DOE: Liquefied natural gas projects encounter delays

The anticipated commercial operation of liquefied natural gas (LNG) projects this year is unlikely to happen, but the Department of Energy (DOE) has made an assurance that these capital-intensive projects are a go.

Two LNG players have already notified the Department of Energy (DOE) of the delays in their projects.

“The target completion of construction of Linseed’s LNG terminal, including commissioning, is December this year. However, the commercial operation is expected in January next year,” said DOE-Oil Industry Management Bureau (OIMB) Director Rino Abad in an interview.

The other LNG project, which was also supposed to start commercial operation this year, is FGEN LNG Corp.’s Interim floating storage and regasification unit (FSRU) and LNG terminal.

“For FGEN, the commercial operation is in March next year,” said Abad.

These two LNG projects have a combined investment cost of about $290 million or roughly P28 billion.

Linseed Field Power Corp. had proposed to build an LNG import facility with a capacity of 3 million tons per annum (MTPA) that will supply LNG to the 1,200MW Ilijan combined cycle power plant and to another power plant that would be completed by 2024.

Linseed’s LNG permit was originally issued to Atlantic Gulf & Pacific Company of Manila Inc. (AG&P). The DOE later approved the transfer of the project application to Linseed.

AG&P is still the project contractor while Linseed will operate the LNG terminal. South Premier Power Corp. (SPPC), a unit of SMC Global Power Holdings, Corp. will be in charge of the LNG trading.

“It’s still a go for Linseed. The end of its construction permit is October next year so they are still, shall we say, ahead. It’s the commercial operation that has been delayed,” said Abad.

The DOE official cited the recent developments in the world gas market brought about by the ongoing Russia-Ukraine conflict as one of the reasons for the delay.

FGEN LNG likewise encountered delays in the completion of the project “caused by events and circumstances not within the reasonable control” of the company.

“They told us that the reason for the delay, among others, is the delivery of equipment due to the pandemic. Also, the movement of employees is limited. FGEN’s LNG  was supposed to be in November this year, but there will be a delay of 4 months to cover for the said reasons,” said Abad.

FGEN LNG’s interim FSRU and regasification terminal in Batangas City will have a capacity of 5.26 MTPA. This will provide the gas supply requirement for Sta. Rita, San Lorenzo, San Gabriel and Avion gas plants, and for the proposed 1,200MW of new natural gas power plants.

The two LNG projects are among the six that have secured the green light of the DOE. The others are Energy World Corp.’s (EWC) LNG storage and regasification terminal project, the FSRU LNG terminal of Excelerate Energy L.P., the FSRU terminal project of Shell Energy Philippines Inc. (SEP), and the FSRU terminal of Vires Energy Corp.

However, there are no firm commitments yet as to when the other proposed projects would take off.

The Institute for Energy Economics and Financial Analysis (IEEFA) said $96.7 billion worth of proposed LNG-related infrastructure developments in the Philippines, Pakistan, Bangladesh, and Vietnam face a heightened risk of underutilization or cancellation as long as unaffordable LNG prices and procurement challenges persist.

Global LNG supply is constrained partly due to the Russian-Ukraine conflict. As a result, LNG prices continue to hit record highs.

IEEFA said an inability to secure LNG volumes at competitive prices is likely to delay projects further.

“Without a viable procurement strategy for competitively priced LNG in the Philippines or Vietnam, both countries will likely face a choice between paying exorbitant prices for LNG or going without LNG altogether,” IEEFA energy analyst and author of the report Sam Reynolds had said.

He said the latter option would force the countries’ new regasification terminals and LNG-fired power plants to go unused and stranded.

“Should high prices and volatility persist for the next several years, the narrative around LNG as a viable, affordable transition fuel is likely to erode further. Ultimately, high prices now may undermine profits and exacerbate stranded asset risks for LNG projects targeting completion later this decade.”

Incentives

Consumer groups, meanwhile, called on the government to cease the massive gas expansion in the country and instead channel its efforts to the deployment of 100 percent renewable energy.

The Center for Energy Ecology and Development (CEED) urged the government to rethink its push for prioritizing policies that ramp up gas projects.

“LNG, whose price is now reaching record highs in Asia, is not the solution to our power woes brought about in part by Malampaya Gas Field restrictions and expensive imported alternative fuels,” said Gerry Arances, Executive Director of CEED.

“If the government will listen to our declaration and immediately start working on a 100 percent renewable energy-powered country, the Philippines can be a model for Southeast Asia, where gas as a transition fuel is being abused to prevent the rise of renewable energy. Let’s protect our communities, consumers, environment, and climate by going for a truly clean energy.”

However, the new administration is keen on developing the gas industry. President Ferdinand R. Marcos Jr. has recently called on Congress to enact a law seeking to foster the midstream natural gas industry by diversifying the country’s primary sources of energy and promoting the role of natural gas as a complementary fuel to variable renewable energy.

“We will provide investment incentives by clarifying the uncertain policy in upstream gas, particularly in the area close to Malampaya,” Marcos said.

For his part, Energy Secretary Raphael Lotilla said his office will address all challenges that hinder investments meant to improve the country’s power sector.

“The President included in his SONA [State of the Nation Address] legislative agenda, the passage of the law for the downstream natural gas. It is not only the upstream policies and laws that need to be clarified, but we want to have a stable regulatory framework for downstream natural gas,” he said.

“We want to provide certainty to the investments because these are long-term investments. They are not going to be there only for one administration but for several administrations. And therefore, it is best to have a law in place.”

The DOE has long been advocating for the optimization of LNG from importing the gas, establishing the necessary infrastructure to help the sector progress from its current infancy stage, and seeing the country develop into a leading LNG hub in Asia.