Regional LNG: Philippines LNG projects face delays
Friday, November 28 2003 - 01:01 AM WIB
Delays to the LNG terminal plans could hamstring efforts to ensure sufficient and stable power supplies in parts of the Philippines, leaving it facing a possible repeat of the major electricity crises it saw in the early 1990s.
"The investors won't want to put their money into these expensive projects until the new president is elected. They (investors) are concerned of the political stability," a Philippines National Oil Company official said, commenting on the national elections scheduled for next May.
"They are adopting a wait-and-see attitude for now," he said, adding that efforts to raise funds for the projects were unlikely to be completed in 2004, as planned.
He was referring to plans by two competing consortia led by BP PLC (BP) and Japan's Marubeni Corp. each to build an terminal, with commissioning dates of end-2008.
Financing LNG projects in the Philippines could be tricky, given that the Philippines is not an investment grade country, a source at one of the LNG terminal development groups said.
A Marubeni official in Tokyo estimated the LNG terminal project cost at US$400 million, while BP declined to provide any cost estimate for its LNG receiving terminal and an integrated power plant project. Neither company would give details of the financing arrangements.
However, if the project financing is delayed much further, the startup date will be compromised, a source with one of the LNG groups said.
The financing program for two Bataan LNG projects has not begun, even though the Philippines Energy Secretary Vincent Perez had previously said he expected the project financing to be completed by the end of 2003.
The Philippines produces about 360 million cubic feet a day of natural gas from its Malampaya field offshore Palawan in the southwest of the country. The field has 3.8 trillion cubic feet of proven natural gas reserves. The country has almost no domestic crude oil output.
While the Malampaya gas is used for both power generation and domestic purposes, the gas reserves are insufficient to cater to growing power demand. The country needs alternative fuels such as LNG for power generation to meet growing electricity needs, especially in Manila and elsewhere in the Luzon region.
The Philippines hopes to trim dependency on expensive fuel oil for power generation, and it wants to burn cleaner fuel.
Total installed capacity is 14,702 MW, with dependable capacity at 12,909 MW. Peak demand in 2003 is forecast at 8,833 MW, rising to 11,997 MW in 2007 and 17,033 MW in 2012.
Perez said earlier this year that the country's electricity demand is expected to rise 7.6% annually, in line with gross domestic product expansion.
Apart from political concerns, Manila Electric Co.'s, or Meralco's, reluctance to start power purchase talks with the LNG terminal developer of the BP-led consortium - GNPower - at this stage is also a stumbling block. Meralco is the main electricity distribution company in Manila.
To secure project financing, GNPower needs first to sign power sales contracts with Meralco, a GNPower official said.
Meralco is unwilling begin power purchase negotiations as it is still sorting out some of its own financial issues, including refunding overcharges to its residential customers.
For Marubeni, the major hurdle is the gradual deregulation of power plants, as it aims to secure gas supply contracts with still-to-be deregulated companies.
Marubeni wants to sell regassified gas to independent power producers, who will in turn sell power to Meralco.
"The privatization of power plants is slower than expected, but the government is moving in the right direction," he said.
The Philippines plans to invite bids for the sale of the first of 30 state-owned power plants on Dec. 17.
According to the Marubeni official, the Philippines has room for two LNG receiving terminals, based on the projected power demand growth.
This is contrary to the views of PNOC and GNPower that the Philippines could only accommodate one terminal in 2008.
"These receiving terminals must have the capacity to receive about 3 million tons per year of LNG in order to make them economically viable," the PNOC official said.
The BP-led consortium wants to build its terminal in Mariveles in the southern tip of Bataan, to the west of Manila. Marubeni's Japanese consortium wants to built its terminal in Limay, also in Bataan but closer to the capital.
The Mariveles operators plan to sell power to Meralco through an 1,200 MW integrated power plant, and possibly sell some gas to independent power plants.
Feasibility and environment studies for the Mariveles terminal are complete, but studies for Limay remain ongoing.
"We hope to complete our studies by end of March ... We're looking at the growing power demand 10 years from now," the Marubeni official said.
A BP official confirmed the consortium intended to supply LNG to Mariveles from the massive Tangguh gas reserves in Indonesia's West Papua region.
Recently, US-based Chicago Bridge & Iron Company was awarded the engineering, procurement and construction contract for the Mariveles LNG import terminal.
Marubeni is in no hurry to select an LNG supplier, given the current bearish market conditions. "It's a buyer's market. We're looking at Qatar, Indonesia and Malaysia," he said.
The LNG terminal project will go hand in hand with the US$200-$250 million 140-kilometer Bataan-Manila natural gas pipeline or Batman 2 pipeline project, a PNOC official said.
The building start date for the Batman 2 pipeline depends on the construction schedule of the Bataan LNG terminal project, he added.
Ahead of that is the US$100-$120 million Batman 1 pipeline project to deliver Malampaya natural gas supply to Manila.
Construction of that pipeline is due to begin in mid-2005 and to be completed in the first quarter of 2007, he said.(*)