Lopez-led First Gen Corp. (First Gen) is firming up plans to partner with state-run Philippine National Oil Co. (PNOC) to deliver the country’s liquefied natural gas (LNG) terminal right in time before the depletion of Malampaya.
“We have said in the past, what we are in favor of is the development of a LNG terminal because it is important to address the depletion risk of Malampaya,” First Gen President and COO Francis Giles B. Puno said in a recent interview.
“What we have done with PNOC is to have discussions with them, looking at what are the possible options available, including development of a terminal in our own site, how do we ensure we cooperate with them in order to ensure that this investment pushes through, the role of PNOC is obviously an important one,” he said.
The Malampaya gas facility, which at present is the only source of fuel for Philippine natural gas plants, is set to close when its service contract expires in 2024, and the gas field is projected to be completely depleted by 2030.
Malampaya is currently responsible for approximately 2,700 megawatts (MW) of installed energy generating capacity.
PNOC is targeting to complete the terminal by 2022, just in time when Malampaya runs out.
“We hope there is more Malampaya gas because it gives us flexibility. but what it means, with even residual Malampaya gas, we can blend the two so consumers can benefit from lower electricity costs. Government has a role to play in tempering the rate of fuel to lower the price of electricity,” Puno said.
In terms of equity for the project, Puno said that First Gen has always been flexible, “Right now, we’re solely underwriting the risk but the whole idea is bringing in partners and to cooperate with a number of partners for LNG to be able to make sure that the LNG terminal is built.”
“What that means is, even for ourselves, we will be flexible about our effective ownership. Right now we own 100 percent of the power generation business. We never envisioned to be full owners of the LNG terminal,” he explained.
“What we would like is to have a significant ownership. What that means is it can be as little as 30 percent and have others doing it depending on who will comprise the total consortium. It means there is plenty of room for PNOC and other strategic investors because we are incentivized to make sure that the terminal itself becomes real and is constructed,” he added.
First Gen is forwarding its own asset, a bigger property, as site for the planned LNG terminal.
“It is fair to say that the site we have chosen is in a far more advanced state because of all the work that has been done to ensure that that it is a feasible site. But if we choose an alternative site, which we can, then we have to also start doing the same homework in terms of determining its feasibility,” Puno said.
Integration of investments along the chain
“In fact, we have informed the Department of Energy that there is an expansion opportunity within the Batangas Clean Energy Complex with Sta. Maria, St. Joseph and if we need to build other peak units like Avion, then we can also do that,” Puno said.
“There is flexibility to be able to build more capacity. we will be open to co-develop, co-invest for these opportunity to become a reality,” he said.
Puno explained that the FGEN-PNOC negotiation is not in an advance phase where both comapanies can sign anything, “But I think all our discussions have been serious not only with PNOC, but also with others”.
The natural gas platform now stands at 2,011-megawatt (MW).
First Gen, through its subsidiaries, is the largest producer of natural gas-fired power in the Philippines. All of its plants are located in the First Gen Clean Energy Complex in Batangas City. It has four natural gas-fired power plants operating today: the 1000-MW Santa Rita, the 500-MW San Lorenzo, as well as the newly operating 97-MW Avion, and the 414-MW San Gabriel mid-merit power plants.
First Gen has a total installed capacity of 3,471 MW accounting for approximately 21 percent of the country’s gross generation.
“Right now, the advantage is that there is an abundant supply of gas. Because of this, the motivated party is actually less First Gen. It’s actually more of the gas supplies. What we’re saying is we need to be able to compete not only on a mid-merit and peaking but also with base load coal,” First Gen Chairman and CEO Federico R. Lopez said.
“In a way what we’re trying to do is negotiate a favorable pricing on gas to be able to compete against coal in
particular. And they acknowledge this. Because they realize that if it’s more expensive then they’re not going to be dispatched anyway. So they understand this situation,” he said.
“Previously they were very inflexible. Today because of the abundance of supply, they are, across the board, quite flexible. And we think it’s a good time to do that for a country like the Philippines, that has an existing demand for it,” he added.