Future of gas-fired plants depends on ‘new Malampaya’

by Lenie Lectura, 08 March 2015
from BusinessMirror

The only producing natural gas field in the Philippines will run out of gas in nine years, and experts could not stress enough the importance of finding another gas field soon, or the country may yet face another power crisis in the next decade.

The Malampaya natural-gas field in Palawan has proven reserves of 2.7 trillion to 3.2 trillion cubic feet (TCF). More than 1 TCF has already been consumed to date. The Malampaya’s output will run out by 2024.

“I am telling you now that we have to resolve our natural-gas infrastructure. We are going to run out of gas, so what do we do with the 2,700-megawatt (MW) gas-fired power plants now being fueled by Malampaya? That’s a lot of plants that’s going to be out of commission because peak demand in Luzon is 9,000 MW. If you lose 2,700MW, I am going to get out of this country. This is going to be another heart attack by 2024,” said Sen. Sergio Osmeña III, chairman of the House Committee on Energy, during the Natural Gas Summit held in Makati City last week.

He said people would likely blame the government for yet another power crisis since warnings have been issued prior to the depletion of gas reserve and yet no regulatory framework—an LNG (liquefied natural gas) master plan, in particular—has been put in place to jumpstart the country’s LNG industry.

“The master plan is still being studied. There is no specific policy yet, but we are hoping that once this has been put in place, the ball will keep on rolling. This is important because it will point us where and how to move forward and, at the same time, encourage the participation of the private sector,” said Energy Secretary Carlos Jericho L. Petilla when sought for comment.

Rufino Bomasang, former president of PNOC-Exploration Corp., said during the summit that scouting for the next Malampaya gas field should be a national priority.

“I would like to believe that most of us are now convinced that putting up gas-fired power plants is the most effective strategy for this country to meet its future electricity demand. I have always believed that there must be another Malampaya somewhere out there. Only through exploration can we find it out,” said Bomasang, a director of Otto Energy Ltd.

Otto and its Philippine unit hold a 40-percent interest in Service Contract (SC) 55 that covers southwest Palawan.

Based on extensive seismic studies, Bomasang said there is a possibility of finding sufficient gas resources covered by SC 55. “But that is potential. We have to find out by drilling and that is the most expensive part.”

He added that SC 55 could be enough to replace Malampaya and still fuel other gas-fired power plants. Moreover, he believes that SC 55 is also rich in oil. “That opportunity still remains,” Bomsang said.

Shell Philippines Exploration B.V. (SPEX), the upstream company of Shell in the Philippines in charge of operating the Malampaya Deep Water Gas-to-Power Project, said during the summit that it is doing everything it can to boost the gas project. It is set to implement Phase 3 of the project, aimed to keep up the volume of gas production, next week.

Still, at the end of the day, gas will run out.

“We would need to find other sources near Malamapaya or in other fields or bring in LNG. So those are the two basic options.  Either you find more gas or bring in LNG,” said SPEX Managing Director Sebastian Quiniones, one of the reactors at the recently held summit.

LNG is a natural gas that has been converted into liquid state for easier storage and transportation. Upon reaching its destination, LNG is regasified so it can be distributed through pipelines as natural gas.

He said SPEX could still extract “a little bit” of gas after its life term. But by then its license to operate the gas field would have expired.

“If we do find another Malampaya nearby, then well and good, but that’s a big ‘if.’ It takes decades to be able to get these things to happen. That’s why we are appealing to the government to put up mechanisms to make sure that we have a better way of getting the upstream business going. Other countries have drilled six to 17 wells in a year. In the Philippines we drilled only two,” the SPEX official pointed out.

In the meantime, Quiniones stressed that preparations should be done at the soonest time possible.

 

Importing gas

Pilipinas Shell Petroleum Corp. and First Gen Corp. announced plans to import LNG from other countries and build their respective LNG import facilities.

“We will pioneer the entry of imported LNG into the country by constructing the country’s first LNG regasification terminal adjacent to our power plants in Batangas,” First Gen President Francis Giles Puno said.

The LNG import terminal will cost $1 billion.

First Gen owns the Santa Rita and San Lorenzo power plants in Batangas. These are two of the three power plants fueled by Malampaya. Together, they generate a combined 1,500 MW.

The third is the 1,200-MW Ilijan power plant owned by Kepco Ilijan Corp.  All three power plants generate a total of 2,700 MW, accounting for about 40 percent of Luzon’s power requirements.

Shell is also planning to build an LNG import facility near its oil refinery in Batangas. However, this plan is still dependent on the final investment decision (FID) from its parent firm Royal Dutch Shell Plc.

Shell Country Manager Edgar Chua said the FID is dependent on whether or not it can secure contracts for off-takers of the gas. If successful, Shell can then proceed to securing the FID.

“We are engaging different parties so we can finalize an off-take agreement,” Chua said at the sidelines of the Powering-Progress Together-Asia forum.

Government support

Chua said Shell has been batting for incentives for potential players in the development of an LNG facility because such investment is capital intensive.

“The policy has to be prescriptive. It can’t be purely guidelines. In other countries, there’s a cap on coal,” Chua said.

Chua was referring to the new fuel policy mix that the Department of Energy (DOE) intends to release soon. The policy will identify the contribution of LNG, natural gas, coal, oil and renewable energy to the country’s power generation. At present, coal is the dominant fuel in the mix.

The DOE would want the share of both LNG and natural gas to increase to 30 percent in a bid to encourage energy diversification in the country.

IFC Philippines Resident Representative Jesse Ang had said the country must prepare for the eventual depletion of the Malampaya gas field. “The government should understand their role. If they think LNG is important, then they need to do something to help bring it in,” Ang said.

Benito Soliven, director of the Financial Executives Institute of the Philippines Foundation, strongly urged the government, industry stakeholders and experts to work together to encourage investments in the LNG sector.

“All of these plans, from LNG terminal to pipeline, will not matter if we do not see a transparent legal regulatory framework. We’re talking about infrastructure here,” said Soliven, who was also present during the summit.

To distribute gas from LNG terminals in Batangas to industrial customers in Manila, a natural-gas pipeline must be constructed.

The DOE plans to auction off the construction of a 105 kilometers of pipeline that will run from Batangas to Manila. However, the Japan International Cooperation Agency, which is helping craft the country’s policy and infrastructure blueprint for the LNG sector, has yet to complete its study.

The project had been proposed in the previous administrations but failed to kick off primarily on concerns regarding supply of gas and sufficient demand.

“We are running out of time. We don’t have time to waste to have these projects to get going. Natural gas is very important in the energy mix. My commitment is to hold the first hearing on natural gas in May and pass a bill by December or middle of next year,” Osmeña said.

The government knows what to do and where it is headed to jump-start the LNG industry. The only question is how long it will take for the government to achieve its plans.

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