Fitch flags Philippines lack of focus on clean energy

MANILA, Philippines — Fitch Solutions Macro Research has flagged the country’s lack of focus on clean energy development in its long-term energy plan, particularly in the development of natural gas, liquefied natural gas (LNG) and renewables, as “worrying.”

The Philippines needs to import more LNG amid declining output from Malampaya, Fitch said.

Based on its outlook for the Philippines LNG imports, Fitch said the country lacks emphasis on natural gas, LNG and renewables in the Philippines’ Energy Plan (PEP) 2017-2040 and  this remains a source of potential concern.

“While promoting ‘a low carbon future’ remains one of eight strategic directions outlined in the PEP, the plan does not include specific targets for clean energy development. This creates the risk that strategic pillars such as ‘improving energy security’ and ‘expanding energy access’ that are also outlined in the PEP may not necessarily be achieved by stronger gas off-take, particularly in light of cheaper coal,” it said.

The long-term energy mix target of the Department of Energy (DOE) published in 2017 projected coal’s share to increase by a substantial 20 percent by 2040, while the share for all other energy sources contract.

“This indicates that while Manila is prepared to offset the fall in Malampaya’s gas via LNG imports, there is yet no certainty that it is ready to steer the energy mix towards gas and LNG, in the manner of certain regional neighbors,” Fitch Solutions said.

“The abundance of announced projects, and government’s receptive stance towards them is a sign, although any LNG growth significantly beyond peak contribution from Malampaya, would first need to be preceded by a clearer state push towards gas and LNG,” it said.

Currently, the Philippines’ main source of gas is the Malampaya field, which supplies 15 percent of the country’s total electricity and supplies fuel to 20 percent of the Luzon grid’s capacity.

However, the Malampaya’s supply is rapidly declining, with output expected to be depleted latest by 2027 based on DOE’s own projections.

Fitch Solutions said there are efforts to extend Malampaya’s life, but it is expected to have limited impact.

Malampaya operator Royal Dutch Shell through local unit Shell Philippines Exploration B.V. (SPEX) has submitted a request to extend its current contract for Service Contract 38—which ends in 2024—until 2030 based on recent satellite finds.

The research firm, however, said “the DOE has been reluctant to extend the contract in its current form.”

In September last year, Energy Secretary Alfonso Cusi said he is not keen on unilaterally extending SC 38 for the Malampaya gas project. If ever, extending SC 38 should be renegotiated under new terms.

Instead, he is open to renegotiate the Malampaya contract with the current consortium led by Shell Philippines Exploration B.V. (SPEX) on new terms.

While Fitch Solutions noted the country’s attempt to boost exploration through the Philippine Conventional Energy Contracting Program (PCECP), this would take time.

This situation prompts LNG importation as a quicker solution but is  also hounded by risks of project delays, Fitch Solutions said.

An example of which is the “painfully slow” progress of Energy World Corp.’s Pagbilao LNG project due to funding concerns, regulatory hold ups and delays to gaining approval to connect to the national grid.

The Pagbilao LNG project is projected to enable imports of up to three metric tons per annum of LNG imports, mainly to supply gas-fired power generation units of 650 megawatts within the complex.