DoE preparing LNG plan B if no private investors emerge

By Victor V. Saulon – July 11, 2018
From Business World

THE Energy department said it needs to boost its capability to undertake on its own the proposed integrated liquefied natural gas (LNG) import terminal as an energy crisis might ensue if no private investor comes forward to handle the billion-dollar project.

“We need to find a way to do it. If no third-party private investor wants to come in, then you have a looming energy crisis within the next two to three years,” Leonido J. Pulido III, assistant secretary at the Department of Energy (DoE), told reporters in a chance interview during the 6^th Philippine Electric Vehicle Summit at the SMX Convention Center, Mall of Asia Complex, in Pasay City.

He said the LNG project is not the only initiative at stake but the supply of energy to the power plants that require the fossil fuel. At present, the country’s natural gas supply comes from the Malampaya gas field off the coast of Palawan province.

Five gas-fired power plants in Batangas province, with a combined capacity of 3,211 megawatts (MW), are the main customers of the fuel source, which is expected to be depleted by 2022 to 2024. That capacity is close a third of Luzon’s peak power demand.

“Remember, it’s 3,200 MW for LNG and you have to take into consideration the price of fuel will most likely increase within the next two to three years because of IMO 2020,” he said. IMO 2020 is an initiative to switch ships over to cleaner fuels, putting pressure on LNG supply.

The International Maritime Organization (IMO) issued a directive setting a global limit for sulfur in fuel oil used on board ships of 0.50% mass by mass from Jan. 1, 2020. IMO is a specialized agency of the United Nations that regulates shipping.

In its website, the IMO said the move “will significantly reduce the amount of sulfur oxide emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts.”

Mr. Pulido said the shift will have significant effects on the demand and supply of gas oil.

“Most ships right now are using fuel oil — what we call RFO (residual fuel oil) bunker oil, which is the poorer quality, dirtier oil. And if most of these countries will comply, and it would seem that they would, then if you shift from fuel oil to gas oil, the demand and supply dynamics in the world for diesel is going to affect everybody,” he said.

He said the shift would also affect the cost of commodities, especially those being shipped, as traders bearing the impact of rising operating and capital expenses have to recover by jacking up prices.

“A lot of countries are bracing for the potential impact of IMO 2020,” he said.

Mr. Pulido said although 13 or 14 private companies have come forward to express their interest in the project, none has so far submitted a formal proposal.

“I think we’re going to be needing a law where the government can come in and be proactive because we have no guarantees that the private sector would be willing to make a risk for us,” he said.

“We cannot force them to invest,” he added.

Mr. Pulido said he had sought a meeting with Senator Sherwin T. Gatchalian, the Senate energy committee chairman, on certain revisions he would want to propose on the pending legislation covering natural gas.

“Any law being considered by the Senate should have a provision for the government being able to step in,” he said, although he added that he is “very confident” that one or two companies will formally apply to undertake the project.

He placed the cost of the project at roughly $1.5 billion. He said if not an LNG project, the government should have options in place to address the energy supply for the gas-fired power plants such as a floating storage regasification unit or a short-term supply contract with a neighboring LNG importer.

“It’s faster and cheaper to have any of these options than to build new power plants to capture, or to shoulder the loss of the 3,200 MW that are dependent on Malampaya’s LNG,” he said.