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Philippines to Get Regas Terminal Amid LNG Sector Uncertainty
by Tim Daiss DownstreamToday Contributor
Tuesday, April 21, 2015
Changes are taking place in the Philippines energy sector that could change the way the country fuels its electric power plants while also helping to offset declining natural gas reserves.
In March, Manila Electric Co. (Meralco), the country’s largest distributor of electricity, said it hoped to conclude talks for a joint venture (JV) for a liquefied natural gas (LNG) receiving terminal in the Philippines with Osaka Gas, Japan’s second-largest natural gas supplier, before the end of the year. One month earlier, Manuel V. Pangilinan, Meralco’s chairman, said that investment for the project could cost up to $2 billion for the terminal and associated power plant with a capacity of 1,500 megawatts (MW) or more. The JV would include a regasification facility that would convert imported LNG to gas for delivery to the power plant.
Depleted gas reserves
Increased interest in LNG use in the Philippines comes as gas from its Malampaya field in the South China Sea nears depletion. Estimates vary, but many claim that gas at Malampaya will be depleted within a decade. Malampaya supplies three gas-fired power plants, providing 40 to 45 percent of power generation requirements for Luzon – the country’s main island, which also includes Manila.
The Meraclo-Osaka Gas disclosure follows another LNG project in the Philippines that started construction in 2012 but is struggling to come on-stream. The $800-million Pagbilao LNG import terminal is being constructed by Hong Kong-based Energy World Corp. (EWC), which has signed a 20-year lease on land in Quezon Province, near Manila. Initial capacity for the project is placed at 3 million tons per annum (mtpa) of LNG. The terminal is part of a gas-to-power project, which includes a 650-MW combined power plant next to the LNG terminal.
Last June EWC said that the project would be completed and ready for operation by the end of 2014 or the beginning of 2015, but the project has fallen behind schedule several times. However, in February EWC CEO Stewart W. G. Elliott updated the project’s time line, stating that “the first 200 MW would be completed by three months time, and maybe two to three months later for the second 200 MW.”
Laura Saguin, a research specialist at the Philippine Department of Energy (DOE), told Downstream Today that EWC’s original target to operate the 200-MW gas-fired plant was in 2013, but that it was later moved to 2014, and again to this March. “This would be in time for summer when Malampaya gas facilities are on shutdown from March 15-April 14, 2015,” Saguin said. She added, however, that based on the DOE’s assessment of the project, EWC will operate the initial 200 MW at the end of 2015 or the early part of 2016.
If EWC can finally bring its LNG project on-stream it will be the Philippines’ first LNG receiving terminal. Energy projects in the Philippines have been historically slow to implement due to ambiguous government regulations, local and provincial governmental demands and corruption across business and government sectors.
John C. Morris, an analyst with Perth-based International Energy Consultants, told DownstreamToday that “this [ECW] project appears to be real.” He said that the LNG storage and regasification facility is nearing completion and the power turbines are reportedly already on-site. “First production is expected as early as Q4 2015 and the plant could be fully operational (at 650MW CCGT) by mid-2017,” he said.
Morris, who is currently working on a Philippines-based LNG project, said that although EWC has its own LNG production facilities in Indonesia, the company plans to start operations at the Pagbilao site using spot LNG cargoes sourced from the open market. He added that the project is not believed to have any power sales contracts in place.
Skepticism remains
Though Morris is upbeat over the prospects of the EWC project coming on-stream, he is less optimistic about the proposed Meralco-Osaka Gas JV. “I am highly skeptical that any large-scale (500,000 or greater tpa) LNG project will ever get built on Luzon in the foreseeable future without massive government intervention in the market to make it happen,” he said. “A $2 billion facility means a lot of LNG, which means a big power plant (maybe greater than 2000MW) which will ultimately need a long-term power purchase agreement (PPA) with a creditworthy offtaker (presumably Meralco).”
Morris said that even with depressed oil prices, coal-fired power is still a lot cheaper than LNG, so it is hard to see LNG being competitive on a price basis in the Philippines. Morris is referring to the fact that the Philippines still uses coal as the primary fuel source for most of its electricity generation, while the country’s coal consumption is projected to continue to increase because of a rise in domestic supply and increased demand from domestic coal-fired power plants, according to the U.S. Energy Administration (EIA). Geothermal, hydropower and other renewable sources also constitute a significant share of electricity generation in the Philippines.
Saguin agreed with Morris’ assessment. “Natural gas-fired power plants can never provide a least cost generation against coal fired power projects," she said. "That’s why most of the lineup for committed projects are coal-fired power plants.” Saguin added that the DOE has already determined the country’s energy mix: one-third for coal, one-third for natural gas and one-third for renewable energy and other remaining sources. “Nonetheless, the government will not mandate the energy mix policy, but only provide guidelines to investors,” she said.
Morris said that, in his view, the only LNG that will be consumed in the Philippines in the next decade will be using the EWC facility (likely no more than 300,000 tpa). “Most of the new power capacity that needs to be built on Luzon will likely be coal-fired, unless the government decides to do a complete 180 and intervene in the markets, which is very unlikely,” he said.