BMI Flags Philippines Upstream Gas Dilemma

In a new BMI report sent to Rigzone by the Fitch Group, analysts at BMI, a Fitch Solutions company, flagged an “upstream gas dilemma” for the Philippines.

The analysts noted in the report that the Philippines’ long-term outlook on gas production hinges on the success of drilling activities at the Malampaya gas field. The added that the discovery of the field transformed the Philippines’ energy sector but warned that the country now faces declining production and increasing LNG import dependence.

“Long-term forecasts predict gas production will drop from 2.13 billion cubic meters (bcm) in 2024 to 0.94 bcm in 2033, a staggering 55.87 percent reduction,” the BMI analysts said in the report.

The analysts highlighted in the report that, at the end of 2022, Prime Infrastructure Capital acquired 100 percent ownership of the Malampaya gas field from Shell. They noted that the extension of the Service Contract 38 (SC 38) “rises hopes for continued gas production” but said “it remains to be seen whether planned drilling efforts would result in additional gas discoveries”.

“Dutch offshore contractor Allseas has secured a $180 million contract from Prime Energy Resources Development, a subsidiary of Prime Infrastructure Capital Inc., to install essential pipeline and umbilical infrastructure for the Malampaya natural gas field,” the analysts pointed out in the report.

“This is part of Project Sinagtala, the Malampaya life extension initiative aimed at enhancing the nation’s energy security. Prime Energy intends to invest up to $800 million in this initiative, which involves drilling two deepwater development wells in the Camago and Malampaya East fields and a third exploratory well named Bagong Pagasa,” they added.

“The project’s goal is to extend the gas field’s operational life until 2026, with first gas expected that year,” they continued.

Gas Consumption

The BMI analysts warned in the report that natural gas consumption in the Philippines is expected to rise from 2.85 bcm in 2022 to 12.63 bcm in 2033, “marking a 343.51 percent increase”.

“This strong demand growth will be fueled primarily by the expansion of gas-fired power generation capacity,” the analysts said.

“Despite robust government support, gas demand growth in the Philippines remains limited across various sectors. Currently, only the power sector consumes natural gas, as industrial use dropped to zero in 2022 following the closure of Shell’s Batangas refinery,” they added.

“The Department of Energy (DOE) aims for a 1.5 percent increase in natural gas consumption from the transport and industrial sectors by 2040. However, growth in the transport sector is unlikely in the short to medium term, as the government favors electric vehicles over compressed natural gas (CNG) vehicles,” they continued.

In the report, the BMI analysts noted that, until 2022, the Philippines was self-sufficient in natural gas, but added that, from 2023, the country has shown a reliance on LNG imports, “forecast to rise from 3.10 bcm in 2023 to 11.68 bcm in 2033”.

“The LNG import growth outlook for the Philippines is bullish, but imports may be hampered by strengthening spot LNG prices,” the analysts warned.

“Further increases in prices will slow down LNG imports and vice versa. Currently, none of the potential LNG consumers has signed long-term sale and purchase agreements with LNG producers and traders, leaving them entirely exposed to the spot LNG market,” they added.

Profound Implications

The BMI analysts stated in the report that the implications of the declining production from the Malampaya gas field and the increasing reliance on LNG imports are profound for the Philippines’ energy sector.

“With relatively low natural gas production, the Philippines may face challenges in achieving energy security and may need to rely on imports to meet its energy demands,” the analysts said in the report.

“This dependence on imports can expose the country to global market fluctuations and supply chain disruptions,” they added.

The analysts also noted in the report that the volatility of LNG prices due to geopolitical factors adds another layer of uncertainty for investors and industry stakeholders.

“To address these issues, the Philippines Department of Energy aims to enhance its downstream natural gas recovery as well as improve LNG import infrastructure, as guided by DOE Department Circular (DC) 2017-11-0012,” the analysts highlighted.

“Additionally, resource exploration, including the evaluation of prospective sedimentary basins and the lifting of the moratorium on West Philippine Sea resource exploration, could potentially increase recoverable reserves significantly,” they added.

EI Data

According to the Energy Institute’s 2024 statistical review of world energy, the Philippines’ natural gas consumption totaled 3.2 bcm in 2023.

That figure marked 4.0 percent year on year increase and 0.1 percent of global natural gas consumption last year, the review outlined. From 2013 to 2023, Philippines natural gas consumption has dropped by an average of 0.5 percent per year, the review showed.

The top three nations in terms of natural gas consumption in 2023 were the U.S., with 886.5 bcm, Russia, with 453.4 bcm, and China, with 404.8 bcm, according to the review.

The latest EI review did not list the Philippines by name under an Asia Pacific subcategory for gas output. It included an ‘other Asia Pacific’ production figure, which totaled 22.0 bcm in 2023. The listed country under the Asia Pacific subcategory with the lowest natural gas output figure was Vietnam, with 7.2 bcm in 2023.

The top three countries in terms of natural gas production last year were the U.S., with 1035.3 bcm, Russia, with 586.4 bcm, and Iran, with 251.7 bcm, the review showed.

To contact the author, email andreas.exarheas@rigzone.com