Power utility giant Manila Electric Company (Meralco) is planning to undertake competitive selection process (CSP) for a power supply agreement (PSA) that will replace the capacity of First Gen Corporation if its electricity generation will be continuously crippled by Malampaya gas field’s output restriction.

“Meralco is considering conducting CSP as alternative to asking First Gas to run on liquid fuel,” company vice president Lawrence S. Fernandez said. First Gas is the major corporate vehicle and operating entity of the Lopez group’s gas plants in Batangas.

That alternative power supply contracting, Fernandez explained, will only be taken as recourse “if First Gas confirms that gas supply reductions being experienced in the past few months will persist.”

He qualified that Meralco will first send a formal correspondence to First Gen “to ask for confirmation if the gas supply reduction will continue after the shutdown” – that is in reference to the ongoing preventive maintenance downtime of the Malampaya field that will last until October 22 this year.

The Meralco executive added they will specifically ask First Gen as to what gas volume will be committed to its power plants, how long the gas restrictions will be persisting, and what will be the scale of electricity generation de-rating (capacity reduction) that its power plants will be experiencing.

Limitation in gas production at Malampaya started manifesting at an aggravated scale this year – primarily in March to June. The limited gas production was also experienced for several days last month.

Meralco emphasized that the planned CSP option might be necessary because the repeated shift of the First Gen gas plants to liquid fuel may cause undue spikes in the electric bills of its customers, chiefly because oil prices in the world market are now incessantly rising. Oil prices went above $82 per barrel last week and could further climb to $100 per barrel.

The First Gen plants that have power supply contracts with Meralco include the 1,000-megawatt Santa Rita; 500MW San Lorenzo; and 414MW San Gabriel plants.

When Malampaya’s output is restricted, the San Gabriel generating facility cannot shift to liquid fuel. Hence, force majeure is invoked and replacement capacity has to be sourced from other providers.

The Malampaya gas field, in particular, is now on depletion phase that could worsen next year. With that predicament, it is anticipated that the power generation of the gas plants may continue to suffer continuing capacity reduction.

A drilling of one well at the gas field is scheduled next year, but reinforcement on its overall production may not immediately happen given high risk factor of exploration and production ventures in the country’s upstream petroleum sector.