Crippling brownouts will dampen the country’s bid for economic recovery in the near term if the Department of Energy (DOE) will not act early enough to concretize a viable replacement for the gas output from the Malampaya field.
Senate Committee on Energy Chairman Sherwin T. Gatchalian sounded off the inevitable, asserting that “we’re racing against time. If we fail to act now, we could be experiencing anew a debilitating rotational brownout by 2024 once our gas supply from the Malampaya gas field is depleted.”
The Service Contract (SC) 38 of the $4.5 billion Malampaya deep water gas-to-power project will expire in 2024; and there are also assumptions that gas production will start declining in 2022 – the period when the economy starts to gain traction from the slump caused by the pandemic.
There are two proposed remedies on how to plug the fuel shortfall that may arise from Malampaya – one is for the government to act on proposed license extension of the field operator so drilling can be done and its gas production cycle could be extended for several years more.
The DOE previously stated that it will be studying the license extension proposal on Malampaya’s service contract and it has given itself a timeline until the end of this year. From that process, it will map up its recommendation to the President based on the outcome of the review and analysis of technical data.
Previous technical studies portend that Malampaya could still yield gas for additional 6-7 years, but fresh investments have to be injected so new drillings could be carried out, which will then pave the way for a fresh lease on gas production.
Nevertheless, that is not legally feasible without any action from the government first on the propounded extension of the project’s service contract. Aside from fuel for power generation, the gas field is also a major revenue-generating venture for the country, with the DOE apprising the House Committee on Appropriations during a recent budget hearing that cash flow into the Malampaya fund had been beefed up to P260 billion as of last year.
The other recourse will be investments in liquefied natural gas (LNG) import facilities, so molecules could flow in and they can continually power the more than 3,200MW of gas-fired power facilities in the country.
There have been four proposed investments for LNG import terminals cornered by the energy department, but actual project constructions have yet to be advanced by the sponsor-firms.
Given the impact of the coronavirus pandemic, there are already assumptions that the projects will incur delays – although the DOE has been urging project developers like First Gen Corporation and Tokyo Gas if they can accelerate the installation of their proposed floating storage regasification unit (FSRU) so LNG can be brought into the country as early as 2022.
Gatchalian reiterated “the absence of replacement fuel could threaten energy security and might lead to possible rotational brownouts.”
On the targeted LNG investments, his committee in the Senate is pushing for the passage of a law that will establish regulatory and policy frameworks that will guide investors in the sector.
The lawmaker primarily noted “the proposed legal framework for the midstream natural gas industry will ensure consumer protection as it will mandate a transparent and competitive pricing of services.”