Economic sustainability of LNG in doubt – IEEFA

MANILA, Philippines — The economic sustainability of liquefied natural gas (LNG) in the country remains in doubt amid power deal issues and global price volatility, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

In a report, IEEFA LNG/gas research lead for Asia Sam Reynolds said the recent power contract disputes demonstrate the difficulty of pricing imported LNG into the Philippine market and cast doubt on the economic viability of LNG expansion plans.

Reynolds said these two contracts involve power plants, one existing and one proposed, which plan to run on LNG from the AG&P’s import terminal in Batangas.

“LNG-to-power contracts in the Philippines may face constant legal and regulatory risks given the high costs and inherent volatility of LNG prices in global markets,” Reynolds said.

“Ultimately, however, fixed pricing terms are essential to protect consumers from expensive decisions to rely on foreign LNG,” he said.

Reynolds said the Philippines purchased its inaugural shipment of LNG last week, but the cost of the country’s first LNG cargo was undisclosed.

At current LNG prices in Asia, IEEFA estimates that rates from LNG-fired power generation in the Philippines could be roughly P9 per kilowatt hour (kWh).

But based on average global LNG prices last year, it said LNG-fired power could cost as much as P16 per kWh.

“The Philippines pays among the highest power prices in Asia due largely to over-reliance on volatile imported fossil fuels. When global coal, oil, and gas prices spike, so do consumer electricity bills,” Reynolds said.

“As power supply agreements for coal and LNG-fired power are renegotiated, however, there is still a major risk that highly volatile fossil fuel costs are passed through to consumers for decades to come,” he said.

Reynolds said with contracts to supply power now in flux, the timing, price, and amount of LNG that the country needs are still in question.

In its Global LNG Outlook last February, IEEFA said the Philippines would be forced into expensive spot markets as global LNG supplies are likely to remain tight through 2025.

It said long-term LNG contracts with deliveries starting before 2026 are reportedly sold out globally, forcing Southeast Asian countries into expensive spot markets.