Newly elected President Ferdinand Marcos Jr reiterated his support for more renewable energy, as well as nuclear power, and natural gas, in the Philippines, one of Southeast Asia’s fastest growing economies. The news comes as plans to import maiden liquefied natural gas (LNG) cargoes into the country have stuttered due to surging global prices.
In his first state of the nation address on 25 July, Marcos said that the Philippines must build new power plants, as well as revisit its strategy on nuclear power, which he supports, to meet rising demand for electricity. The country, expected to see economic growth rates of 6.5% to 7.5% this year, also needs to take advantage of renewable energy sources – such as solar, wind, hydropower and geothermal – and Marcos said the government is examining offering incentives for natural gas exploration.
“The new administration’s views seem to align with the previous government. President Marcos Jr. is keen to push forward with decarbonising the energy sector, while also keeping electricity prices low. His stance toward renewables and nuclear is favourable. With that said, concrete energy policies from the new administration have yet to be released,” Huyen Trang Vu, research analyst, at IHS Markit, told Energy Voice.
Kaho Yu, a senior Asia analyst at geopolitical risk consultancy Verisk Maplecroft, told Energy Voice, that the new president had pledged to push for nuclear power and renewable energies to deal with energy security and the low-carbon transition in the Philippines. Yu said the new government is facing pressing challenges from power shortages to insufficient energy supplies. He added that LNG would play a critical role to ensure energy security in the country, that is aiming for economic growth rates of 6.5% to 8% every year from 2023 through to 2028.
Marcos has named Raphael Lotilla as the new Secretary of Energy, replacing Alfonso Cusi, who pushed to strengthen the development of the natural gas sector in the country. Lotilla’s appointment is seen as a positive by many in the energy sector as he’s viewed as a technocrat with a good understanding of the business. Lotilla’s first term as the Secretary of Energy was under President Gloria Macapagal Arroyo from 2005 to 2007.
Yu noted that the appointment means the new government will need time to adjust its energy policy.
Natural Gas at Malampaya and LNG Imports
In his state of the nation address, Marcos said “we will provide investment incentives by clarifying the uncertain policy in upstream gas, particularly in the area close to Malampaya. This requires clarification of the processes and review of service contracts policy.”
Domestic gas production from Malampaya, the country’s sole gas field, is declining. Uncertainty around an extension for the service contract, that covers the ageing field and expires in December 2024, has hindered new investment. Shell’s (LON:SHEL) divestment process for its 45% equity in the project had also stalled ahead of the presidential elections on May 9 amid crumbling political support.
The uncertainty around future production at Malampaya and the increasing unreliability of domestic gas supply means the country needs to start importing LNG.
© Bloomberg“The Philippines had targeted importing LNG in 2022 for energy security, as the Malampaya field production declines. However, COVID-19 caused construction delays and the ongoing Russia-Ukraine conflict added uncertainty to the global LNG balance. This resulted in the commodity’s price hike, making it difficult for new LNG players to enter the turbulent market. With spot prices averaging above US$30/MMBtu for 2022 and 2023, new LNG importers, such as the Philippines, are unlikely to meet their 2022 LNG import targets,” said IHS’s Vu.
Indeed, First Gen, which uses gas from Malampaya to fuel its power plants, has delayed the start-up of its LNG import terminal project until later next year. Industry sources believe this is because the company was planning to buy LNG on the spot market and had not secured any term supply deals. Importing LNG based on current spot prices is unaffordable, added the sources.
“IHS Markit expects LNG imports to start in 2023. There are three projects that are under construction, First Gen’s Batangas LNG terminal, AG&P’s FSRU project, and the EWC Pagbilao LNG regasification terminal. The projected fall in supply poses an imminent risk to 3,452 MW of gas-fired power plants and severely threatens the energy security of the Luzon power grid. Until LNG becomes accessible, there are no gas alternatives, therefore we expect gas demand to fall in the short-term. However, LNG imports are forecast to increase with the progress of LNG projects and the clean energy transition directive away from coal. Therefore, IHS Markit forecast LNG demand to grow up to 5 million tonnes per year by 2030,” said Vu.
AG&P recently told Energy Voice that it aims to commission its tolling terminal in December this year, which if successful would mark the start of the Philippines first ever LNG imports. However, industry sources noted that AG&P’s scheduled start-up keeps slipping and it remains to be seen if they can meet the planned commissioning in December. But AG&P could be under pressure to deliver as their main customer, San Miguel Corporation, has sealed term LNG import deals with a portfolio player starting 2023, that will fuel their Ilijan power plant. Some market sources said there had been whispers of litigation around the LNG contract over pricing issues and delivery, but AG&P told Energy Voice this is not the case.
Elsewhere, Energy World Corp.’s (EWC’s) integrated 3 million t/y import and gas-to-power project was almost ready to start up in 2018 but was stalled by a lack of government permits. Unconfirmed reports at the time suggested that influential local business players were stymieing progress.
Crucially, LNG imports, or more domestic gas production, will be needed as the country transitions to greater renewable energies, following the nation’s decision to stop approving any new coal-fired power projects. In October 2020, the Philippines announced a moratorium on new coal-fired power plants, building on a policy announced in May 2020 to expand the use of renewables for both environmental and reliability purposes.
However, the percentage of coal power generation in the Philippines energy mix jumped to 48% in 2021 from 38% in 2020, international energy think-tank Ember, reported earlier this year.