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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Can Yankee Ingenuity Jump Start The Philippine LNG sector?

A U.S.-based company, Excelerate Energy, is throwing its hat in the fledgling Philippine liquefied natural gas (LNG) sector. Excelerate, based in Woodlands, Texas, and Manila-based First Gen Corp., have filed a joint bid for an LNG import project, Philippines DOE Undersecretary Felix William Fuentebella said during a news conference in Manila on Monday.  Excelerate filed its application with the Philippine DOE on December 27. Excelerate is one of at least two dozen firms to file papers since the DOE issued a request for LNG project proposals in November 2017.

Running out of gas

The Philippines’ push for its first operational LNG import terminal comes as the country’s offshore Malampaya gas field nears depletion. Malampaya’s three gas-fired power plants provide 40 percent to 45 percent of power generation requirements for Luzon – the country’s main island, which also includes the capital Manila and its estimated population in excess of 20 million people. Estimates vary, but most experts claim that gas at the Shell-operated field will be depleted in less than five years. Without new gas supply to offset Malampaya’s reserves, the Philippines will have to burn more coal for power generation, even though Manila has been advocating the opposite strategy for the past few years.

Regulatory and corruption headwinds

Numerous other LNG project proposals have been discussed in recent years but have never materialized. Moreover, talks for energy projects in the country often fall apart amid regulatory and financing hurdles, as well as companies trying to appease not only officials in Manila but provincial and local officials who often scare away international business with their under-the-table demands and rampant corruption.

In 2015, it appeared that this stalemate would be broken when reports out of Manila claimed that the country’s first LNG terminal was nearing completion. Australian Stock Exchange listed Energy World Corp (EWC) was reportedly finishing an LNG import hub and LNG-fired combined-cycle gas turbine power station, with a capacity of 650 MW, in Quezon province, just south of Manila, to provide electricity to be sold through the wholesale electricity spot market to the Luzon grid. Related: OPEC’s No.2 Boosted Production, Exports Just Before Cuts Began

The EWC plant was to receive LNG from EWC natural gas fields, including those in Indonesia, but would also have to procure supply on the spot market. However, in the ensuing three years EWC’s terminal has never been completed and has largely fallen off the radar of Philippine DOE officials. One analyst inside the country that works with not only with the energy sector but also the wholesale electricity market recently told me in Manila that EWC basically went out and bought old turbines and bolted together storage facilities to try to develop the project but ran out of money. The EWC corporate website only lists basic information about the project without giving further details of its development or anticipated date of completion.

However, last week the Manila-based Business World reported that a local unit of EWC stated in a letter on January 2 to the Australian Securities Exchange that the Philippine DOE had granted a permit to construct, own and operate an LNG import terminal and regasification facility on Pagbilao Grande island in Quezon province. “The permit which was issued on 21 December 2018 forms an update to the original permit documentation and provides for a further construction period of 24 months from the permit issue date,” it said. EWC said the permit would put in place a date of completion for the first tank of the LNG hub to be aligned to the commercial operation date of the associated 650-MW power plant and the National Grid Corporation of the Philippines switchyard expansion, which is under construction, and for the construction of the second tank. Related: The 3 Continents Driving Global Energy Demand

Yet, given EWC’s history of not pushing through on its plans and the doubt surrounding its operations and the overall LNG development in the Philippines, it remains to be seen if anything concrete will materialize from this disclosure.

Yankee ingenuity

Going forward, Excelerate Energy’s plan to enter the Philippine LNG sector will face strong competition from Tokyo Gas, Philippine National Oil Co. (PNOOC) and Chinese state-run oil major China National Offshore Oil Corp. (CNOOC), which have also field papers with the DOE to build their own respective LNG terminals. Yet, Excelerate could hold an advantage if it manages to work its way through a cumbersome DOE process and the myriad of hurdles it will face also from local and provincial authorities. A Houston Chronicle report on Tuesday said Excelerate has previously developed floating LNG and other LNG projects in the Asia-Pacific region.

"As the pioneer and market leader in floating regasification infrastructure projects, Excelerate is uniquely positioned to provide the Philippines with the most reliable, efficient and environmentally-friendly solution to access the global LNG markets and deliver natural gas to the country," the company said in a statement. "We look forward to hearing back from the DOE regarding our submittal and move forward to the next steps of bringing this project into reality."

By Tim Daiss for Oilprice.com

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