Connect with us

Hi, what are you looking for?

Economy

As gas reserves wane, Philippines faces rising costs in switch to LNG 

MANILA/SINGAPORE — With just four years before the Philippines’ only gas field is set to run dry, the country has started importing liquefied natural gas (LNG), creating a fresh headache for a government struggling to curb high inflation.

LNG is needed to help replace gas from the Malampaya field, which supplies power plants that meet a fifth of the electricity requirements on the country’s main Luzon island, or 13% of total installed capacity nationwide.

Imported gas costs will be passed straight through to power prices, and as a result power prices could jump sharply, a challenge for a country where inflation hit a worrying 14-year high in January.

While LNG prices have dropped from record highs hit last year amid Europe’s scramble for gas, they are expected to rise again as demand climbs for winter, and as Hong Kong, Vietnam and the Philippines all become first-time LNG buyers this year.

“A big challenge is LNG price volatility and how secure is supply,” said Irwin Yeo, senior LNG analyst at Poten & Partners.

The country “will face economic and political risks” from the passing through of LNG costs to power prices, he said.

Gas output at the Malampaya field has declined sharply since peaking in 2019, hitting its lowest since 2004 last year, data from the energy department showed.

Initially the country will need around 3 million tons per year (tpy) of LNG to replace Malampaya’s supply but that will fall to around 2.3 million-2.7 million tpy and possibly less by 2030, depending on how rapidly generation from renewable energy grows, said Kittithat Promthaveepong from consultancy The Lantau Group.

The Philippines aims to have 35% of its power generated by renewables by 2030, up from about 23% currently.

LNG PRICE RISK
The country’s debut LNG cargo with 137,000 billion cubic meters of gas arrived in April for trials at its first import terminal, to supply San Miguel Global Power Holdings. 

Next, First Gen FGEN.PS, which uses Malampaya gas at four power plants with a combined capacity of 2,000 megawatts, plans to start LNG imports in September when its floating storage and regasification unit (FSRU) in Batangas province is ready.

First Gen President Francis Giles Puno said without LNG the company would face even higher fuel costs as it would have to rely on expensive diesel.

“So, the LNG is there to temper the cost of fuel,” he told reporters on May 17.

Securing long-term LNG contracts will be challenging for the new market entrant despite current low prices, as supplies globally remain tight at a time when other emerging markets like Vietnam and Bangladesh are also competing for gas, analysts say. 

Fortuitously for new buyers, spot LNG prices LNG-AS have fallen to $9.80 per million British thermal units (mmBtu) in May following a mild winter and lower demand, after averaging nearly $40/mmBtu in 2022, propelled by the Russia-Ukraine war.

“But the consensus is that this dip in prices isn’t expected to last,” said Sam Reynolds, an analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).

LNG is currently about $1-$3/mmBtu costlier than Philippine gas, based on a $70 a barrel oil price, two analysts said, which could lead to a 15%-35% increase in the cost of power generated from imported fuel. 

NO SUBSIDIES
The government has approved seven LNG import terminal projects with a total capacity of 21.98 million tpy, looking to expand LNG usage into industrial, commercial, residential and transport sectors in addition to power.

The Philippines’ department of energy undersecretary Rowena Guevara told Reuters there are no plans to shield consumers from potential higher electricity rates with subsidies and no plans to impose a power price cap.

Distributors such as Manila Electric Company (Meralco) MER.PS buy power directly from independent producers under supply contracts and from the Wholesale Electricity Spot Market.

In March, energy secretary Raphael Lotilla said the government and the Energy Regulatory Commission were looking at ways to prevent price shocks, but gave no details.

“We are looking at measures to protect the people from the volatilities of LNG prices. But the most important consideration is that we should have adequate power supply,” Lotilla told reporters on May 16. — Reuters 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Economy

SEOUL/TOKYO — Japan on Monday put its ballistic missile defenses on alert and warned that it would shoot down any projectile that threatened its...

Economy

WASHINGTON — US President Joseph R. Biden on Sunday finalized a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4-trillion debt ceiling...

Economy

MILAN — The waters in Venice’s main canal turned fluorescent green on Sunday in the area near the Rialto bridge and authorities are seeking...

Economy

ANKARA — President Tayyip Erdogan extended his two decades in power in elections on Sunday, winning a mandate to pursue increasingly authoritarian policies which...

Economy

CAGAYAN Valley pride Jan Clifford Labog shocked heavy favorite International Master Michael Concio, Jr. yesterday to seize a share of the lead with his...

Economy

Games Today (Ynares Sports Arena) 5 p.m. — Blackwater vs Terrafirma 7:30 p.m. — Converge vs Magnolia SHORT in numbers but not in heart,...

You May Also Like

Investing

Almost 100 jobs are thought to be under threat at smart home energy technology manufacturer myenergi. The Grimsby firm, named one of the UK’s...

Economy

THE MARCOS administration’s plan to revive the Philippine Sugar Corp. (PHILSUCOR) has raised concerns from stakeholders, who said this may duplicate other agencies’ existing...

Investing

Canary Wharf Group and The Felix Project, a food redistribution charity have agreed a long-term partnership that will see them join forces to tackle...

Economy

By Luisa Maria Jacinta C. Jocson, Reporter EL NIÑO may weigh on Philippine economic growth this year, as the agriculture sector is vulnerable to...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.