One of the most important pillars of the reform agenda led by the Department of Energy (DoE) is ensuring energy security. With rising demand and the inevitable depletion of the Malampaya field, policymakers are looking towards alternative sources.
New Terminal
Transforming the natural gas industry from an emerging state to a mature market has been identified by government as a key enabler for energy security. In the fourth quarter of 2017 the DoE issued a draft circular, known as the Philippine Natural Gas Regulation (PNGR) to help achieve this goal. Going forward, the PNGR will govern the natural gas industry along the entire value chain, including supply, location, and the construction and modification of existing assets.
Furthermore, the PNGR highlighted the transformation of the Philippines into a liquefied natural gas (LNG) trading and trans-shipment centre for the Asia-Pacific region as critical to the country’s longterm energy security and sustainability. To realise this target, the government is looking to award a permit for the construction of the country’s first ever LNG import facility in 2018.
A number of domestic and foreign companies, such as Shell Philippines, Tokyo Gas and China National Offshore Oil Corporation, have expressed interest in the LNG project, in which the state-owned Philippine National Oil Company is expected to hold a minimum stake of 10%. The government is pushing for the construction of the $2bn terminal, which includes a 5m-tonne-per-annum storage facility, a re-gasification and distribution facility, and a 200-MW power plant – expandable to 1000 MW, which is a critical feature given the inevitable extinction of the Malampaya gas project – to commence in 2018, with a view to it being completed by 2021.
The decision to employ LNG as an alternative energy source has been driven by a number of factors, one of which is its potential to cover the increasing mid-merit and peak demand that will require around 18,500 MW by 2040, according to the Philippine Energy Plan 2017-40.
Renewable Energy Projects
In addition to developing the nation’s first ever LNG terminal, renewable energy efforts have also been ramped up, with nine projects worth P26.7bn ($527.5m) approved in 2017. Of the nine approvals, four were hydropower projects, including the P3.5bn ($69.1m), 15.1-MW plant in Sarangani owned by local Alsons Power Group. Meanwhile, Repower Energy Development is building three hydropower facilities: the P1.6bn ($31.6m), 6.2-MW Katipunan River mini-hydropower plant in Bukidnon; the P1.1bn ($21.7m), 4.4-MW Tibag River plant in Quezon and the P2.1bn ($41.5m), 10-MW Pulangui IV facility in Bukidnon.
Other notable renewable energy projects include Ecopark Energy of Valenzuela, a 4.7-MW solar plant valued at P234.5m ($4.6m) in Valenzuela City, which will be connected to the grid through distributor Meralco and sell power to the local Wholesale Electricity Spot Market. Meanwhile, Ormoc Solar Energy is developing two solar plants. The first facility, valued at P6.6bn ($130.4m) with capacity of 100.8 MW, is located in Cavite and expected to be completed by the first quarter of 2019. The second, a 126-MW solar plant in Pagbilao worth P8.3bn ($164m), is set to begin operations in mid-2019.
There is congestion of solar projects in the capital, but according to Erel Narida, president and CEO of local firm One Renewable Energy, they can be spread out to other parts of the country. “Competition in Manila’s solar industry is fierce, while in Visayas and Mindanao areas there is still plenty of opportunities and growth for solar projects,” Narida told OBG.
South China Sea
In addition to LNG and renewable alternatives, the government has expressed its willingness to work alongside China to explore the oil and gas reserves located in the disputed South China Sea. After a meeting between the two nations in early 2018, both agreed to set up a framework to pursue joint exploration activities at the Reed Bank.
In 2004 a joint seismic study of the Reed Bank was undertaken by Vietnam, China and the Philippines; however, the tri-party deal never came to fruition and remains unresolved. Despite a lack of previous success in the area, the Philippine government is confident that the zone has the potential to fill the gap following the depletion of the Malampaya reserve, which is estimated to expire as early as 2024. While local company PXP Energy initially held the rights to drill in the area, a moratorium was issued by the government in 2014 to make way for international negotiations.
Supply Breakdown
According to the DoE’s 2017 annual report, energy supply – both domestic and imported – totalled 53.2m tonnes of oil equivalent (toe) in 2016, with renewable energy accounting for 37% of the total, followed by oil-based energy with 34.9%, coal with 22% and natural gas with 6.1%. Of the overall supply, 44.7% was imported, with oil, coal and biofuel imports accounting for 33.5%, 10.8% and 0.3%, respectively. Domestic sources contributed a share of 55.3%, equal to 29.4m toe, of which geothermal made up 17.9%, followed by biomass (14.1%), coal (11%), natural gas (6%), hydro (3.8%), oil (1%), biofuels (0.6%), and solar and wind (0.3%).
Roadmap
In an effort to bolster energy security and kick-start exploration and production activities, policymakers formulated the Upstream Oil and Gas Road Map 2017-40, which is a component of the Philippine Energy Plan 2017-40.
Over the medium term, between 2019 and 2022, petroleum reserves are expected to increase, with delineated oil projected to expand from 42.8m barrels to 78.7m barrels, while gas is set to increase from 3.1trn standard cu feet (scf) to 4.7trn scf and condensate from 30.3m barrels to 47.2m barrels.
To achieve these targets, there are plans to drill at five new sites: an oil field in Calubian, which has an estimated deposit of 20m barrels; two gas fields, one in Santa Monica, with an estimated 1.8trn scf, and one in North Cliffhead, with around 420m scf; and another two condensate fields in Santa Monica, with supply of 30m barrels.
Over the long term, between 2023 and 2040, the roadmap estimates petroleum reserves will continue rising, with delineated oil to reach 57.1m barrels, representing a 17% increase on 2022 projections, while gas is expected to hit 5.9trn scf, a hike of 25%, and condensate to reach 56.8m barrels, up 20%. Long-term plans require drilling to commence at the Salamanca and Popototan oil fields, with estimated reserves of 3.6m barrels and 20m barrels, respectively, the Santa Monica and RB-PO4 gas fields, with a combined total of 3.6trn scf, and New Gas Field B, with 40m barrels of associated condensate.
Current Standing
According to the 2017 World Energy Trilemma Index produced by the World Energy Council, the Philippines ranked 61st out of 125 countries in the category of energy security. While this mid-table ranking is fair given the current market dynamics, it is safe to assume it will improve in the near future on the back of several new conventional plants expected to be prioritised under Executive Order No. 30, together with plans to establish the Philippines as an LNG hub and the trend of renewable energy projects (see analysis).
While renewables will play an important role in the evolution of the power segment, criticisms over the reliability of supply will continue. Opponents of renewable energy will continue to lobby for conventional energy sources that can provide base load power, especially during peak demand. Meanwhile, proponents of renewables argue that they will push down the cost of electricity over the long run due to relatively low operation and maintenance costs.
