Think tank: Importing liquefied natural gas won't save Filipinos from high prices

MANILA, Philippines — Importing liquefied natural gas to compensate for the declining production of the Malampaya gas field could prove to be a costly endeavour that could end up exposing the Philippines to the volatile global LNG markets and keep consumers awash with high energy prices.

In an emailed commentary on Friday, the Institute for Energy Economics and Financial Analysis (IEEFA) said they have flagged the risk that a large pipeline of LNG facilities being built around the country is "risky."

“With such a large pipeline of proposed LNG projects, the Philippines risks becoming significantly exposed to the extreme volatility of global LNG markets. IEEFA has previously flagged the risk that unaffordable prices could cause LNG facilities in emerging markets to go underutilized,” said Sam Reynolds, an energy finance analyst at IEEFA. 

The think tank noted that the country’s total energy capacity from proposed LNG projects is more than what the country needs.

Broken down, IEEFA said projects with a combined capacity of 36.5 million tons per year remain at various stages of development, besides 29.9 gigawatts of additional gas-fired projects. 

The Malampaya gas field, which proved controversial as of late after tycoon Enrique Razon Jr is in talks with Duterte-allied businessman Dennis Malampaya to sell the gas-to-power project. Malampaya, which has been operational since 2001, accounts for 40% of Luzon’s annual energy requirements. Projections estimated it would run dry by the mid-2020s, which IEEFA said adds urgency to the development of LNG projects. 

Two LNG projects in the country delayed the start of commercial operations, which could stil leave supply concerns in limbo and leave the Philippines shouldering high prices. IEEFA said the terminals of First Gen and Singapore-based Atlantic Gulf & Pacific start operations by the first quarter of 2023.

“These new timelines are overly optimistic. In the wake of the Russian invasion of Ukraine, global LNG supply is constrained and prices have hit record highs,” Reynolds said.

The think tank noted that the country’s five existing gas-fired power plants need 2-5 million tons of LNG annually to remain operational. 

Besides the energy glut, the exposure to the highly volatile global LNG market also muddies the country’s aspirations to transition to other forms of energy. According to IEEFA, this will prove burdensome for Filipinos because LNG prices cost roughly three times the current price of coal on a per-unit of energy basis. 

The think tank opined fossil fuel companies in the country have little incentive to promote cheaper forms of energy and slow LNG expansion since consumers shoulder the burden of expensive fuel prices. 

“This means that a transition from one volatile, expensive import fuel (coal) to another (LNG) is unlikely to reduce power bills for Filipino end-users. Due to the structure of power supply contracts in the Philippines, international fuel costs are passed through to consumers’ utility bills,” Reynolds said.