Only 29 percent of all proposed liquefied natural gas (LNG) investments in the Philippines are viable, according to a study released by the Institute for Energy Economics and Financial Analysis (IEEFA).
The study, released this month and jointly made by Sam Reynolds and Grant Hauber, IEEFA energy finance analysts, said from the $12.44 billion announced LNG- related investments in the Philippines, only $3.55 billion can be considered feasible, equivalent to one additional combined-cycle gas plant and two LNG terminals, due to limited demand.
In terms of capacity, IEEFA said from the announced plans to build up to 18.5 million tons per annum (mtpa) capacity of LNG terminals, only 34 percent or 6.3 mtpa is feasible.
The study said for the announced 10,900 megawatts (MW) of new power plants to utilize natural gas as fuel, only 27 percent or 2,900 MW will most likely be built.
According to the study, one of the key factors that will affect the LNG targets in the country is that existing natural gas-fired power plants are only at 3,460 MW and would just require up to 5 mtpa capacity from LNG terminals to replace the fuel currently supplied by Malampaya, whose resource will be depleted within the decade.
“This volume could be handled by one or two import projects. To justify the 18.5 mtpa of proposed LNG import capacity, new downstream sources of demand will have to come from somewhere,” the report said.
On the power generation side, IEEFA said new coal-fired power plants commissioned in the past several years as well as additional supply from renewable energy sources have satisfied incremental power demand growth in the Philippines.
Apart from the lack of actual demand, IEEFA identified other risks in building LNG-related infrastructure projects in the Philippines: limited contractual opportunities for gas-fired power plants that can hinder project financing, aside from changing legal regimes that cannot provide certainty for long-term cost recovery.
IEEFA also cited the possibility that LNG fuel price pass-through can raise power rates and undermine economic growth especially with the deployment of low-cost renewable sources and the lack of existing LNG transportation infrastructure for the opportunity to supply industrial or commercial sectors.
“Hence, LNG terminal project sponsors need to secure agreements with one of five natural gas-fired power plants. This lack of diverse range of LNG customers makes the expansion of LNG import capacity uncertain or will cause delays or cancellations,” the study further said.
As of August this year, the Department of Energy (DOE) identified seven LNG terminal projects being developed by the private sector.
The DOE had said two of the seven projects are still on track to be completed next year — AG&P and Osaka Gas’ project by second quarter of 2022 and that by FGEN LNG together with Tokyo Gas by third quarter of 2022. Both projects are located in Batangas.
