The Philippines – Gas Policy Brief
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.
Opportunities and plans to replace Malampaya with LNG have come and gone over the last 20 years. Historically, a barrier to LNG was cost competitiveness versus coal generation, however 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 energy security, affordability and access, lower carbon, improved government agency collaboration, development of new technologies, clarification of regulations and stronger international partnerships. Subsequently, they 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 failure of LNG to power import projects to date can be ascribed to the following factors.
- LNG fired power’s cost competitiveness versus coal and absence of significant gas infrastructure.
- The conflict between a deregulating power market and the requirement for traditional long-term project financing. Power Purchase Agreements (PPA) with creditworthy counterparties are the cornerstone of project financing for capital intensive projects. These have been severely limited since 2003 and while a small number now may be available via the government regulated Competitive Selection Process (CSP), the terms are uncertain and evolving.
- Lack of a clear legal and regulatory framework for the natural gas industry. Laws specific to the gas sector are developing but are not finalised.
- Uncertainty over impact of Retail Competition & Open Access (RCOA). This increases the reluctance of power distribution companies to take on the long-term commitments needed to support project financing.
- Lack of demand outside the power sector.
* No Guaranteed Future for Imported Gas in the Philippines, IEEFA, May 2021
** Advisory on the Moratorium for Greenfield Coal-Fired Power Projects, Department of Energy, 22 Dec 2020