by Myrna Velasco August 9, 2016
The Aboitiz conglomerate is
currently in initial discussions with prospective partners on its planned foray
into gas-fired power projects.
Several companies into the gas
business have approached the Aboitiz Power Group seeking a tie up on potential
investments that may also integrate a liquefied natural gas (LNG) terminal.
Aboitiz Power Chief Executive
Erramon I. Aboitiz acknowledged that there are ‘ongoing talks,” yet he
qualified that they are still trying to get their grasp on the dynamics of the
evolving gas industry in the country.
“We are trying to understand LNG and
we have had discussions with several parties,” Aboitiz has noted.
Among those reported to have carried
out preliminary talks with Aboitiz Power had been multinational firm Royal
Dutch Shell plc; and the affiliate of Thai oil firm PTT.
The initial pronouncement of the
company relating to future gas projects would be for the government to take the
lead on the establishment of the LNG handling facility; and the private sector
coughing up the capital for the downstream facilities, like off-taker power
plant projects.
Philippine industry players still
have major concerns about LNG investments, fundamentally on pricing
arrangements in the contracts and the overall guiding regulatory and policy
frameworks for the nascent sector.
In international gas markets,
discussions are being centered on price review and ‘exit’ or termination
clauses being mandatory provisions now in often elaborate 150-page plus gas
sale and purchase agreements (GSPAs) or contracts for the buying and selling of
liquefied natural gas.
Global players have been pondering
on that “exit clauses in contracts” are imperative especially if prevailing
market conditions are no longer favorable to either party. “It’s like a
marriage that isn’t working…you risk killing one of the partners in case of
default, so this is an important parameter,” Stephane Caudron, head of LNG of
European trading firm Gunvor, has noted in a gas market discussion at an energy
conference this year.
Listing the events of default,
Caudron emphasized, will be highly necessary in the contracts because that
could set the ‘call’ for the termination of the deal.
“The list of ‘events of default’ is
important because you can suspend deliveries, or if there is a risk – you can
suspend off-take…and if the event of default is not cured within a certain
period of time, then you can terminate the contract – so there are needs for
exit clauses in the contract,” he stressed.
LNG contracts are often negotiated
on five core parameters. Aside from events of default and price as well as
price review, the other barometers would be on: flexibilities, scope of
liabilities; and credit support.
“On credit support, if for some
reason, the buyer decides not to take the gas anymore, then what is the
instrument that can be used to compensate the seller? So this is a form of
performance guarantee,” Caudron explained.
Royal Dutch Shell Global Gas Vice
President Roger Bounds indicated that pricing, especially for the Asian market,
which is considerably less defined compared to other regions of the world, is
still one of the industry’s “big questions.”
The Shell executive emphasized that
both market buyers and sellers would have to be very wary of how to assess the
market, not only from commercial standpoint but how technology will influence
market dynamics 10 to 20 years down the road.
Government policies are also being
pushed into the equation. In particular, Bounds asserted “if the world becomes
more conscious of the CO2 (carbon dioxide) emissions, then that shall be priced
into energy systems.”
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