First Gen opts for ‘flexibility’ in LNG supply contracting

Published September 25, 2019, 10:00 PM By Myrna M. Velasco

https://business.mb.com.ph/2019/09/25/first-gen-opts-for-flexibility-in-lng-supply-contracting/

Lopez-owned First Gen Corporation is opting for flexibility in the pricing as well as volume procurement terms in the liquefied natural gas (LNG) contracts that it will be firming up with global suppliers.

In a briefing with reporters, First Gen Executive Vice President Jon Russell indicated that the company will be having two-track contracting on its LNG supply needs: One will be for its floating storage regasification unit (FSRU) that it targets to bring on commercial stream by year 2021; and the next one will be for its onshore LNG terminal which will be its longer term solution in sustaining the fuel needs of its gas-fired power fleets in Batangas.

The company executive said they are in discussions with about 20 LNG suppliers – mostly of multinational stature and the biggest as well as the most credentialed gas suppliers in the world – the likes of Royal Dutch Shell plc, Chevron, Exxon, BP and Total.

“We’re in separate discussion for long term which is 2024 onwards; and also the short term if we execute that plan of bringing in FSRU. We may even look at bringing in LNG early for the periods 2021 to 2024,” he said.

Russell qualified though that the LNG contracting part of the overall chain of their project implementation has not been decided yet – and in the negotiation processes they have been holding with suppliers, the company is on the lookout for “flexibility” that each supplier would be able to offer.

“So what we will value is flexibility in the supply. We want to get the most flexible terms, not just the lowest price but one with flexibility. Because moving forward, the role of natural gas will be in a flexible mode to support the introduction of what they call intermittent renewables,” the First Gen executive explained.

He further stressed that the LNG import facility to be spearheaded by First Gen and its partner Tokyo Gas Co. Ltd. will “need LNG contracts to be supportive of that kind of role and operations.”

Russell added “we don’t know yet which one will be the best source of LNG for the Philippines. But whichever one it would be, it has to recognize that the Philippines is different and other parts of the world is not like selling LNG to Japan,” with him inferring that the chosen LNG supplier must factor in the intricacies and the unique characteristics the Philippine energy sector posits.

The terms of LNG procurements being pondered upon, he said, could either be spot sourcing, short-term and long-term contracts or a combination of all.

“In the short term, we would definitely look at both – we look at essentially spot from time to time; then maybe a short-term contract with one or more suppliers,” Russell expounded.

For the long-term contracts that may be tailor-fitted to the needs of its onshore LNG terminal, the First Gen executive indicated that the duration could be a stretch to seven to 15 years.