Twitter Regulatory and infrastructural headwinds to liquefied natural gas (LNG) projects and competition from cheap coal are seen to curtail gas growth in the Philippines, Fitch Group-owned BMI Research has said.
In its analysis, BMI projects an average annual gas growth of 5 percent over 2018 to 2026, slightly above the average 4.6 percent in Asian emerging markets, and underperforms higher-growth markets, including China and Vietnam.
The lure of cheap coal, the prices for which would see downside pressure over the medium-to-long term, and the scale of coal-fired power projects in the pipeline would continue to loom large over the energy sector, BMI said.
Citing its Infrastructure Key Projects Database, the research firm said coal and LNG projects in the Philippines have a total capacity of 7,300 megawatts and 1,500MW, respectively.
According to BMI, the country's new energy plan (2017-2040) envisions a significantly expanded role for coal in the coming years, despite the pursuit of economic growth, improving energy security and providing access to basic electricity to all households.
The plan lacks any specific commitment to clean energy or cut emissions, and the country is focused on capitalizing on favorable coal prices to fulfill its electricity needs.
Instead, it intends to increase coal's share in the energy mix from 21 percent last year to 42 percent in 2026. Conversely, it seeks to decrease that for gas from 6 percent to 4 percent, alongside substantial reductions for solar, wind, geothermal and biomass.
BMI said the underwhelming targets, especially for gas, imply that while the Philippines is willing to offset the decline in gas sourced from the Malampaya Deepwater Gas-to-Power project by importing LNG, it is by no means prepared to steer its energy mix toward greater gas consumption, unlike in China and Pakistan.
This dampens the outlook for many proposed LNG projects, mostly LNG-to-power projects based off floating storage regasification units in the country, with local and international firms, such as First Gen Corp., Pilipinas Shell, Tokyo Gas and Total still seeking partnership opportunities with local players.
It also noted the minimal support it gets from the government, with the request for additional transmission lines made to the Energy Regulatory Commission overwhelmed by red tape.
The Malampaya project represents a significant concern for the Philippines, as the mature field, which provides nearly all of its annual gas production, will be nearly depleted by the end of our 10-year forecast period, BMI said.
The lack of significant new projects in the pipeline has prompted the country to seek LNG imports for the first time to offset the immiment decline in Malampaya's gas supply, as well as ensure adequate supply for the power, transportation and residential sectors.
The company said the first LNG imports will be made through Energy World Corp. (EWC) $550-million Pagbilao LNG hub in Quezon province, though the project, which would entail using a 4.1-billion cubic meter (bcm) regasification unit and a 650MW LNG-fired power plant, is now expected to start by 2018.
Despite sufficient funding from the Development Bank of the Philippines (DBP) and a consortium of local banks, the project has struggled to take off over the last few quarters because of the difficulty to access existing transmission infrastructure, most of which is dominated by coal-fired power generators.
The EWC, for instance, has sought to link up to the Luzon power grid via an existing transmission network owned by TeaM Energy Philippines, which runs a 735MW coal-fired power facility in the area.
TeaM Energy was reluctant to grant access, as the company itself requires additional transmission capacity to support its planned expansion of 420MW by the end of the year.
Still, the project is expected to make more pronounced progress over the succeeding months, as the reality of the depletion at the Malampaya gas facility begins to bite.
Coal imports surged 80 percent year-over-year over the first 11 months of 2017, BMI said, citing statistics from the Department of Energy.
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