‘PAG WALA NA SI MALAMPAYA: DOE partners with US firm to beef up LNG pricing, contracting

DOE’s new policy to protect consumers from price shocks during Malampaya maintenance

The Department of Energy (DOE) has tapped several groups including the United States for assistance in financial modeling on liquefied natural gas (LNG) projects to beef up the industry it is seen to build up the capacity for the country’s future energy needs.

Through a partnership with the US Department of Commerce-Commercial Law Department Program, law firm Latham and Watkins, and the University of the Philippines-Gas Policy Development Project, the DOE will embarked on a three-day seminar that focused on project implementation measures for the gas sector.

The main discussions will be on project structures and contracting arrangements, as well as costing and pricing mechanisms, project valuation, budget analysis, and financial modeling.

“It is high time for us to intensify our efforts in realizing our aspirations to develop our natural gas industry and transform the country as a regional LNG hub,” Energy Secretary Alfonso G. Cusi was quoted in a Manila Bulletin report.

The energy chief has plans of making the country an “LNG hub.” However, instead of positioning the Philippines as a place where buyers and sellers conduct transactions and trade, Cusi’s idea includes turning some Philippine ports as shipment ports where LNG products could be delivered to other countries.

LNG pricing however is yet to be finalized, especially with the emergence of regional hubs that no longer link gas prices with oil.

Investor First Gen Corporation is looking at a pricing scheme that will be coal-indexed to ensure that it could place competitively in the Philippine energy mix. The power firm is currently putting up its LNG import facility and new LNG-fired power projects.

For contracting, investors are both looking at short-term and long-term contracts, as well as some degree of reliance on spot procurements.

Price review and termination clauses need further study and re-assessments before being included in the LNG investments as these are slowly becoming a mandatory provisions in the procurement and selling of LNG.

Market players believe that flexibility is needed on LNG supply contracting for project developers to start exploring short-term contracts. However, strategies are also needed to slowly replace the short-term contracts with long-term ones.

Experienced LNG buyers are pursuing strategies to rationing the long-term area of their portfolio while they sign shorter term contracts with portfolio players, as new supply projects don’t get built without long-term contracts for supplement.