LNG bill to require guaranteed offtake of import shipments

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PROPOSED legislation governing the liquefied natural gas (LNG) industry will require imported shipments to have offtakers, a measure intended to ensure the long-term viability of the LNG receiving terminal to be built in the Philippines.

The bill, should it be signed into law, will also institutionalize third-party access to the terminal.

These are among the features of the law being drafted by the Senate energy committee chaired by Sen. Sherwin T. Gatchalian in coordination with the Department of Energy (DoE), which is currently evaluating a proposal from the private sector to build an integrated LNG facility.

In an interview, he said the law will look into the sustainability and the bankability of the LNG project by making sure that shipments have a buyer, known as the offtaker in the energy industry.

“The offtaker is the important link to make sure that the terminal operator will be sustainable and profitable,” Mr. Gatchalian he said during the First Asia Pacific LNG Investment Summit at Solaire Resort & Casino on Wednesday.

“That’s the assurance that our investors are looking for. But we’re formulating it in such a way that it will not become anti-competitive because if you put that form of assurance it might curtail competition. So we have to balance between financial viability of the proponent through the offtake and power supply agreement and also balance it with competition,” Mr. Gatchalian said.

Mr. Gatchalian also said that the proposed law will promote competition in the LNG terminal industry, while also ensuring that the electricity produced by gas-fired power plants is competitive.

“One of the features [of the bill] is the third-party access feature in which different power plants can bring in their LNG using the same terminal,” he said.

“The terminal operator should allow other power plants to import and to use that terminal so it would improve competition. Rather than create a monopoly, it should be open to anyone — power plants or maybe transport operators — to bring in their own competitive LNG,” he said.

Mr. Gatchalian said he was working with the DoE to come up with “stronger legislation (that is) more comprehensive” in place of the interim framework issued by the department governing the LNG sector.

Asked for comment, DoE Assistant Secretary said Leonido J. Pulido III the department was coordinating with Mr. Gatchalian’s office to draft the LNG bill, which he said will build on the existing regulation passed by the agency.

“We really want it to be a very competitive and open market. And to do that you have to have some form of third-party rules, which is actually a very difficult set of rules or regulations to draft,” he said.

He also eased fears about the law coming out after the construction of an integrated LNG facility, leaving the proponent contending with a law that is not completely compatible with its completed project.

“Because of the time constraints involved, we want the law passed as soon as possible. But it’s not one or the other, it’s not ‘we need this before the other.’ They can both happen at the same time. In fact I think we need not wait for the law, but we do need a law so that we can institutionalize a lot of the concepts that we’ve put in the Philippine downstream natural gas rules,” Mr. Pulido said.

“And it would give the DoE more teeth and authority to develop the natural gas industry,” he added. — Victor V. Saulon