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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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Philippines Gas Crunch Forces Uneasy Alliance With China

The Philippines said today that the country had short listed three different groups to build and operate its first liquefied natural gas (LNG) import terminal and hopes to choose one by the end of November.

Philippine energy secretary Alfonso Cusi told Reuters that short-listed companies were chosen from 18 groups that submitted proposals for the project, which includes state-owned Philippines National Oil Company (PNOC), which is seeking a partner for the project, while Tokyo Gas has partnered with the Philippines’ First Gen Corp. He added that state-run China National Offshore Oil Corp (CNOOC) is also in the running and has been in talks with Manila-based Phoenix Petroleum, although it has yet to firm up a local partner.

These types of disclosures have been all too common in the Philippines over the past several years. However, they have yet to produce a functional LNG terminal due to governmental red tape and indecision, regulatory hurdles, provincial resistance and demands for extra financial compensation and the inability of interested parties to sign up credit worthy off-takers needed to fund a project.

For several years, Australian-based Energy World Corp. (EWC) was reportedly nearing the completion of an LNG receiving terminal and accompanying power station in Quezon province, near Manila. Yet, that project’s time of completion has been set back repeatedly over the last two years, while it now appears that it will never become operational.

A recent article in the Manila-based Business Mirror said the project, which was 90 percent complete, had hit a “dead end,” either being trapped in a “bureaucratic quagmire or stymied by a group that may be adversely affected by its implementation.” According to the report, after a Philippine Senate hearing in April, hurdles from a myriad of government agencies had prevented the project from completion, including the Department of Energy (DOE), National Grid Corp. of the Philippines (NGCP), the National Transmission Corp. (Transco) and the Grid Management Committee (GMC). Related: Can U.S. Gas Demand Keep Up With Surging Production?

Moreover, at this point, it’s anybody’s guess if EWC can overcome cumbersome, confusing and often conflicting agendas from there various agencies - yet, if history of other energy projects in the country are any indication, it’s a safe bet that the EWC will remain dead in the water for the foreseeable future.

Running out of gas

Cusi’s comments come as the Philippines is still scrambling against a ticking clock to have an operational LNG import facility before gas runs out of its offshore Malampaya natural gas field.

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 of 20 million people. Estimates vary, but most experts claim that gas at the Shell-operated field will be depleted within five or six years

Without new gas supply to offset Malampaya’s reserves, the Philippines will have to burn more coal for power generation, even though the government has been advocating using more gas for power generation. However, it lacks the legal power and jurisdiction to enforce its recommendations.

Uneasy alliance

The loss of Malampaya gas has also put pressure on Manila to seek joint gas exploration with China, its giant neighbor in which it has competing claims in the South China Sea, which the Philippines still calls the Philippine Sea.

Manila and Beijing are scheduling bi-lateral talks over a number of issues, including ongoing disputes over these overlapping claims and energy development. Philippine foreign ministry Alan Cayetano told local media in late August that he intended to sign a framework with China for joint oil and gas exploration in the South China Sea within the next two months.

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He said that any deal would be based on a 60–40 sharing formulation, similar to the Philippines’ Malampaya gas royalty agreement with oil major Anglo-Dutch Shell. However, such a deal is already facing considerable push back from the often-vocal Philippine populace who is worried over more Chinese encroachment in its affairs.

By Tim Daiss for Oilprice.com

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