August 10, 2023 [RIGZONE]- The Philippines is emerging as a new frontier LNG market, attracting strong interest from LNG producers and traders.
That’s what analysts at BMI, a Fitch Solutions company, stated in a new report sent to Rigzone recently, highlighting that the country only entered the LNG market “as a small player” in April this year when Atlantic Gulf & Pacific Co (AG&P) began importing LNG.
“AG&P commissioned the country’s first five million ton per annum Philippines LNG floating, storage and regasification unit in Batangas Bay in April 2023”, the analysts noted in the report.
“Based on the approved LNG import terminals, Philippines’s LNG imports could increase up to 22 million tons per annum if all seven terminals were completed,” they added.
“Three LNG import terminals with a combined import capacity of 11.3 million tons per annum are planned to be commissioned by Q3 2023, according to the Department of Energy. The First Gen LNG Corporation could emerge the second LNG importer as the company plans to begin commercial operation of the FSRU at Batangas in September 2023,” they continued.
FGEN LNG has already issued bids for an LNG cargo of around 154,500 cubic meters for August-September delivery, according to the report, which revealed that an additional three terminals that have a total import capacity of 10.7 million tons per annum are scheduled to start commercial operations between 2024 and 2026.
In the report, BMI analysts stated that lower spot LNG prices could encourage potential LNG importers to accelerate construction of LNG import terminals.
“Uncertainties surround the levels of LNG demand and the volumes the Philippines will be importing,” the analysts said in the report.
“We anticipate LNG imports will vary depending on the buyers’ ability to pay and projected demand from power and industrial sectors. Any upside gains to prices will slow down LNG imports while a drop will encourage increased imports,” they added.
“Currently, none of the potential LNG consumers has signed a long-term sale and purchase agreements (SPAs) with LNG producers and traders, making them entirely exposed to spot LNG market. FGEN LNG is the only company which is reported to be currently negotiating with LNG producers to secure medium-term SPAs until 2027,” the analysts went on to state.
FGEN LNG is unlikely to sign long-term SPAs because the company is still open to extending gas supply agreements with the operators of the Malampaya gas project, the BMI analysts said in the report, adding that the Philippines government signed an agreement to extend the contract for Malampaya gas field for another 15 years in April.
“Drilling activities under the new contract are expected to begin in 2026. Any upside risk to gas production now hinges on discovery of additional gas reserves at the Malampaya gas field,” the analysts noted in the report.
“If the Philippines fails to increase domestic gas production, this could end the era of cheap gas for Philippines’ power producers as they transition from piped gas to LNG-fired power generation,” they added.
Foreign Investors, Future LNG Demand Growth
The BMI analysts highlighted in the report that foreign investors in Philippine LNG import terminals include LNG producers and LNG buyers and traders such as Osaka Gas, Tokyo Gas, Excelerate Energy, and Shell.
Based on the composition of foreign investors, future LNG supplies to Philippines are likely to come from the U.S., UAE, and portfolios of LNG assets held by Shell and Japanese companies, the analysts stated in the report.
“Most of the companies that operate LNG terminals in the Philippines are eyeing to capture LNG transshipment and trading opportunities within Asia allowing the third-party access to regional LNG players,” the BMI analysts said in the report.
“Energy World Corporation and Luzon LNG Terminal Inc. plan to engage in third-party LNG trading activities. We anticipate LNG exports out of Philippines if third-party LNG players become more active in spot LNG trading,” they added.
The analysts also outlined in the report that future LNG demand growth in the country will depend to a large extent on further expansion of gas-fired power generation capacities.
“The Philippines has been a potential new LNG import market for many years, with production from Malampaya depleting and limited potential for new economic production in near term,” they said in the report.
“Recent weakness in gas consumption, which declined 15 percent in 2022, is closely related to falling domestic production. Gas consumption is expected to recover in 2023 against the backdrop of projected increase in LNG imports intended to support the power sector, which holds the key to future LNG demand growth,” they added.
“The DOE in its latest monthly report issued on April 2023 indicates that the DOE intends to raise gas-fired power generation capacity up to 146,858 MW by 2040 from current 26,882 MW in 2022. However, the Philippines is facing a dilemma as to whether to favor power generation from renewables over natural gas,” they continued.
Though renewables can contribute more to the country’s decarbonization efforts, LNG is considered to be more reliable than renewables such as hydro, solar, and wind which are subject to weather conditions and tend to be intermittent, the analysts noted in the report.
“There are limited prospects for gas demand growth in the industrial, commercial, residential and transport sectors despite the government’s strong policy support,” the BMI analysts warned in the report.
“Statistics on sectoral demand for natural gas in the Philippines indicates power sector is currently the sole consumer of natural gas. In contrast, natural gas use in the industrial sector has fallen to zero in 2022 following the closure of Shell’s Batangas refinery which used to be the largest user of natural gas for industrial purposes,” they added.
“Industrial demand for LNG will depend to a large extent on the pace of expansion in gas-based industries. The DOE targets to expand 1.5 percent increase in aggregate natural gas consumption from the transport and industrial sectors between 2020 and 2040,” they continued.
Global LNG Imports
A gas and LNG market update from Rystad Energy Vice President Kaushal Ramesh, which was sent to Rigzone earlier this month, showed that Asia, excluding the Middle East, was the largest LNG importing region last year.
According to the update, the region’s LNG import volumes stayed between 20 and 25 million tons per month for most of the year. Europe’s LNG import volumes were close to 10 million tons per month in all of 2022, while an LNG import region titled ‘others’ saw imports well under five million tons per month all of last year, the update highlighted.
Looking at LNG import volumes in July this year, the update revealed that Asia’s LNG imports totaled around 20 million tons, Europe’s totaled well under 10 million tons, and ‘others’ totaled well under five million tons.
Back in January this year, Asia’s LNG imports totaled around 23 million tons, Europe’s totaled around 10 million tons, and ‘others’ totaled around 2.5 million tons, according to the update.
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