PNOC-EC studying takeover of Malampaya after contract ends in 2024

STATE- OWNED Philippine National Oil Co.-Exploration Corp. (PNOC-EC) is studying the viability of taking over the Malampaya offshore gas-to-power project when its existing contract expires in 2024, an Energy official said on Monday.

Leonido J. Pulido III, assistant secretary at the Department of Energy (DoE), told reporters that a study, which PNOC-EC targets to complete this year, seeks to answer two crucial technical issues relating to the project.

“The first part is, is it commercially viable? [ Is] it more beneficial for the national government, for PNOC- EC to continue the concession agreement?” he said.

Shell Philippines Exploration B.V. (SPEx) and consortium partners Chevron Malampaya LLC and PNOC-EC operate the offshore Malampaya natural gas platform, which fuels several power plants in Batangas. PNOCEC is a unit of the DoE’s commercial arm, Philippine National Oil Co.

“The second part is, will it be commercially viable?… As an additional [ fuel] source — it amounts to 1,000 megawatts ( MW) worth of natural gas to the east of SC ( Service Contract No.) 38,” Mr. Pulido said, adding that the study should also answer “whether PNOC-EC will actually drill and extract that gas.”

The project is spearheaded by the DoE and developed and operated by SPEx on behalf of joint venture partners. Since its inception in 2001, Malampaya has been providing a stable supply of energy, meeting 35% to 40% of Luzon’s power needs.

The DoE previously said that it had not granted any extension for SC 38, which is set to expire in 2024. It had said the consortium’s application remains pending since 2008, when it filed for a 15year extension.

Under SC 38, the government is entitled to receive an amount equal to 60% of the net proceeds from the sale of petroleum, including natural gas, produced from the project’s operations. The service contractors are entitled an amount equal to 40%.

For now, Mr. Pulido said the consortium has decided not to drill the estimated 1,000- MW worth of fuel, claiming that doing so would not be commercially viable.

“We’re supposed to give our recommendation to the Secretary [of DoE Alfonso G. Cusi] by the end of this year,” he said.

EXTENDED CONCESSION?

Mr. Pulido said the position of SPEx is that the project would be more efficient if the consortium partners continue with an extended concession contract.

“But then again, the [ DoE] has to look for other options. One of those factors that we are considering is, we will find — we are confident in our upstream resource exploration data — another source like Malampaya in the future, especially once the geopolitical situation stabilizes,” he said.

“And if you’re confident that you’ll find such a resource, you have to be ready to operate your own. So we need capacity- building. And it’s an opportunity to develop capacity within your own country. So that’s one of the reasons why we’re looking into allowing PNOC-EC to continue the concession agreement,” he added.

Should the study recommend that the discontinuance of the concession agreement, Mr. Pulido said PNOC may choose to create a new consortium to extend the project.

However, Senator Sherwin T. Gatchalian, chairman of the Senate’s energy committee, expressed reservations about the government taking over the project, citing previous experiences in managing public services.

“Personally, I’m not confident if government can operate it properly. We have a bad history of operating, if you look at LRT, MRT… airport. And now we will operate a natural gas facility. So, I’m not very confident but I’m willing PNOC-[EC] the benefit of the doubt,” he told reporters.

But Mr. Gatchalian said he welcomes the DoE’s promise to complete the study and come up with a recommendation by the end of the year.

The DoE also vowed to issue a decision by the early part of next year.

“So we will have to wait for the details by the end of the year,” he said. “But as an observation, government is not a good operator.”

Malampaya derives natural gas from the Camago-Malampaya reservoir, a reserve of natural gas discovered in 1992 by SPEx. The natural gas flows through wells before reaching the production platform. It is then separated from water and condensate, which is a highquality byproduct. The dry natural gas then traverses a 504-kilometer subsea pipeline to fuel the power stations in Batangas.