On cost impact, market risks First Gen re-assessing LNG investments

Two major factors – cost impact on consumers and market risks -- are being studied and re-assessed by First Gen Corporation of the Lopez Group before pursuing investments on their planned “series of Saints gas plants” and an integrated liquefied natural gas (LNG) terminal.

In an interview with reporters, First Gen chairman Federico R. Lopez indicated that they are keeping track of developments as to how gas prices will shape in the Asian market following last week’s signing of a gas supply deal between the ‘super power economies’ of China and Russia.

Additionally, the company is looking at the various geopolitical factors that have been swamping the global oil market with supply which in turn, could have ‘price pull down’ effect on gas commodity.

“A lot of the gas coming from Japan is still on the expensive range about $15-17 per million BTU (British thermal unit). But what we see when China signed this deal with Russia, it was lower price than the first one…’” Lopez said.

Although he noted that the details of the agreement have been sparse, the information circulating to market watchers had been that with a lot of gas now flooding the market, “it’s interesting and it’s bringing down prices, (there’s) a lot of competition.”

First Gen board director Richard B. Tantoco has added that “the current thinking right now is that LNG is heading toward a bit of oversupply and prices will trend down.”

The Lopez firm, according to company president Francis Giles B. Puno will reach decision point on the next phase of their successive gas power projects next year – the proposed 414-megawatt Sta. Maria gas plant. But the crucial consideration there will be off-take agreements for the plant’s capacity.

This will follow the development plot of the 414-MW San Gabriel power project which broke ground this year and due for commercial commissioning in 2016. If the final decision is to move forward with the Sta Maria facility, First Gen is looking forward to putting that on stream by 2017.

Lopez admitted that the higher cost of gas as a fuel for electricity generation remains a hurdle that they must seriously consider – especially in an electricity market of penny-pinching consumers like the Philippines.

“You have to compete against each other, so at the end of the day, if your gas cannot compete, it’s hard to bring that to the market. Most of the consumers, they still look for cheap power,” he stressed.

For the domestic power industry, he noted that the lack of fuel mix policy could spur the preponderance of cheaper technologies in the mix – with the environment or air quality case just being relegated to the background.

“The only thing is that it will, I mean with the Philippine setting, even if you put up LNG terminal, power plants … you still have to compete with other sources. And the big challenges that the Philippines have is that we compete. It’s not like in other countries they determine what’s the fuel mix,” Lopez stressed.