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Highlights

First Gen expects to bring in FSRU at Batangas project by 2022

Shell's Malampaya gas depleting, contracts expire in 2024

First Gen plans 1,200 MW of new LNG-fired generation capacity

Singapore — The Philippines' largest gas-fired power producer, First Gen Corp, plans to start limited construction at its Batangas LNG import facility in a couple of months, and bring in its floating storage regasification unit by 2022, Jon Russell, the company's executive vice president and chief commercial officer said in a recent interview.

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The FSRU-based project at First Gen's energy complex in Batangas city, about 100 km south of Manila on Luzon island, is vying to be the country's first LNG-receiving terminal.

First Gen owns four out of the Philippines' five gas-fired power plants with an installed capacity of 2,017 MW. It is supplied by Shell's Malampaya gas field, which accounts for around 21% of the country's electricity generated, but is depleting.

"The contracts expire by 2024, but already we can see the field is starting to decline and become less reliable," he said, adding that imported LNG is needed to run the existing plant and expand gas capacity that's always been constrained by Malampaya's output.

He said First Gen initially drafted plans for an onshore LNG terminal, but decided to pivot to a floating solution to introduce LNG early and at a lower cost, with the option to upgrade to an onshore facility when needed.

First Gen, which has committed to not build any coal-fired generation, said its Batangas site already has substantial infrastructure for 1 million barrels of back-up fuel storage and a jetty to berth 100,000 dwt tankers.

It plans to start modifying the jetty to handle LNG carriers or an FSRU and start construction of some limited onshore gas receiving facilities in the next couple of months, ultimately allowing an FSRU to operate by 2022.

Russell said First Gen, which also operates geothermal, hydro and solar plants, has started discussions for LNG procurement and seeks LNG supply which has the most flexibility to support the development of renewables.

"We are now conscious that different suppliers are willing to do things or even think about doing things that they weren't willing to do two years ago, even one year ago," Russell said, adding that options for hybrid pricing and various contract durations were on the table.

Russell said a key concern was flexibility. "It's sort of pointless if you've got the most flexible technology in the world but you've got a very inflexible traditional gas contract. How is that going to work?," he said.

Russell noted a recent LNG contract in Brazil where long-term supply was tailored around the uncertainly of hydroelectric power that varies every year.

In July, Golar Power, a joint venture between Golar LNG and Stonepeak Infrastructure Partners, signed a preliminary agreement to supply LNG to Norsk Hydro's Alunorte refinery plant Brazil. It said Alunorte will be the first operational customer for its Barcarena FSRU planned in the first half of 2022.

"The Philippines is different to Brazil. But some of the logic that's been utilized can also be potentially be applied here. And that's what we're keen to explore," Russell said.

CHALLENGING ENVIRONMENT

First Gen is proceeding with its FSRU plans at a challenging time when energy companies have slashed capex and projects have stalled.

"[COVID-19] certainly has not made life any easier. That's for sure. In our case we were ready to go with this project before the COVID impact came upon us. So it hasn't affected our ability to execute in the sense of having the financing available for the project," Russell said.

The Philippines Department of Energy, which has published its guide to investing in downstream natural gas, strongly backs LNG terminals because it adds to energy security and is now drafting detailed rules for a competitive downstream natural gas industry, Russell said.

He said First Gen's Batangas LNG terminal will be able to conduct LNG trucking using ISO tanks and the FSRU will be able to supply small-scale LNG vessels for island-based power plants, developed in conjunction with batteries or renewables.

In addition to supplying LNG to existing plants, First Gen plans to add 1,200 MW of new gas-fired capacity, and supplying third parties. To create this new downstream market LNG prices need to remain low.

"Obviously and traditionally, power plants can serve as the anchor load for LNG development. That may then lead on to other users, whether they be industrial users or even potentially commercial users," Russell said, adding that new consumers like data centers have a huge need for reliable 24/7 supply.

"Those kind of markets didn't exist 10 years ago, five years ago, but they're starting to become more and more of a reality now," Russell said.

"We're in an interesting situation now where it looks likely that by introducing LNG we'll be able to reduce the cost of power because the gas molecules should be cheaper than Malampaya gas," Russell said, adding that Malampaya gas is probably one of the world's most expensive pipeline gas sources.