‘Local LNG sector to grapple with high prices, uncertainty’

BY LENIE LECTURA – SEPTEMBER 26, 2022
from Business Mirror

The Institute for Energy Economics and Financial Analysis (IEEFA) has warned that the Philippines risks becoming significantly exposed to the extreme volatility of global liquefied natural gas (LNG) markets.

Sam Reynolds, Energy Finance Analyst at IEEFA, said in his latest report that even if the two LNG projects of First Gen Corp. and Singapore-headquartered Atlantic Gulf & Pacific (AG&P) are brought online next year, the Philippines may grapple with supply uncertainty and high prices for years to come.

“With such a large pipeline of proposed LNG projects, the Philippines risks becoming significantly exposed to the extreme volatility of global LNG markets,” he said.

The Philippines is turning to LNG imports to compensate for declining production from the Malampaya gas field, adding urgency to the development of LNG infrastructure.

Natural gas currently provides about 25 percent of power generation to the Luzon grid. Estimates range from 2 to 5 million tons of LNG per year to continue running the country’s five existing gas-fired power plants.

However, the total capacity of proposed LNG projects far exceeds what is needed, IEEFA noted. There are projects with a combined capacity of 36.5 million tons per year at various stages of development, along with 29.9 gigawatts of additional gas-fired power projects.

IEEFA has recently flagged the risk that unaffordable prices could cause LNG facilities in emerging markets to go underutilized.

“For perspective, compare the high costs of imported coal to current LNG prices. The Philippines’s high dependence on imported coal is one of the key reasons that power prices are among the highest in the region. Coal prices are now around $430/ton, 100 percent higher than this time last year.

LNG prices are even higher. The cost of LNG is roughly three times the current price of coal a per-unit of energy basis. This means that a transition from one volatile, expensive import fuel (coal) to another (LNG) is unlikely to reduce power bills for Filipino end-users,” IEEFA said.

IEEFA observed that the Philippines has not yet signed any long-term contracts for LNG supplies. And given tightness in the global market, contracts with existing LNG supply facilities are challenging to come by.

Unless companies in the Philippines have already secured access to low-cost LNG, they may be forced to shell out exorbitant sums–about $145 million per shipment–for LNG supplies.

“LNG expansion in the Philippines should be viewed with intense skepticism and caution. Although pitched as a reliable, affordable ‘bridge fuel’ to transition from coal, LNG is inherently volatile and expensive. This is true especially when compared to the declining costs of domestically-sourced renewable energy technologies, which do not require recurring fuel payments.

As such, the transition to renewable energy sources—not the replacement of one imported coal for LNG–offers the greatest potential for reducing household electricity bills and boosting economic growth in the Philippines,” said Reynolds.