The Philippines: Stepping on the gas

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New offshore natural gas deposits are set to vastly expand the Philippines’ hydrocarbons reserves at a time when demand at home is on the increase. The country has proven natural gas reserves of 108.7bn cu metres, ranking it 51st in the world, with annual production of around 3bn cu metres. While this is sufficient to meet current demand, with the economy expanding and demand for electricity on the rise, calls on domestic gas reserves are expected to increase in the coming years.

The Philippines should be able to answer this growing demand, and develop into a gas exporter should it wish, with a number of new fields expected to come on-line over the next decade. However, developing what are potentially the richest of these deposits could embroil the country in a diplomatic dispute with some of its neighbours.

The Philippines has laid claim to a large swathe of water around the Spratly Islands in the West Philippine/South China Sea. Though the archipelago that makes up the Spratlys is relatively small, ownership of the islands would give exploration rights over thousands of sq km of seabed that are believed to be rich in hydrocarbons.

Conservative estimates based on initial exploratory work put gas reserves in the area at around 96bn cu metres and oil at 440m barrels. This would almost double the Philippines’ existing reserves.

China has claimed most of the Spratlys group, including the area deemed by Manila to be Philippine territory. Other countries in the region have also laid claim to some of the island chain, including Vietnam, Brunei and Taiwan, but China appears to be rigid in its position of near total ownership.

Despite this, the Philippines is pushing ahead with opening up the Spratlys for gas and oil production. At the beginning of August the government announced it would call for bids next year to develop two of the fields in the Spratlys, along with additional plans to offer 13 other oil exploration projects to foreign investors. In total, up to $7.5bn could be invested in the exploration and development of the 15 fields, according to the government, though how much of this would be dedicated to the two fields in the Spratlys is unclear.

The announcement prompted criticism from China, with warnings that the plans were a dangerous misjudgement. In response, the Philippines’ foreign affairs secretary, Albert Del Rosario, issued a statement in August saying that the country was within its rights to lay claim to the area and develop its resources.

“We maintain that what is ours is ours and are prepared to validate our position in accordance with international law, specifically the UN Convention on the Law of the Sea,” he said.

At least two Chinese firms have expressed interest in bidding on some of the blocks off the Spratlys that the Philippines has announced, a move taken by some Philippine officials, including the energy secretary, Jose Rene Almendras, as de facto recognition of the Philippines’ territorial claims. “I guess it is their decision to bid and that they recognise that these areas are within Philippine territory,” he told local media in early August. “So I don’t think there’s a question on their side as to who owns the area.”

Far less controversial is the Philippines’ claim to 130,000 sq km of territorial waters above an undersea region called Benham Rise, in the Philippine Sea to the east of Luzon. Manila’s claim, which has not been challenged, is currently with the UN and is based on studies that show the area to be part of the Philippine continental shelf. Preliminary studies have suggested the existence of extensive deposits of methane gas, though their extent has not yet been determined.

According to Ramon Paje, the secretary of the Department of Environment and Natural Resources, the UN is expected to rule on Manila’s claim next year. “They intend to pass a resolution sometime in mid-2012 to approve our claim that it is part of the Philippine continental shelf,” Paje said in August.

If the Benham Rise claim is ratified, it would open up even more opportunities for foreign firms to survey and develop gas fields in the area, and for the Philippines to increase production, possibly even to the point where it could become an exporter.

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