Securing PH’s energy future

Described as the largest deal in the energy sector in a decade, three of the country’s top tycoons have forged a mega $3.3-billion deal to launch the country’s “first and most expansive” liquefied natural gas (LNG) facility in Batangas province.

Under their agreement, Manuel V. Pangilinan and Sabin M. Aboitiz will buy into Ramon S. Ang’s San Miguel Global Power Holding Corp.’s (SMGP) 1,278-megawatt Ilijan gas-fired power plant and a new 1,320-MW facility slated for completion by the end of the year.

Then Meralco PowerGen Corp., Aboitiz Power Corp., and SMGP will buy nearly 100 percent of the LNG import and regasification terminal owned by Linseed Field Power Corp., a local unit of global infrastructure firm Atlantic, Gulf, and Pacific Co. that received the country’s first LNG cargo delivery in April 2023.

Major leap forward

According to the power giants, the facility will be used to receive, store, and process LNG—natural gas that has been cooled down to liquid form for ease and safety of storage or transport—for the two power plants that supply electricity to Luzon.

“For the first time, three leading power companies are working together to secure our country’s energy needs while transitioning toward cleaner power sources,” said Ang, describing the deal as “a major leap forward for our energy future.”

The Marcos administration has made it a policy to promote the use of LNG—deemed the “cleanest” fossil fuel—partly due to the declining natural gas supply from the Malampaya gas field off northwest Palawan. Its output has been dwindling since 2019, to the point that the Ilijan plant had to stop operations in June 2022 for lack of Malampaya gas. It only restarted operations in April 2023 with the arrival of the first LNG shipment.

Price volatility

Malampaya’s current reserves are projected to be depleted by 2027 but further exploration and drilling can be done for another 15 years.

There is no guarantee, however, that there will be enough reserves to fuel the existing gas-fired power plants producing more than 3,000 MW.

The Philippines has thus emerged as a new buyer for LNG in the spot market, exposing it to price volatility in the same way that it is already vulnerable to the fluctuations in crude oil prices that in turn dictate prices that Filipino consumers pay at the pump.

To recall, LNG prices spiked immediately following Russia’s invasion of Ukraine. Pressure is also coming from increased demand by nations who want to decarbonize their energy mix.

Volatile prices for LNG

As Shell chief executive officer Wael Sawan predicts, LNG “will play an even bigger role in the energy system of the future than it plays today,” not only because it can be easily transported but also because on average, “natural gas emits about 50 percent less carbon emissions than coal when used to produce electricity.”

This is particularly good news for the Philippines, where “dirty” coal accounts for a hefty 44 percent of installed power generating capacity. The government’s goal is to bring that share down and increase the share of renewable energy—geothermal, hydro, solar, wind, and biomass—from 22 percent to 50 percent by 2040.

But rising demand plus finite supply will lead to volatile prices for LNG.

As such, embracing LNG, which is expected to account for 26 percent of the energy mix by 2040, double the current 13 percent, will not automatically mean lower electricity bills, nor does it also ensure reliable supply given that the Philippines will compete for the same LNG as the rest of the world.

As BMI, a FitchSolutions company, stressed, “If the Philippines fails to increase domestic gas production, this could end the era of cheap gas for Philippines’ power producers as they transition from piped gas to LNG-fired power generation.”

Ultimate goal

Nevertheless, its smaller carbon footprint makes the use of LNG an ideal fit into the grander ambition of the Philippines to slash its greenhouse gas emissions by 70 percent by 2030. Plus, its higher reliability over renewables that tend to be intermittent and subject to weather conditions make it an ideal “transition” fuel into a greener energy future.

“Its importance in keeping the lights on cannot be understated,” said AboitizPower president and CEO Emmanuel Rubio.

The Department of Energy predicts that the Philippines with its over 110 million people must increase its installed power capacity by more than five times to 114,601 MW by 2040 and the massive deal among the three groups will help ensure that this demand will be met.

Indeed, such a “pathbreaking venture” and what it represents in terms of energy diversification should be lauded.

But the government should at the same time not lose sight of its ultimate goal, which is to ramp up indigenous renewable energy resources—of which the Philippines has plenty—to achieve the overlapping goals of securing supply, keeping costs down, and reducing carbon emissions at the same time.