LNG law being drafted ahead of Malampaya supply crunch

By Victor V. Saulon, Sub-Editor
THE Energy department and the Senate energy committee will draft a law covering the natural gas industry in preparation for a “critical” period next year when an integrated liquefied natural gas (LNG) facility should have started construction in preparation for the depletion of the country’s sole domestic source of the fossil fuel.
However, the Senate panel continues to have doubts about a provision that will allow the Department of Energy (DoE) to step in and initiate the project. For its part, the DoE has yet to agree to a counter-proposal that calls for it to formulate an energy mix that favors natural gas.
“We’ve been working closely with Senator [Sherwin T.] Gatchalian, the chairman of the [Senate] Committee on Energy. We’re currently talking about advocating the passage of a natural gas law wherein some of the salient points would be to address those concerns regarding the construction or the establishment of an LNG regas[ification] facility in the interim,” Leonido J. Pulido III, assistant secretary at the DoE, told reporters.
Separately, Mr. Gatchalian confirmed that his office is in the process of working with the DoE on a comprehensive LNG law, which will become “the ultimate framework of the LNG industry.”
“We want to make sure that the future of LNG will be viable and sustainable. We will have a framework to regulate the importation of LNG, the terminal activities of LNG, and also the liquefaction of LNG,” he said.
Imported natural gas is liquefied for ease of shipping, then regasified or reverted to its former state in the country of destination.
“Most of this is midstream,” he said, referring to the importation and trading section of the LNG value chain. He said the downstream or the exploration part will be discussed later.
Mr. Gatchalian said his counter-proposal to the DoE’s stand to undertake the project is to strengthen the DoE’s power to dictate the energy mix, which the industry must follow.
“Now, the market will be dictated and guided by the energy mix so instead of government spending taxpayers’ money on the project, you are actually creating space for the investors to come in,” he said.
He previously expressed doubts about the government, in general, entering in a business venture given past instances of corporate mismanagement and inefficiency.
Mr. Gatchalian said when the government enters a business and spends money for it, the risks are high, especially if it fails to make money or worse, if it loses taxpayers money.
“Hopefully, within six months the framework will be completed. It will take time,” Mr. Gatchalian said.
Mr. Pulido said about 13 companies have signified their intention to build an integrated LNG facility but none has so far submitted a formal proposal.
He said the biggest challenge is the size of the investment required to fund the project — around $300 million to $400 million if the facility is a floating storage regasification unit, or FSRU, and about $1 billion if it is onshore.
However, lenders will need assurance that the imported fuel will have a ready market, he said. Five gas-fired power plants in Batangas province, with a combined capacity of 3,211 megawatts, are the main customers of the Malampaya gas find. The offshore Palawan project is expected to be depleted by 2022 to 2024.
The five plants sell their power to Manila Electric Co. under different power supply agreements, one of which has already expired. The rest will lapse in 2022, 2024 and 2027, Mr. Pulido said.
He said lenders would want to see off-take agreements that are valid for 15 to 20 years.
“It is such an issue. We need to fix that as early as now so that these investors can get the financing they need,” he said.
He said a provision that would allow the DoE to come in and nominate one of its commercial arms to undertake the project either under a public-private partnership or a build-operate transfer scheme would ensure the continuity of the LNG facility.
“We think that the critical period would be middle to late 2019,” he said, given the length of time to build the facility.