this happen under the current administration.
Interested or not?
A top official of First Gen Corp. recently said the Lopez-led firm is interested in discussing anew its LNG plans with PNOC.
“We would be interested,” First Gen President Francis Giles Puno said, when asked to comment on Cusi’s pronouncement that PNOC would be open to unsolicited proposals.
However, Puno added there is no discussion yet with PNOC on this new development. He only said that First Gen is “excited” on its LNG plans and “will continue to pursue it”. Shell Philippines also held exploratory discussions with the government.
“We talked to them, with Admiral Lista…. We are very open to partnerships with various groups, including PNOC,” Shell President Cesar Romero said.
“LNG, that’s one area we really want to successfully bring into the country. However, it’s a bit tricky because we have to form partnerships…but the key is to be able to understand how economics would work because it is a huge investment. An LNG facility is $600 million to $1billion, that’s why you need partners to be able to balance it off. Second, the economics must be carefully understood in terms of how the investment will be,” Romero explained.
When Lista was asked if First Gen and Shell have signified interest anew, following Cusi’s pronouncements that private-sector proposals would be entertained, the PNOC official had this to say: “Are they interested? There are no official offer from Shell and Lopez Group.”
Early on, First Gen said it was keen on taking in a, equity interest of 30 percent to 35 percent in an LNG project along with other partners, which could include the government.
“On the equity front, we’ve always been flexible. Right now, we’re solely underwriting the risk. But the whole idea is to bring in partners and to cooperate with a number of partners for LNG to be able to make sure that the LNG terminal is built. What we’d like is to have a significant ownership. What that means is it can be as little as 30 percent and have others doing it depending on who will comprise the total consortium,” Puno had said.
When further asked why settle for a minimum of 30 percent to 35 percent, Puno said First Gen “never envisions to be full owners of the LNG terminal…. Right now, we are 100 percent on our own, but we realized that this can’t be. So for us, from 100 percent, how low is low? If there’s a model 25, 25, 25, 25 among four players, and it’s feasible, then we are open.”
First Gen is keen on building a $1-billion LNG facility in Batangas, where its four gas plants are, with the target completion date between 2022 and 2023.
First Gen and Shell have been vocal in their intention to put up their respective LNG facilities. However, these plans couldn’t take off in the past because there was no clear policy direction from the government. One concern raised last year by First Gen was the absence of an energy-mix policy from the government.
Early this year, the DOE formally declared that it would no longer pursue the previous administration’s energy mix in the form of 30 percent from coal, 30 percent from renewable energy, 30 percent from natural gas and 10 percent from oil-based power plants.
Instead, it is now pursuing to develop technology-neutral energy sources in meeting the ideal proportion of 70-percent base load, 20-percent midmerit and 10-percent peaking requirements for power generation.
A baseload power plant provides continuous supply of electricity throughout the year with some minimum power-generation requirement. These include coal, nuclear and possibly LNG.
Midmerit plants supply the gap between baseload and peaking plants, which operate during peak hours when there is high demand for electricity. Natural-gas plants are common examples of midmerit plants.
LNG hub
Cusi said the government is aiming to turn the Philippines into a hub for LNG, amid a depletion of natural gas from the Malampaya gas field in Palawan in less than a decade.
“Two objectives: One, is for our national energy strategy when the Malampaya is depleted. Two, we want to put the Philippines in the LNG hub for Asia to complement Japan, Singapore. We want to take that opportunity for our country’s economic development.”
LNG is natural gas that has been converted into a liquid state for easier storage and transportation. Upon reaching its destination, LNG is regasified so it can be distributed through pipelines as natural gas.
“The Philippines already failed in aviation becoming a hub despite our geographical advantage and location, and in maritime. So this would probably [be] an opportunity. It’s a dream,” the energy chief said.
The Malampaya gas field is expected to be depleted by 2024. Currently, around 3,500 MW of power-plant capacity is dependent on the country’s sole natural-gas source.
Groundbreaking for the LNG project was targeted to happen early next year, with project completion being eyed within the six-year term of President Duterte. “We will try to make it happen within the target schedule. The important thing is we do it properly to be sure that it can be completed,” Cusi stressed. Senate Energy Committee Chairman Sherwin T. Gatchalian said there is an urgent need for the power sector to put in place an LNG framework.
“We would be tackling various legislative measures that will talk about LNG and to hasten the development of the LNG industry here in our country. We really need to put the framework in place,” he said. “We really need to speed up the industry itself…we need to give some development either through incentives and other frameworks—and that calls for legislation.”