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    Philippines Gas Consumption Forecast

    January 27, 2022 - Fitch Solutions Sector Intelligence


      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Philippines Gas Consumption Forecast

      • 27 Jan 2022
      • Philippines
      • Oil & Gas

      Key View: The rapid decline of gas production from the Malampaya gas field will necessitate the start of LNG imports over the coming years, allowing gas demand in the Philippines to remain on an upward trajectory over the forecast period. The availability of LNG would allow domestic gas demand to expand beyond the constraints of domestic production for the first time, being used mainly for the purpose of power generation. The outlook for long-term growth is bullish, though several notable headwinds remain, including the chronic deficit in transmission, distribution infrastructure and growing competition from renewables.

      Latest Updates
      • Limited domestic gas supply is reportedly not being able to keep pace with returning demand for power generation alongside economic reopening, loosening restrictions.
      • The inability to import gas to offset declining domestic production, coupled with higher global oil and gas prices, means consumers, businesses would need to resort to fuel-switching or experience more frequent power outages, as the flagship Malampaya field matures.
      • In this regard, it remains crucial for new LNG projects that are in the pipeline to eventually see light although an acute spot LNG price surge seen towards the end of 2021 has raised concerns about becoming too exposed to the fuel and raised call for development efforts to instead prioritise lower-cost renewables.
      • Indeed, making the transition to LNG from domestic production stands to be a costly affair for the Philippines, given the current yawning infrastructure deficit in the LNG regasification, transportation and distribution space and as acceleration decarbonisation efforts across the region set to ensure LNG prices are kept higher.
      Structural Trends

      The Philippines' historical self-sufficiency in natural gas is coming to an end as output from the Malampaya field rapidly depletes. The scope for significant new discoveries appears to be limited, while efforts to boost exploration in the offshore blocks have yet to pan out, as seen from limited showing at the country’s most recent licensing round and slow negotiations with China for potential joint exploration in the South China Sea (West Philippine Sea). As such, the government has identified LNG imports as a means to substitute declining Malampaya gas and meet rising domestic demand.

      Current Gas Set-Up

      There are five gas-fired power plants in the Philippines that are currently supplied by gas from the Malampaya field, accounting for some 98% of total domestic gas consumption:

      • Avion (97MW)
      • Ilijan (1,200MW)
      • San Gabriel (414MW)
      • San Lorenzo (500MW)
      • Sta. Rita (1,000MW)

      Shell's refining facility in Batangas also previously off-took minor gas volumes to fuel gas turbine generators and run low-pressure fuel gas system needed for its furnace, although the facility has now been converted into a fuel import terminal. The transportation sector also accounts for a small fraction, owing to a small fleet of 61 natural gas public transport vehicles operating in Batangas, Laguna and Metro Manila.

      Imports Needed To Meet Demand, But Shortages Risks
      Philippines - Gas Production & Consumption Forecast (2020-2031)

      e/f = Fitch Solutions estimate/forecast. Source: JODI, Fitch Solutions

      LNG Projects Pipeline

      LNG imports into the Philippines are likely to occur through one of the many proposed, planned projects put forth by a growing list of domestic and international firms that have secured ‘notice to proceed’ from the government:

      • AG&P confirmed that it will begin supplying LNG to the 1,200MW Ilijan gas-fired power plant and others starting from 2022 through its 3mtpa floating regasification plant being set up in Batangas Bay, helping to replace declining gas flows from Malampaya.
      • US-based firm Excelerate Energy also gained government approval to proceed with plans to develop a FSRU dubbed the ‘Filipinas LNG Gateway Project’ in Batangas Bay. Excelerate’s plant is expected to have capacity to process 4.4mtpa and be capable of supplying 850MW of gas-fired power generation.
      • Excelerate is looking to start first imports by Q1 2023, delayed from the previous timeline of end-2021, and has reportedly signed a memorandum of understanding for the supply of gas to SMC Power Holdings (unit of San Miguel)’s gas-fired power plants in Illijan.
      • First Gen and partner Tokyo Gas broke ground on their integrated LNG-to-power project in Batangas in May 2019. The project is expected to cost USD1bn and include a 1,200MW gas-fired generation unit and a regasification unit of 5.0mpta.
      • The firm set aside a further USD300mn in 2019 to charter a FSRU from BW Gas in order to help fast-track start of LNG imports by as soon as 2023, ahead of the expiry of its gas purchase contracts from the Malampaya field. The start of onshore processing facilities is slated for 2024.
      • Energy World Corporation (EWC)’s long-delayed Pagbilao LNG now appears to be aiming to come online in 2024, after initially having targeted start-up by as early as 2012. In spite of being labeled a priority project by the DOE, the project has suffered numerous delays due to funding, regulatory issues including delays to securing government permission to connect to the national transmission grid.
      • Batangas Clean Energy, backed by billionaire Lucio Tan, also submitted a proposal to develop a 3.0mtpa, 1.1GW integrated LNG-to-power project onshore Batangas for USD735mn, at a site where it already operates a chemicals trading business. In January 2022, Gen X Energy and ACE Enexor entered into a JV to undertake the project.

      Lower-Cost Renewables Emerging As Alternatives

      The potential for long-term growth in gas demand is nonetheless strong, though downside risks are growing and becoming more prominent amid competition for investments from lower-cost renewables. There is a strong need for gas imports to replace depleting Malampaya gas. However, fear of becoming overly exposed to LNG imports, and with it, international supply disruptions and price rises, have become more amplified in light of the recent global spot LNG price surge.

      This has driven interest in lower-cost renewables such as solar and wind, prominence of which is growing alongside falling cost of these energy sources and the popularisation of onshore wind farms, rooftop solar panels and attractive feed-in tariff schemes. The Philippines’ long-term power mix target to 2040 also calls for renewables to come to account for as much as 40-50% of the power mix, from the current 21%, while that for gas is expected to be kept stable. In addition, the lack of gas-related infrastructure in place also risks rendering the planned switch to LNG a costly affair for both firms and consumers, which would make future transition to lower-cost renewables that much more difficult to realise due to massive sunk cost.

      Gas Consumption (Philippines 2020-2025)
      Indicator 2020 2021e 2022f 2023f 2024f 2025f
      Dry natural gas consumption, bcm 4.0 3.0 3.0 3.9 4.9 5.4
      Dry natural gas consumption, % y-o-y -8.7 -25.0 1.0 30.0 25.0 10.0
      e/f = Fitch Solutions estimate/forecast. Source: JODI, Fitch Solutions
      Gas Consumption (Philippines 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas consumption, bcm 5.6 5.7 5.8 5.8 5.9 6.0
      Dry natural gas consumption, % y-o-y 3.0 2.0 2.0 1.0 1.0 1.0
      f = Fitch Solutions forecast. Source: JODI, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.


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