DOE endorses approval of NTP for US firm’s LNG project

Published August 18, 2019, 10:00 PMBy Myrna M. Velasco

https://business.mb.com.ph/2019/08/18/doe-endorses-approval-of-ntp-for-us-firms-lng-project/

The Centralized Review and Evaluation Committee (C-REC) of the Department of Energy (DOE)has endorsed the issuance of a notice-to-proceed (NTP) for the proposed floating storage regasification unit (FSRU) of American firm Excelerate Energy.

According to Energy Undersecretary Donato D. Marcos, the NTP for the liquefied natural gas (LNG) project of the Texas-headquartered company has already been forwarded to Energy Secretary Alfonso G. Cusi for his signing and for the eventual release of the company’s permit to pursue the venture.

“They have six months to prove themselves,” the energy official said, adding that the DOE weighed their decision on the fact that Excelerate Energy is touted as the pioneer of FSRU solutions in the global LNG sector.

The US firm has been in discussions for further project developments at the Ilijan gas-fired facility in Batangas, which in 2022 will already be turned over to South Premiere Power Corporation, a subsidiary of San Miguel Corporation.

San Miguel has indicated that it is targeting to expand the Ilijan plant by additional 1,200 megawatts when the facility is already placed under its charge. The plant currently has 1,200MW capacity – so it entails then that its installed capacity will be doubled. The scale of investments penciled in for the Ilijan plant expansion had been at $1.0 billion to $1.2 billion.

The country’s foremost argument into pursuing the LNG option in the country’s energy mix 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.

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.

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. But for a typhoon-stricken country like the Philippines, questions are still raised on the reliability and viability of FSRU solutions.

On a wider vantage point of the country’s energy mix though, gas is still having tough time dislodging coal in the energy mix. 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.

Concerns like 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.

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.