Business World Online
Posted on 07:06 PM, August 28, 2014
By Claire-Ann M. C. Feliciano, Senior Reporter
AMID THREATS of a supply shortfall in Luzon by the summer of next year, the government continues to look for other sources of power. By this time, it’s too late to start building base load power plants -- or those that run 24 hours a day, seven days a week, save for maintenance shutdowns that usually last a month.
Clearly, there’s no way but to look for alternative measures. Energy Secretary Carlos Jericho L. Petilla has been pushing for the government to invoke the power crisis provision of Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001.
This provision will allow the government to lease additional power-generating capacities -- such as diesel-fed generating sets -- whenever the Luzon grid is on red alert.
The saga continues -- the government looking for ways, stakeholders supporting or bucking plans laid out by the department, even as they urge the government to find a more permanent solution.
But no concrete plan has yet really been put in place. If this is not acted upon within the year, the country might face massive rotating power interruptions, which will result in economic losses every single time the lights go out.
In an interview with BusinessWorld, Mr. Petilla said power problems can be traced to the lack of reliable base load power plants. The government is urging the development of coal-fired power plants, but some projects have been blocked thanks to environmental concerns.
What else do we have?
Francis Giles B. Puno, president of First Gen Corp., said the construction of natural gas-fired power plants is the way to move forward.
“What’s happening is that it’s very difficult to build power plants. We need to find sources of electricity. We can build gas-fired plants quicker than coal-fired plants,” Mr. Puno told BusinessWorld recently.
“That’s something we can offer to the government. This is a relatively cost-competitive source of electricity and it’s very reliable,” he added.
First Gen owns and operates the 1,000-megawatt (MW) Santa Rita and 500-MW San Lorenzo power plants in Batangas. It is also building the 100-MW Avion plant and the 414-MW San Gabriel plant, set to be operational by 2015 and 2016, respectively.
By 2019, the Lopez-led company aims to bring in an additional 1,342-MW capacity through natural gas facilities.
RUNNING OUT OF GAS
This plan is expected to boost the power supply in the Luzon grid, but the country faces yet another challenge -- the gas coming from the Malampaya gas field off Palawan is projected to run out in about 10 years.
The resource area currently fuels First Gen’s existing plants, as well as the 1,200-MW Ilijan natural gas facility, also in Batangas.
Mr. Petilla acknowledges the depleting reserves within the only producing natural-gas field in the Philippines.
With no replacement deposits in sight, the Philippines will have to rely on Pilipinas Shell Petroleum Corp. and First Gen to import liquefied natural gas (LNG) from other countries.
Does the future of natural gas in the country depend on the private sector? The Energy chief thinks that, at least in the medium term, the government has no other choice.
Service Contract (SC) 28 -- which lapses in 2024 -- is handled by the Malampaya consortium composed of Shell Philippines Exploration BV, Chevron Malampaya LLC, and PNOC-Exploration Corp.
“When it ends, it doesn’t mean that there will be no more natural gas.
The estimation on the reserves are ongoing and it keeps on changing,” went Mr. Petilla’s optimistic outlook.
“Latest figures show that after 2024, there will be a few more years -- maximum is five -- that the Malampaya reserves could still produce gas to power the 2,700-MW power plants that run on gas,” he said.
Even before the contract was awarded to the consortium, it was common knowledge that the reserves would be depleted as the years passed.
“When Shell submitted its field development plan for Malampaya to the national government in 1998, we already projected the need for further development phases to maintain plateau production and meet the obligations under the GSPAs (gas supply purchase agreement) with gas customers,” said Shell Upstream communications manager Paulo B. Gavino.
The consortium allotted $1 billion to undertake Malampaya phase 2 (MP2) and phase 3 development (MP3) to maximize the gas field.
“MP2 and MP3 in combination will sustain the level of gas being extracted from the Malampaya reservoir for electricity production, as such maximizing Malampaya’s value in providing reliable supply of cleaner energy to power the country’s growth,” Mr. Gavino said.
BRINGING IN THE GAS
With the inevitable future of the Malampaya gas field, Mr. Gavino said “more investment in petroleum exploration and production is vital to the future energy security of the Philippines.”
“Shell is working with DoE (Department of Energy and the Petroleum Association of the Philippines (PAP) to promote ease of doing business, and to address regulatory issues that hamper the development of the upstream petroleum industry,” Mr. Gavino said.
“A stable and transparent regulatory framework will help attract investments to the Philippines,” he added.
But where do we go after we max out the gas field’s capability? Mr. Petilla said the Philippines will bank on the private sector and its eagerness to put up LNG import facilities to support the natural gas industry.
“Shell is interested in power plants that would serve as off-taker of its gas. The floating regasifier has a potential to support up to 400 MW,” Mr. Petilla said.
“On the other hand, First Gen is preparing for the eventuality that Malampaya gas will run out so they want to come up with their own regasifier, which will be land-based. They don’t need an off-taker because theirs will be used to support their own plants,” Mr. Petilla said.
Pilipinas Shell Petroleum Corp. is still awaiting the final investment decision on its LNG import terminal in Batangas. Country manager Edgar O. Chua earlier said this will come from the parent company, Royal Dutch Shell Plc. “Final investment decision will be dependent on when we can secure the contracts for the off-takers. If we complete that within this year -- which is what we are working on -- then we can get the final investment decision next year,” Mr. Chua said.
Shell intends to build an LNG import facility -- which involves a floating storage and regasification unit -- near its oil refinery in Tabangao, Batangas.
Shell officials said it will take two to three years from the final investment decision before the project becomes operational.
The planned import facility will have a 170,000-cubic meter capacity. It will be capable of fueling power plants generating a total of 2,000 megawatts.
As part of its plan to continue investing in natural-gas facilities, First Gen is also eyeing its own import terminal in its Batangas plant site.
“Many companies have their own programs to ensure that natural gas will come into the country. Many plans are pushing at the same time,” Mr. Puno said. “We are also trying to develop an LNG import terminal, which will be conveniently situated adjacent to its anchor power projects, ensuring synergies in both power plants and LNG terminal operators.”
First Gen is in discussion with suppliers for the replacement gas that will be used by its facilities once Malampaya runs out, Mr. Puno said.
NO MASTER PLAN
Yet despite the private sector’s willingness to support the natural gas industry, the Energy department has yet to come up with a study that would determine the cost impact of producing electricity from indigenous natural gas versus imported gas.
“It is difficult to come up with a computation. Also, we still don’t have a regulatory framework at this time,” Mr. Petilla said.
He said the department is working on a master plan on developing the country’s natural gas industry.
“The contents of that plan include how we can encourage the development of LNG in this country. It will also have details on who will sell this and at what cost,” Mr. Petilla said.
Mr. Petilla admitted that the country has “limited direction” as far as natural gas is concerned.
“I am looking at where we are going because there is no specific policy focusing on natural gas,” he said.
The private sector has been prodding the government to develop this master plan so the industry can spur interest in developing the indigenous resource.
“The country has been blessed with a lot of indigenous resources. We suggest that the government create a one-stop shop for investments in the gas industry. Also, they should establish a gas quality standard, and provide tax incentives,” Shell’s Mr. Chua said.
For Kit Chan, manager of Shell Global Solutions’ Energy Master Planning, considerations in order to develop a master plan involve government policies, internal and external factors, gas supply, infrastructure, and regulatory framework.
“Government policies are needed and these policies include specific objectives and a regulatory framework,” Mr. Chan said in a recent forum.
“We should also consider external factors like global and regional economic conditions, oil and gas prices, oil and gas developments in other countries, and new discoveries of hydrocarbons,” he said.
Internal factors include population growth, and the development of the country’s politics and economy, he noted.
Amid all these things, the country’s Energy chief acknowledges the threat of a power supply shortage and the imperative to move forward and start developing projects that will meet the ever-growing energy demand. source
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