The Philippines – Gas Policy Brief
The Philippines economy continues to grow rapidly with GDP expanding faster than 5% per annum. Domestic energy consumption is growing, driven by significant public infrastructure development and the private sector investing in manufacturing and services. Because of this, the demand for power is growing and how to meet that demand is the subject of much political debate.
The Philippines has become heavily reliant on coal-fired power generation, and until recently there was little political will to manage greenhouse gas emissions in a significant way. The Malampaya gas field is the only significant indigenous gas resource, with production providing the bulk of gas-fired power generation in the country. The decline of the field, which starts around 2024, and how to manage it, is driving much of the debate around the future of the gas sector.
The Philippines has been a potential new market for imported LNG for many years, with the only indigenous gas production of around 350 MMSCFD at Malampaya starting to decline and limited economic potential for new production. Gas is used exclusively to supply 3.5 GW of generation on Luzon, which is equivalent to 21% of national generation. Nationwide generation is dominated by coal with 54%, with 21% provided by renewables, predominantly geothermal and hydro. The country also has geographical challenges with many isolated island power grids of limited size slowing the development of robust national power grids.
Historically, a barrier to LNG was cost competitiveness versus coal generation but recently government policy has switched to mandating a lower carbon generation mix in future. The Department of Energy Philippine Energy Plan 2018 – 2040, focuses on the following objectives:
- Increase the production of clean and indigenous sources of energy to meet the growing economic development of the country.
- Decrease the wasteful use of energy through energy efficiency tools and strategies.
- Ensure a balance between reliable and reasonably priced energy services, support for economic growth, and environmental protection.
The plan focuses on energy security, affordability and access, lower carbon, improved government agency collaboration, development of new technologies, clarification of regulations and stronger international partnerships. Subsequently, it issued a moratorium on adding greenfield coal capacity that is not approved or significantly advanced, although this still leaves new coal projects in place that will add 11 GW.
The potential for increased natural gas demand for power generation in the Philippines is significant and the complementary nature of gas to renewables will be a critical success factor in the development of that demand. The failure of LNG-to-power import projects so far hinges on a few factors including cost competitiveness versus coal, the lack of significant gas infrastructure and a clear legal and regulatory framework, lack of demand outside power and the conflict between a deregulating power market and the requirement for traditional long-term project financing – soundly regulated Power Purchase Agreements.