Malampaya

DEMAND AND SUPPLY – Boo Chanco (The Philippine Star) – May 16, 2018 – 12:00am

Oil prices are rising and geopolitical tensions are threatening security of supply. This couldn’t have come at a worse time for the Philippines. Our energy demand is rising in line with economic growth and Malampaya, one of our major energy sources, is running out soon.

The Malampaya franchise is set to expire in 2024. The natural gas it has produced has provided a significant share in our electricity production mix. Malampaya has given us a fuel option that is cleaner than coal, the predominant fuel source today.

It is worrisome that energy planning today isn’t as timely and as thorough as it was during our days at the old energy ministry. Even as 2024 is just around the corner, it is not clear how the Philippines will manage the decline of the Malampaya Gas supply.

Of course, it doesn’t mean that by 2024 Malampaya  gas will completely run out, leaving without fuel a number of power plants in Batangas depending on it. There will still be some more gas that could be pumped out, but government must say who will do it. There are also potential deposits in the vicinity and we must know what the game plan is for potential exploitation.

For the First Gen Power group that owns the power plants using Malampaya gas, they are not taking any chances. They have been planning what to do after 2024. They are ready to work with government on post Malampaya plans, but they are also ready to do it by themselves.

First Gen has, in fact, already spent millions of dollars on studies to put up in the next five years a liquefied natural gas (LNG) terminal in their Batangas site to support their gas fired power plants post Malampaya. They plan to start developing this $1 billion (LNG) terminal next year. They are also expecting to close partnerships and engineering, procurement, and construction (EPC) contracts within this year.

It is just as well that the private sector is moving because the Luzon power grid is depending on those power plants to keep on working beyond Malampaya. As always, government is all talk.

PNOC has come up with plans, but there is little movement on the ground that amounts to anything. And they want it in Bataan where there are no LNG power plants now. First Gen has expressed a willingness to work with PNOC, but is taking no chances on any interruption of the LNG supply they need.

The demand for LNG has increased significantly over the past years as China is replacing their polluting coal-fired power plants with power plants using LNG. The first order of business is to make sure we have this LNG terminal which takes four years to build. Then we must sign up supply contracts.

Failure to assure supply and have the terminal, with a capacity to supply a minimum five million tons of natural gas equivalent to 5,000 MW, will idle the power plants. With the country’s economy dependent on the constant supply of reasonably priced electricity, failure is not an option.

The Malampaya Consortium must also prepare for continued operations of the facilities beyond 2024. Government must create a clear path to make this happen.

As a recent position paper of the Management Association of the Philippines pointed out, “there are also additional gas reservoirs near the existing ones which can be tapped. With the end of the contract in 2024, there is a need to secure an operator who can continue operations to allow extraction of the remaining gas and exploit additional gas nearby.”

In a sense, the reality of Malampaya’s full exploitation makes other potential deposits in contested waters in the West Philippine Sea that more important. The Duterte administration is trying to develop political options that will make the development of potential natural gas deposits in Recto Bank possible.

Experts say there are technical solutions to exploit the new fields and tie-back to Malampaya to make use of its facilities including the pipeline to Batangas.  But the political problem with China is a tough nut to crack.

We don’t have all the time in the world to wait for China and the Philippines to have an agreement on Recto Bank. Even if they manage to agree on something, the development of a new gas field can take a decade. That starts with exploration activities which cannot take place until a geo-political agreement is reached.

This is why setting up an LNG import facility tied into the existing gas-fired power plants is an urgent need. Though they can use alternative liquid fuel, the overall economics would be expensive for the consumer.

As the MAP position paper puts it: “It is a complex political, technical, and commercial issue. Our power demand characteristic requires a fuel which can give the needed mid merit and peaking capability.

“The latest Philippine Energy Plan shows a growth of demand which requires additional capacity from current 16 GW to 43 GW by 2040. The MAP sees that the 27 GW capacity can be supplied from various sources: coal, gas, current renewables (geothermal and hydro), new renewables (wind, tide and solar), and maybe even nuclear.

“Apart from market forces and our commitments to COP 21 (Conference of the Parties), the grids need to satisfy technical requirements of resource adequacy (reserve capacity of power plants, embedded generation from residential/commercial from solar) and reliability (intermittency of renewables, typhoon resistance)…”

I agree with MAP that “it is of utmost importance that the necessary government decision are made quickly to give industry time to provide the best service and cost to consumers… while allowing the future generations to live in a less polluted world.”

I am not sure those on top of energy in government today realize the urgency for action. We may wake up one morning with a crisis on our hands, a crisis we could have avoided.

Source: https://www.philstar.com/business/2018/05/16/1815485/malampaya