LNG users risk reliance on volatile prices – IEEFA

THE Philippines may be forced to rely on volatile spot market prices as long-term liquefied natural gas (LNG) contracts with shipments before 2026 are reportedly sold out globally, the Institute for Energy Economics and Financial Analysis (IEEFA) said on Thursday.

“A recent survey of LNG buyers in Japan suggests that there are no long-term contracts available for shipments until 2026. As a result, Vietnam and the Philippines may be forced to rely solely on volatile spot markets for several years,” it said.

IEEFA identified both countries as having LNG-related projects that have experienced repeated delays, not currently importing LNG, and are without a long-term LNG supply contract as of November 2021.

Policy responses may limit the role of LNG for countries like the Philippines, which favors renewables over natural gas, said the global research institute that examines issues related to energy markets, trends, and policies.

The Philippine Energy Plan, as crafted by the Department of Energy (DoE), focuses on developing renewable energy (RE). The agency targets a 50% RE share in the country’s power generation mix by 2040 under a clean energy scenario, surpassing traditional coal, natural gas and oil-based power sources.

Last year, the government opened the renewable energy sector to full foreign ownership after Energy Secretary Raphael P.M. Lotilla signed a circular amending the implementing rules and regulations (IRR) of the Renewable Energy Act of 2008.

Rino E. Abad, director of the DoE’s Oil Industry Management Bureau, told reporters at an energy conference last week that proponents of LNG terminals should secure LNG contracts as soon as possible.

He said now is the best time to negotiate an LNG supply contract while the price is “relatively low.” He added that the Philippines accounts for only a small portion of global LNG demand.

To date, seven proponents of LNG terminal projects have been approved by the DoE for development, two of which are expected to come online in the first semester of 2023.

Linseed Field Power Corp., a unit of Atlantic Gulf & Pacific Co., said that it had completed the conversion of a vessel into a floating storage unit for gas. The company is expected to start taking delivery of gas by March.

First Gen Corp., through its subsidiary FGEN LNG Corp., said its LNG terminal will also be completed by the first quarter. First Gen’s gas-fired power plants currently run on indigenous gas from the Malampaya-Camago reservoir, which is expected to start depleting next year.

The other LNG terminal projects are led by Samat LNG Corp.; Luzon LNG Terminal, Inc.; Energy World Gas Operations Philippines, Inc.; Shell Energy Philippines, Inc.; and Vires Energy Corp.

“Southeast Asia’s demand growth faces challenges related to high prices, limited LNG contract availability and infrastructure constraints. Long-term contracts with deliveries before 2026 are reportedly sold out globally, meaning price-sensitive Southeast Asian buyers risk high exposure to volatile, expensive spot markets,” IEEFA said. — Ashley Erika O. Jose