The Philippines aims to import its first ever shipment of liquefied natural gas (LNG) this year, as proposals to expand the country’s LNG infrastructure grow at an unprecedented rate.
However, the country is entering the global LNG market at a time of extreme uncertainty. Global LNG supply is constrained due partly to the Russian invasion of Ukraine, and LNG prices continue to hit record highs.
Inability to buy LNG at competitive rates could leave new terminals and LNG-fired power plants unused and stranded. Meanwhile, the rapid deployment of low-cost domestic renewables means that the window of opportunity for LNG investments is closing quickly.
A history of setbacks
According to a recent report from the Center for Energy, Ecology, and Development, the Philippines has 36.5 million tonnes per annum (mtpa) of LNG import terminal capacity under development, along with 29.9 gigawatts (GW) of gas-fired power projects. San Miguel Corporation alone accounts for 14.1GW of that proposed capacity.
Although the pipeline of projects has grown dramatically since 2016, LNG projects have been repeatedly cancelled in the Philippines since 2003. More recently, LNG companies have been very active due to the depletion of the Malampaya gas field, the country’s only source of domestic gas production. Two terminals were anticipated online this year, one proposed by First Gen and another by Singapore-based Atlantic Gulf & Pacific (AG&P).
Both companies have raced to bring the country’s first terminal online. First Gen even held a groundbreaking ceremony for its project in 2019, but in June 2022 the company announced yet another delay.
LNG procurement challenges abound
AG&P, meanwhile, recently reiterated its commitment to bringing an LNG import terminal online this year. However, it remains unclear how the company intends to procure LNG given limited LNG supplies globally.
Following the Russian invasion of Ukraine, Europe announced plans to reduce dependence on Russian gas by buying more LNG. With almost no spare LNG supply capacity worldwide, European buyers have been forced to outbid other countries for existing supplies.
Cargoes have flowed to buyers willing to pay the highest prices. In March 2022, the Asian spot price for LNG reached US$84.76 per million British thermal unit (MMBtu)—more than 15 times the price in March 2021. Prices are widely expected to remain high until at least 2026, when significant new supply capacity comes online.
Some LNG importing countries have been protected by existing long-term purchase contracts, which require sellers to deliver LNG on a predetermined schedule and price formula. But according to the International Energy Agency’s recent gas market update, the Philippines does not have any long-term contracts.
This means that the country will be forced to outbid wealthy buyers in Europe and Northeast Asia for limited LNG supplies, exposing the country to high prices and extreme volatility. Without access to affordable fuel, LNG-to-power proposals in the Philippines could be delayed, cancelled, or stranded.