Spex, First Gas defer talks on gas off-take contract

The Shell Petroleum Exploration B.V. (Spex) and First Gas Power Corp. have temporarily stopped negotiations on the planned reduction of natural gas off-take from the Spex’s Malampaya Deep Water Gas to Power Project.

Under the present set-up, First Gas, which owns two natural gas-fired power plants in Batangas (1,060 MW Sta. Rita and 500 MW San Lorenzo), buys gas from Spex to be fed to these power facilities.

Spex managing director Jeremy Cliff, in a recent interview, said the (gas) off-take is not really a problem. First Gas is paying for every cubic feet of gas that it takes."

Cliff said that the two firms are in the quandary on whether they have to change their off-take contract or not. The question is whether they will be required to pay for more than what they have taken," he added.

The Spex official said the two groups have temporarily stopped negotiations although they hope to resume talks by October.

A couple of months ago, Energy Secretary Vincent S. Perez said the National Power Corp. (Napocor) and the Spex are expected to a come up with an agreement to reduce gas offtake from Malampaya.

Perez said Napocor and Spex have entered into a final stage of agreement which may result in a lowering of natural gas off-take for Napocor from the Malampaya project and may eventually lead to change in the take-or-pay agreement between the two parties. Results of the formal negotiations, though, have yet to be announced.

Discussions on the take-or-pay commitment between the government and the Spex consortium cropped up when the Department of Energy (DOE) floated the idea of reducing the overcapacity in Luzon.

Perez earlier said one possible solution to solve the issue of overcapacity is the possibility of reducing the gas off-take from the Malampaya project which will enable the government to reduce the take-or-pay cost and thus cut electricity cost.

But Perez admitted that this proposal will allow gas off-take from the project to be consequently increased in the future.

"We have overcapacity in Luzon. It maybe our interest now to reduce gas off-take at present, or reduce take-or-pay of gas in exchange for a higher utilization of gas in the future," Perez said. As of end-December 2001, the overcapacity in the country stood at 1,253 MW.

The energy chief said this is just a proposal and needs to be approved by the industry players. "Lower take-or-pay for the present in exchange for a higher take or pay in the future. That remains to be decided among the players."

Just like Spex, Napocor is also one of the main proponents that run a natural gas power plant in Batangas – the 1,200-MW Ilijan which sources its gas requirement from Malampaya gas field.

Perez said Napocor and Spex should complete their negotiations on the off-take before Spex could have its own discussion with the First Gas group. – Donnabelle Gatdula