ERC weighs rate hike impact of expiring Malampaya contracts

BY MYRNA M. VELASCO – Mar 17, 2023 1:53 PM
from Manila Bulletin

The Energy Regulatory Commission (ERC) indicated that it will be studying the probable rate hikes or cost impact that consumers will have to brace for; once all the gas sale and purchase agreements (GSPAs) for the Malampaya gas field project will expire by next year.

ERC Chairperson Monalisa C. Dimalanta noted that with the expiration of the initial 25-year Service Contract (SC) 38 of the Malampaya gas field venture by February next year, the power plants are anticipated to shift to imported liquefied natural (LNG) and that is seen to be a more expensive option if compared to the indigenous gas being extracted from the commercially producing field of the country.

“We will be losing that benefit once Malampaya supply ceases; and the plants will shift to LNG – so that’s what the ERC has been keenly watching – how do we manage, how do we mitigate that exposure of consumers to the volatility of another imported resource,” the chief regulator stressed.

Currently, the GSPAs of Malampaya are with the various gas plants of First Gen Corporation – namely the 1,000-megawatt Santa Rita; 500MW San Lorenzo; 414MW San Gabriel and 97MW Avion plants. By February next year, however, all of these gas supply contracts will already lapse.

To prepare for that eventuality, the Lopez-led First Gen has already built its LNG import facility and that is anticipated to start its commercial operations by the middle of this year.

Dimalanta stated “the gas contracts will already expire, so there’s no more resource coming from the reservoir. And even if the license for the operator is extended, they may need to invest first to expand the area of operations and get more supply.”

She added “from the timeframe of putting in fresh investment to the time when new gas production will materialize, that will take time.”

It is within that precept, the ERC chief emphasized, that DOE has lined up LNG as the ‘bridge fuel’; while the country has yet to ascertain if there’s really additional gas that can still be lifted from the Malampaya field.

Dimalanta expounded that the differentiating advantage of Malampaya gas is that: there’s no logistics cost involved for importation; and there are no import duties factored in also in the final cost of the commodity because these are sourced within country.

Nevertheless, Malampaya gas is still exposed to volatility of global fuel prices, because its pricing is indexed on Dubai crude and there is also reference rate set on foreign exchange movements.