Philippines tries again to build operational $2bn LNG project

The Philippines’ first liquefied natural gas (LNG) import facility could be on track again after Phoenix Partners said it was in talks about a “strategic alliance” with the Philippine National Oil Company (PNOC). The news came a few weeks after state-owned PNOC said it had abandoned plans to find a partner for the scheme to handle LNG because of the potential delay caused by the need to win Congress approval. Phoenix now says a Memorandum of Understanding could be signed with PNOC on the $2bn scheme soon.

On Thursday, news broke (again) that the Philippines is trying to build its first operational liquefied natural gas (LNG) project. Manila-based Phoenix Petroleum said it was in talks with state-owned Philippine National Oil Company (PNOC) for a “strategic alliance” on its proposed $2 billion LNG hub.

Phoenix said in a statement that a Memorandum of Understanding (MoU) could be signed with PNOC in the coming weeks. The company added that the alliance with PNOC could involve pipeline infrastructure, PNOC’s share of Malampaya gas, equity, and marketing opportunities. Philippine Energy Secretary Alfonso Cusi said that PNOC “was approached by some potential investors for a possible 10-15 percent participating interest” in an LNG project, but he gave no further details, Reuters reported. Cusi is also the board PNOC board chairman. “We just have to wait for further developments,” he added.

Phoenix has already indicated that it plans to break ground sometime this year on a 2.2 million ton per annum (mtpa) LNG terminal in Batangas province, just south of Manila, the capital. Commercial operations have targeted to start by 2023. The facility will also include a 2,000-megawatt power plant component.

The disclosure comes just a few weeks after PNOC said it had terminated its selection of a joint venture partner for its proposed LNG hub in the country, formally ending its bid to spearhead what could have been a state-led facility for the imported LNG. The problem, according to Cusi at the time, is that the proposed project could not be started immediately because PNOC had to do initial studies and prepare the budget that will be presented to Congress for approval. “I said, we’ve been in this for two years. I said, had that been started, if that had broken ground, maybe next month we’d be operating the first power plant. Until now we’re still in the drawing board,” he said. Related: A Big Week For Oil Bulls

Resurrecting LNG ambitions

Now, apparently, the situation has changed amid fresh talks between Phoenix, a retail fuel supplier, and PNOC. However, as I’ve reported several times before this could be just another rehashing of preliminary talks that lead to no tangible decision or agreement to put up the Philippines’ first LNG import terminal. The problem for the Philippines is that its offshore Malampaya natural gas field, operated by Shell, and the main source of natural gas for Luzon, the country’s main island and its most populated, including Manila with 20 plus million people, will run out in less than five years, according to Philippine DOE estimates. Unless the Philippines acts and acts soon, it will run out of gas and have to turn to dirtier-burning coal for power production to offset the loss of gas from Malampaya.

The DOE, for its part, has long been pushing for the country to turn away from over-reliance on coal, but at the end of the day, the DOE has no statutory power to enforce its plans, it can merely advise. Even if the impending, not yet signed, MoU is reached between Phoenix and PNOC it’s a long shot for a project to be built due to the country’s history of governmental indecision, inefficiency, and corruption, while provincial politicians also often demand financial kickbacks to approve projects, even projects that have the backing of the power base in Manila.

However, given the most optimistic scenario for the Philippines, if it can push through and have an operational LNG import terminal before 2024, it will find an LNG market in Asia still rife with ample supply, particularly from Australia, the U.S. and Qatar since the three producers will be jockeying for the slot of top LNG export leader. It’s also likely that most of the supply for the Philippines’ first LNG import terminal would rely heavily on procurement from the spot market in Asia, which offers liquidity and less restrictive terms that long-term off-take agreements.

By Tim Daiss for Oilprice.com

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