June 12, 2023 [S&P Global]- Philippines’ First Gen Corp aims to start commercial operations at its inaugural offshore LNG receiving terminal in Batangas in early October and is currently negotiating to finalize medium-term LNG supplies until 2027, company Chief Commercial Officer Jon Russell told S&P Global Commodity Insights in an interview.

“The Philippines is a relatively new entrant in the LNG market. I think there has been a lot of interest from potential sellers in finding an opportunity to play a role in this new market,” Russell said. “We are all trying to find our feet.”

The First Gen terminal, the second LNG terminal in the Philippines, is starting operations at a time when production at the country’s indigenous Malampaya gas field is declining rapidly, making the development of LNG infrastructure imperative.

First Gen, the largest user of natural gas in the Philippines, has a contractual obligation to draw gas from Malampaya until early 2024. However, First Gen has indicated that it is open to extending those contracts, Russell said.

“It’s been a difficult period for buyers, and we are pleased to see on behalf of the Philippines that LNG prices have become a little bit more realistic of late… We are also hopeful that from 2026 onwards, prices would be more reasonable and supply more plentiful for buyers like us,” Russell said.

Asian LNG spot prices hit a record-high of $84.762/MMBtu on March 7, 2022, reflecting the impact of the Russia-Ukraine war, but have weakened now. Platts assessed the July JKM at $9.001/MMBtu and August JKM derivatives at $9.46/MMBtu June 8, according to S&P Global data.

When it comes to pricing the company’s medium-term contracts, it has not ruled out traditional oil-linked contracts, Henry Hub or novel featuresif those are on the table, Russell said.

The company’s subsidiary FGEN LNG Corp has already executed a five-year time charter for the FSRU BW Batangas that will be deployed at the First Gen Clean Energy Complex in Batangas City for LNG storage and regasification.

First Gen’s existing liquid fuel jetty, used to bring in condensates to stem any potential outages of Malampaya gas, has now been converted into a multi-purpose jetty, Russell said.

“After the upgrade, the jetty is much bigger and can handle FSRUs and LNG carriers to take regasified LNG onshore to be used directly by our power plants,” Russell said, adding that the jetty is also connected to an existing gas grid, allowing LNG and Malampaya gas to be co-mingled.

BW Batangas, formerly BW Paris, is due to arrive at the complex around June 14, Russell said, adding that the FSRU will be taken to Subic to carry out a ship-to-ship transfer with a single cargo before it returns for commissioning.

First Gen has already invited bids for an LNG cargo of around 154,500 cu m, subject to an operational tolerance of plus/minus 3%, for August-September delivery.

“We want to use the cargo to show that the terminal works and to demonstrate that the gas plants work on a range of fuels because there is a big difference in the calorific value between the fuels,” Russell said.

“First Gen decided to proceed with this development before the normal contracts were in place because we had existing capacity,” he said.

By 2030, the company aims to increase its installed power capacity to 13 GW through gas, hydro, geothermal, wind and solar, Russell said.

“We have big plans to add additional gas plants. 1.2 GW can be realized quickly,” Russell said, adding that “we are also looking to subsequently add another 3-4 GW at additional sites in various parts of the Philippines including Luzon.”

Small-scale LNG

Malampaya was developed with the idea that it would be a growing market for gas. However, historically the use of Malampaya gas has been limited to a few power plants because as a pipeline gas it was relatively expensive, and it was not that easy to develop a gas grid, making it challenging to capture non-power customers, Russell said. Still, power generated using Malampaya gas has always been competitive, he said.

“Except for the recent period following the invasion of Ukraine, the price of LNG has been broadly comparable with the price of Malampaya gas over the long term,” Russell said.

According to Russell, LNG “opens new possibilities and can displace the liquid fuels market throughout the Philippines quite easily.”

In addition to ensuring energy security, LNG will also help Philippines decarbonize by providing an alternative to coal and enable the ramp up of more intermittent renewables such as solar and wind, Russell said. Opportunities to develop small-scale LNG also exist.

“We certainly are looking to develop the small-scale LNG market by making a provision for LNG trucking for supplying onshore,” Russell said, adding that it was drawing interest from potential customers.

“We are also looking at small scale LNG supplied on the vessel side, using special vessels to be able to take LNG in smaller parcels to other parts of the Philippines. So, I think that market will develop too,” he added.

Onshore LNG terminal

The company could also revisit its plans for constructing an onshore terminal, a plan that was envisaged in 2012, with an initial targeted capacity to handle 3.5 -4 GW, or about 3 million-5 million mt/year of LNG, Russell said.

“We went quite a long way down the track in developing that,” with several rounds of FEED and an EPC process but “paused” and pivoted towards a floating solution as it could be realized more quickly and with lower capital expenditures, Russell said.

However, the company’s current site is expandable and can add two 200,000 cu m storage tanks if required, he added.

Whether First Gen would build the full initially contemplated terminal or a variation of that would be reevaluated in the future, depending on signs of emerging gas demand and after more clarity emerges in regulatory policies and in the refinement of offtake contracts, he said.

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