The Institute for Energy Economics and Financial Analysis (IEEFA) has warned of liquefied natural gas (LNG) supply uncertainty in the country as well as high prices in the coming years even if the planned terminals can operate by early next year.
Sam Reynolds, the group’s energy finance analyst, said in a statement FGen LNG Corp. and Atlantic Gulf & Pacific (AG&P), the two front-runners in the development of LNG terminals in the country, have both delayed the commercial operations of their projects to early next year, due partly to challenging dynamics in international natural gas markets.
The IEEFA analyst said even if LNG terminalsbecome operational in the Philippines by next year, current constraints in the global LNG supply and record high prices are unlikely to be resolved by that time and expected to persist until 2026.
“Some may argue that LNG prices will soon settle to affordable levels but prices are widely expected to remain elevated for the next four to five years. European buyers have aimed to substitute Russian piped gas with non-Russian LNG supplies, putting them in direct competition with Asian LNG importers and driving up prices,” Reynolds said.
“With only modest new LNG supply capacity coming online until about 2026, the bidding war for available LNG volumes may continue to buoy prices. Industry representatives and other LNG importers have warned of a prolonged crisis.LNG executives in the Philippines have also argued that while one-off spot market purchases of LNG may be expensive, long-term contracts offer cheaper prices,” Reynolds added.
However, IEEFA said the Philippines has not yet signed any long-term contracts for LNG supplies with the developers likely to be forced to spend at least$145 million (P8.52 billion) per shipmentfor LNG supplies.
Because of such scenario, Reynolds said a transition from one volatile, expensive import fuel such as coal to another such as LNG is unlikely to reduce power bills due to the structure of power supply contracts in the Philippines wherein international fuel costs are passed on to consumers.
Thetransition to renewable energy sources instead of LNG “offers the greatest potential for reducing household electricity bills and boosting economic growth in the Philippines,”IEEFA noted.
As of December 2021, the Department of Energy has approved six LNG terminal and regasification projects that are expected to start operations between 2023 and 2025.
These include the projects of FGen LNG and AG&P’s Linseed Field Corp. as well as those led by Energy World Gas Operations Philippines, Shell Energy Philippines, Vires Energy Corp. and Luzon LNG Terminal. – Jed Macapagal
