Published November 5, 2017, 10:00 PM
By Myrna M. Velasco
The Philippines gets deeper into its
liquefied natural gas (LNG) infrastructure development plans, but policy
framers and energy planners are being prodded on the need for extensive discernment
on how they would eventually deal with pricing and contracting concerns for
this metamorphosing industry.
By far, the only pronouncement from
Energy Secretary Alfonso G. Cusi is the country’s chance into joining the tide
of evolution in the gas sector and the energy department’s excitement of what
it deems as cheaper gas prices due to re-configuration in LNG contracting.
“We need to think of how we can ride
this LNG wave to ensure that we can safeguard our energy security,” the energy
chief said.
The country’s foremost argument into
taking up the LNG option is the anticipated depletion and contract lapse of its
only commercial gas field, the Malampaya project which will wind down in 2024.
But this early, the DOE is flagged
to seriously assess key concerns that it may eventually discover baffling in
the constantly transforming world of the gas sector – such as the increasing
flexibility of technology deployments as well as on the sphere of contracting.
For one, as gas is still having
tough time dislodging coal in the energy mix, global industry players have been
dangling “modularization of infrastructure” and flexibility in contracting
terms as the viable business strategies to push LNG into the competitive realm
of the energy sector.
Additionally, price review and
“exit” or termination clauses are also becoming mandatory provisions in
often-elaborate gas sale and purchase agreements (GSPAs) or contracts for the
buying and selling of liquefied natural gas – these too, it was noted, would
need extensive study and re-assessments.
Industry players reckoned that there
shall be some feasible ways for gas or LNG to compete in the marketplace – and
it thrives mainly on the concept of flexibility – be it on facility development
or on the commercial terms of the contracts.
Modularization or “building it
small” for LNG has been “lowering construction costs and it has been prompting
real shift in the cost curve. In fact, most of the cost-competitive next wave
of LNG developments are using modularize construction and smaller liquefaction
trains.
Floating storage and regasification
units (FSRUs) are seen as the technology fix that could provide significant
flexibility in project developments, serving growing and seasonal markets and
can even be deployed as a temporary solution while permanent land-based gas
facilities are being constructed. In many markets, FSRU installations are seen
completed and be operational in a span of 6-12 months.
On LNG supply contracting, market
players noted that “flexibility” is also key for project developers initially
navigating a terrain for short-term contracts but they must also have
strategies to eventually replace them with long-term contracts.
Experienced LNG buyers know that new
supply projects don’t get built without long-term contracts to support them,
hence, the savvy gas purchasers pursue strategies of rationing the long-term
portion of their portfolio for greenfield supply contracts, while they sign
shorter term contracts with portfolio players and legacy supply projects undergo
renewal.
As noted by industry experts, there
are multiple ways of doing this and it just requires a new approach –
especially so since in a well-supplied market, there is tendency for sellers to
compete aggressively on price even at the cost of a risk-adjusted negative
return. But such has not been seen sustainable because ultimately, operational
and credit risk factors need to be accounted for, it is for this reason that
sellers in this market-transforming environment need to figure out ways to
compete more than just on price.
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