The future of Malampaya

Service Contract No. 38 (SC 38) covering the Malampaya gas field, granted by the Philippine government to the Shell-Chevron consortium in December 1990 and now 90 percent owned by UC Malampaya of Davao-based businessman Dennis Uy, will expire in December 2024. Upon such expiry, all the fixed assets of the Service Contract holder, presently valued at US$4.5 billion, will belong solely to the Philippine government under the terms of the Service Contract. These assets include the critical gas pipeline from Malampaya to Batangas.

Dennis Uy wants the Department of Energy (DOE) to extend SC 38 since the existing producing wells will last another three to five years after December 2024. There are also promising gas reserves around the periphery of the Malampaya gas field that could be exploited as new wells to produce commercial quantity of gas for several more years. The extension of SC 38 does not automatically give UC Malampaya any right to the Malampaya gas pipeline or other fixed assets that will be fully owned by the Philippine government by December 2024.

However, if the DOE extends now SC 38, Dennis Uy’s UC Malampaya will be the only bidder for the gas pipeline and other fixed assets owned by the government in Malampaya. No other party will bid for such assets since UC Malampaya will have exclusive rights to the Malampaya gas field under an extended Service Contract. Clearly, the Philippine government must bid out an extended SC 38 together with its fixed assets in Malampaya, including the gas pipeline. Otherwise, all these fixed assets will be acquired for a song by UC Malampaya if it is granted a Service Contract extension ahead of the bidding of such fixed assets.

The Malampaya gas field supplies up to 40 percent of the energy requirement of Luzon. Without the Malampaya gas, Luzon will suffer from 12 to 14 hours of rotating brownouts every day. Factories, malls, schools, and offices will have to close. Employees cannot even work from home since there will be no power for the internet. This will be worse than COVID-19. The DOE must now bid out an extended SC 38, together with all the fixed Malampaya assets that the government will own by December 2024, to prevent a debilitating blow to our economy.

The Malampaya fixed assets, in particular the gas pipeline, are inextricably linked to the commercialization of the Reed Bank gas field situated less than 100 kilometers from Malampaya. Whoever owns the Malampaya gas pipeline has a leg up in the commercialization of the Reed Bank gas since the same pipeline will be used to deliver gas to Batangas. All that is needed is a connecting pipeline from Reed Bank to Malampaya. If UC Malampaya acquires the Malampaya gas pipeline, it could, together with its partner China National Offshore Oil Company (CNOOC), buy out the stockholders of Forum Energy, the holder of SC 72 covering the Reed Bank gas field. Dennis Uy and CNOOC had earlier announced a partnership to develop a Liquified Natural Gas terminal in Batangas.

This brings us to the geopolitics of the West Philippine Sea. President Duterte’s advisers had previously entertained the idea of allowing Forum Energy to seek a Service Contract from China over the Reed Bank so that China would stop blocking Forum Energy from extracting the gas in Reed Bank. This is a traitorous sell-out of the Arbitral Award since any Service Contract granted by China to Forum Energy over Reed Bank would recognize that China has sovereign economic rights over Reed Bank, which is within our exclusive economic zone in the West Philippine Sea.

To prevent such a possible sell-out, the DOE must expressly write in any extended SC 38, and in all existing and future Service Contracts issued by the Philippine government, that the grantee or holder of the Service Contract cannot accept any service contract from any foreign government over the same area. Any violation of this condition should render the Service Contract automatically void. This will put an end to any scheme to sell or barter away our exclusive sovereign economic rights in the West Philippine Sea. In the remaining eight months of the Duterte administration, we must all be vigilant against any attempt to diminish or waive the Arbitral Award.

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