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LNG as transition fuel offers opportunities, lower costs

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By Keren Concepcion G. Valmonte, Reporter

COMPANIES are supporting the Energy department’s initiative of looking into liquefied natural gas (LNG) terminal projects as one of the opportunities to source power for the country.

The country’s Energy department estimated that the Malampaya gas-to-power project, the country’s sole provider of natural gas to power around 20% of the country’s needs and 40% of Luzon’s, will be depleted by 2027.

The department is now exploring other options for sourcing energy, which include importing LNG. In a statement made in August, Energy Secretary Alfonso G. Cusi set a goal to transform the Philippines into a “leading LNG hub in Asia.”

Despite the coronavirus disease 2019 (COVID-19) pandemic, companies with LNG terminal projects said construction of their plants remains on track even with the stop-and-go lockdown restrictions in the country.

There are currently six LNG terminal projects in the country, down from seven after Batangas Clean Energy, Inc. (BCE) failed to secure financing for its project as it was not able to sign up an off-taker for the facility’s output.

The Shell Group, Excelerate L.P., First Gen Corp.’s unit, Atlantic Gulf & Pacific Co. of Manila, Inc. (AG&P), and A Brown Co.’s Vires Energy Corp. are building their projects in Batangas where the country’s gas-fired power plants are located.

Energy World Gas Operations Philippines, Inc., on the other hand, is building its plant in Pagbilao, Quezon.

First Gen’s FGEN LNG Corp.’s interim offshore terminal project started construction in June. The company aims to complete it as early as the third quarter of next year.

“In order to enable the introduction of LNG as early as possible at lower cost, First Gen, together with Tokyo Gas [Co. Ltd.], has pivoted to develop an interim offshore LNG Terminal, by modifying its existing jetty to become a multi-purpose jetty that can accommodate a floating storage and regasification unit (FSRU) and building an adjunct onshore gas receiving facility,” Jonathan C. Russell, First Gen’s executive vice-president and chief commercial officer, said in an e-mailed response to BusinessWorld’s query.

The offshore terminal will allow FGEN LNG to serve the natural gas requirements of existing and upcoming gas-fired power plants of its affiliates as well as those of third parties by 2022’s third quarter.

The target date is roughly the same time AG&P looks to complete its own import terminal in Batangas bay. AG&P’s Philippines LNG (PLNG) import terminal may be the first commissioned LNG terminal in the country.

“The project is progressing as planned. All engineering and procurement-related works are fully completed,” Karthik Sathyamoorthy, president of AG&P Terminals & Logistics, said via e-mail.

“Construction has started offsite using modular approach for on-track commissioning and the start of commercial operations of PLNG in the third quarter of 2022,” Mr. Sathyamoorthy added.

Energy World started to look into developing an LNG project in the Philippines in 2007. However, its project in Pagbilao, Quezon has paused due to the delay in connecting the power station to the national grid.

Energy World’s LNG terminal is around 80% complete, the company claims, while its 650-megawatt (MW) power station project’s first two 200-MW gas turbine units were said to be 75% to 80% complete each. Both are located in Pagbilao.

“Although we were able to obtain a connection agreement with NGCP (National Grid Corp. of the Philippines) way back in about 2016 or 2017, the designated connection point for our power plant is at the new Pagbilao substation, which is being built by the NGCP at the moment,” Graham Stewart Elliot, chairman and chief executive of Energy World, said in an online video call.

“That was originally scheduled for completion in about 2017 or 2018 when we first made the agreement with NGCP, however, it’s not yet complete. They have started construction, but until it’s completed, we don’t have an outlet for electricity,” he added.

Energy World said the project is under a “care and maintenance status” during the pandemic.

“We’re just waiting to get some clarity and finality on the completion of that substation and we will make sure we will come online in parallel with that,” Mr. Elliot said.

Meanwhile, Vires Energy’s project is undergoing pre-front end engineering design, A Brown Vice-President Paul Francis B. Juat told BusinessWorld in a phone call.

“I think LNG will be a very stable part of the energy mix and we’ve seen even modern countries transition using LNG first before they go full-on renewables,” Mr. Juat said.

Meanwhile, First Gen’s Mr. Russell said the introduction of LNG in the country “will encourage new power plant developments, as well as industrial and transport industries, to consider it as a replacement to more costly and polluting fuels.”

FGEN LNG also plans to introduce small-scale LNG, or ssLNG — an LNG-related facility but of “lower magnitude than conventional LNG infrastructure.”

“We believe that gas should continue to play an important role in the energy mix of the Philippines, providing a competitive, low carbon, secure and flexible complement to the increased use of intermittent renewable energy sources,” Mr. Russell said.

“The entry of LNG should thus play a vital role in decarbonizing the power sector of the country,” he added.

In late August, Kohlberg Kravis Roberts & Co. (KKR) unit Philippines Clean Energy Holding, Inc. offered to acquire up to 3% to 5.7% of the total listed and outstanding shares of First Gen.

KKR has deployed around $5 billion of total equity into renewable assets since 2011. It said it saw “potential” in the Philippines to develop more renewable and clean energy sources.

“We agree that the Philippines has huge potential to develop more renewable and clean energy sources, and we hope that KKR can continue to invest significant capital into this sector and the country overall,” KKR Asia Pacific Infrastructure Team Managing Director Michael de Guzman said in an e-mail to BusinessWorld.

Energy World’s Mr. Elliott said the Philippines “has the availability to grow into a major LNG demand center.”

“As countries move away from coal, unlike renewable energy, the increase in [the] gas energy mix will resolve power grid instability,” AG&P’s Mr. Sathyamoorthy said.

“In the long run, as the country improves its ability to access global LNG supply market, we expect access to this competitive fuel should support competitive power prices,” he added.

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