Outlook for upstream energy industry ‘bleak’ as Malampaya winds down
FITCH SOLUTIONS Country Risk & Industry Research said it has a “bleak” outlook for the Philippine upstream energy sector, citing the continuing decline in the Malampaya gas field’s reserves and lack of investment in exploration.
“The Philippines’ crude oil and natural gas production remain in freefall under the weight of natural declines and underinvestment in new exploration. The current dire situation poses significant risks to the Philippines’ future energy supply security given how reliant it is on oil and gas for power generation, industrial processes and transportation,” Fitch said in a note Wednesday.
It said output has been “broadly declining” starting 2010, due to the accelerating decline of the Malampaya gas field and a lack of significant discoveries to supplement it.
Fitch deems the imminent depletion of the country’s only indigenous gas field as “problematic,” since the Malampaya project accounts for 30% of Luzon’s power generation. Its services 20% of national demand.
“The gradual reduction in gas production from the field is already driving up consumer electricity costs and causing rotational power outages across the islands; a complete stoppage without replacements in place would prove to be highly damaging for businesses and end-users alike,” it said.
The accelerating decline in the Malampaya field’s output has spurred liquefied natural gas import projects across the country, but they face delays in completion due to the restrictions brought about by the global health emergency, regulatory processes and rising competition from renewables, it added.
Fitch contends that dry natural gas production has been declining since 2020, and will continue to do so until 2027. Meanwhile, the production of crude oil, NGPL (natural gas plant liquids) and other liquids are likely to remain relatively steady until 2030.
Meanwhile, offshore exploration in the West Philippine Sea (WPS) remains a challenge for the country as it faces opposition from China due to the latter’s territorial claims, preventing exploration activity in petroleum blocks in the area, it said.
Despite the recent lifting of the moratorium on oil and gas exploration in the WPS, the Philippines has not embarked on any new activity, though “a growing numbers of firms (are) keen to rekindle interest.”
Energy Secretary Alfonso G. Cusi has said that his department endorses the award of three unnamed service contracts, which are now being reviewed by President Rodrigo R. Duterte.
“As a prospective market to target for investors, however, the Philippines is highly interesting given the large, energy-hungry domestic market and ample trade opportunities throughout the region. Although for now most seem content to wait it out (until) maritime tensions dissipate and below-ground potential to become more concrete,” Fitch said. — Angelica Y. Yang