LNG to fuel growth of economy

The Philippines is on the brink of a fuel revolution, with the entry of new-generation products powering the energy and transportation sectors in the medium term.

The government wants to make sure there is sustainability in the natural gas industry as the natural gas from the Malampaya gas field in northwest Palawan may last only until 2024.

It also promotes the use of electric vehicles, particularly e-tricycles, to reduce pollution while supporting sustainable livelihood among tricycle drivers.

The oil industry, meanwhile, is bracing for another revolution in the fuel sector, with the implementation of the Euro 4 standards by 2016.

Euro 4 refers to globally-accepted European emission standards for vehicles, which require fuel with significantly low amounts of sulfur and benzene aimed at promoting a cleaner environment.

The Energy Department is pushing for the development of liquefied natural gas, or natural gas that has been converted to liquid for easier transport then regasified and distributed through natural gas pipelines.

Numerous groups have expressed interest to participate in the LNG industry, including Pilipinas Shell Petroleum Corp. and First Gen Corp.

Shell is the operator of the Malampaya gas-to-power project while First Gen operates two natural gas power plants in Batangas with a combined capacity of 1,200 megawatts.

Shell already completed initial studies for an LNG import terminal facility in Batangas while First Gen plans to put up its own LNG terminal in the same location.

Investors, however, are waiting for the finalization of the Energy Department’s LNG master plan.

The Lantau Group, a Hong Kong-based strategy and consulting firm engaged by the Energy Department, has come out with the first phase report on the Philippines natural gas master plan, an assessment of the role of liquefied natural gas in the local energy market.

The report, supported by the World Bank and still subject to public comments, identifies issues and concerns related to the development of LNG.

The report said the economic dispatch of LNG power projects was reliant on displacing high cost of generation sources such as oil-based plants but was not expected to displace oil-fired power plants.

It said despite pronouncements that there were over 4,140 MW of coal power capacity eyed for commissioning by 2020 in addition to the 570 MW of committed capacities in Luzon, there was still “space” for LNG.  Some coal projects are likely to be delayed and in some cases, canceled, it said.

“The space for LNG-fired capacity and generation in the least-cost mix is reasonably robust to additional local-fired capacity in the medium-term. If significant coal plants are commissioned then the quantum of LNG capacity required is relatively consistent, albeit it may be partly shifted from 2017 to 2018 or even 2019,” it said.

The report said the issue of what form of fuel for power generation is needed to address the country’s growing power demand is “more complex” than the discussion of “coal or gas” and under a least-cost outcome involves both new coal plants and new gas supplies.

It said that while National Power Corp. could no longer make investments in electricity generation, the government through the Energy Department and Philippine National Oil Co. “might have greater latitude to make investments in LNG regassification and gas pipelines.”

“The public policy rationale for such direct investment would be that access to gas provides broad-based benefits to the Philippines power sector. The costs of this infrastructure could then be recovered via a similarly- broad-based charge [similar to a feed-in tariff allowance subsidy from consumers for the environmental benefits of renewable energy],” it said.

The report said, however, that PNOC might approach LNG investments on a commercial basis, which limits the feasibility of the LNG projects.

The report also recommended tax exemptions or holidays for LNG and combined cycle gas turbine infrastructure investments to enable them to be “financeable.”

The report also recommended implementing a limit on the carbon emissions of each generation company’s portfolio “that would tilt the generation economics in favor of gas investments.”

The Asian Development Bank-funded $300 million e-trike program aims to save more than $100 million a year in avoided fuel imports, while decreasing annual carbon emissions by about 260,000 tons through the replacement of 100,000 gasoline-fed tricycles.

The government’s Energy Efficient Electric Vehicle Project aims to reduce the transport sector’s annual petroleum consumption by 89 million liters a year and achieve a 79-percent emission avoidance by shifting to 100,000 tricycles running on pure  electricity. President Aquino approved the project on March 22, 2012.

About 3.5 million gas-fed  motorcycles and tricycles are currently operating in the Philippines.

Energy Undersecretary Loreta Ayson said the project could help transform transportation in the Philippines “and positions the country as a leader in electric vehicle development.”

The e-trike project will run for five years, with an estimated completion date of December 2017.

The department has yet to award manufacturing of e-trikes to the bidders but so far around 10 local government units already expressed strong interest to participate in the program.

The local government units are Mandaluyong,  Tarlac City, Javier in Leyte; San Pablo; Boracay; Batangas City, Marikina City; San Jose City in Camarines Sur ; Imus in Cavite (200 units) and Calapan, Mindoro.

The department is still  evaluating the bid offers of the foreign e-trike suppliers.

The new e-trikes run on an electric motor and rechargeable lithium-ion battery will be offered under a lease-to-own arrangement.

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