‘High prices, Ukraine war threaten viability of LNG’

The viability of the liquefied natural gas (LNG) business in the country is unclear due to the spike in prices and the continued tension between Ukraine and Russia, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

“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,” it said.

Current LNG prices of roughly $35 per British thermal unit (MMBtu) would result in a power price of nearly P12.33-15.70 per kilowatt-hour in the Philippines. “This is already much higher than the country’s average price for power, even before adding any capital costs to build the power plant,” said IEEFA.

Asian spot price for LNG last March reached $84.76 per MMBtu, more than 15 times the price in March 2021. Prices, it said, are expected to remain high until at least 2026, when significant new supply capacity comes online.

While some LNG importing countries have secured long-term purchase contracts, which require sellers to deliver LNG on a predetermined schedule and price formula, the Philippines does not have any long-term contracts, IEEFA said citing the International Energy Agency’s recent gas market update.

“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,” it said.

The Philippines is expected to import its first ever shipment of LNG this year. However, IEEFA noted that “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.”

According to a recent report from the Center for Energy, Ecology, and Development, the Philippines has 36.5 million tons per annum (mtpa) of LNG import terminal capacity under development, along with 29.9 gigawatts (GW) of gas-fired power projects. “Risks surrounding limited global LNG supply and exorbitant costs are expected to persist over the next decade. If passed on to consumers, high imported fuel prices would result in higher power prices for Filipino household and businesses, potentially stunting economic development.

Domestic renewables, meanwhile, can deliver low-cost power at scale, as demonstrated by the recent success of the Green Energy Auction Program. If held annually, the auction could significantly reduce the country’s need for new LNG capacity over the next decade. As the Philippines accelerates its transition to clean energy, LNG assets are likely to become more uncompetitive and unnecessary,” it said.

Six LNG projects have secured the green light of the Department of Energy (DOE). These are FGEN LNG Corp.’s Interim FRSU and LNG terminal, Linseed Field Power Corp.’s FSRU and onshore regasification, Energy World Corp.’s LNG storage and regasification terminal project, the FSRU LNG terminal of Excelerate Energy L.P., the FSRU terminal project of Shell Energy Philippines Inc., and the FSRU terminal of Vires Energy Corp.

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