As the rest of the world grapples with an energy crisis, the import-dependent Philippines continues to watch its petrol prices surge to unprecedented levels, with the transportation sector being the first to hurt from the price hike of “poor man’s fuel”. Traditionally rated around P30 per liter, diesel now stands at just a few pesos to cheaper than gasoline with over P50 per liter.
Meanwhile, electricity bills are slowly inching up to the occasion. A slight increase of 0.0283 centavos per kilowatt-hour (kWh) in October marked the seventh consecutive month of power rate hikes by power distributor Manila Electric Company (Meralco). During the same month, Luzon’s major power supplier, the Malampaya gas field, conducted preventive maintenance for 20 days, exposing the reservoir’s current capabilities—or limits, rather—to sustain the country’s energy needs in the foreseeable future.
Rates and concerns
The Malampaya gas field, a deepwater gas-to-power reservoir located near Palawan, is connected to five power plants that supply the Luzon power grid, accounting for 40 percent of its natural gas requirements. Its 20-day shutdown has stirred concerns over higher electricity prices as power plants that rely on Malampaya will have to import condensate—a costlier liquid fuel—during the non-producing timeframe. This comes amid skyrocketing prices of fuel around the world and a depreciating Philippine peso.
Department of Energy (DOE) Undersecretary Felix William Fuentebella discloses, however, that these concerns have been planned for way ahead of the maintenance shutdown. Power plants should have already stockpiled condensate months prior to October, which means that the plants’ generation costs are not exposed to the most recent fuel hikes, he points out.
The recent fuel hikes may not have directly affected generation costs, but Meralco announced on November 12 that the lack of supply from Malampaya during the shutdown had significantly pushed November rates up. Lower supply in the Wholesale Electricity Spot Market—which accounts for a significant chunk of the company’s generation charges—raised prices to P5.8029 per kWh from P4.0956 in October.
Costs from Malampaya-fired power plants such as Sta. Rita and San Lorenzo also inched up by P0.8186 per kWh after having to import condensate to address shortages, Meralco notes. But this alternative move is not foreseen to stop after the October shutdown. Malampaya’s output is beginning to decline, and experts note that it may run dry even before the expected end of its life in 2027. According to DOE’s latest report, production of natural gas declined to 79,054 million standard cubic feet (MMscf) as of September, from 141,732 MMscf in 2020.
“There’s really a decrease in the output of Malampaya and we see it as decreasing all the way [to] 2024 [and] until 2027,” Fuentebella admits. “That’s why during the decline of the output, we have the coming in of the liquefied natural gas (LNG) importation capability of the country by next year.”
Dodging a domestic power shortage
While DOE prepares for its new LNG import terminals to make up for the imminent Malampaya depletion, oil companies such as Shell Philippines Exploration B.V. are seeking extensions on their service contracts to explore new natural gas reserves in northwest Palawan. Meanwhile, School of Economics Asst. Professor Joel Tanchuco believes that the best move for the energy sector is furthering efforts to switch to renewable energy.
“The situation represents an opportunity to [utilize] new and existing alternative and renewable energy resources domestically,” says Tanchuco, citing the introduction of hydrogen fuel cells and investing in more solar, wind, and some biomass energy.
“There [is a] novel renewable electricity potential that exists but still remains [unexplored]—not considered, even,” he opines.
Reassurances from DOE maintaining that the country’s resources are enough to avoid unplanned electricity outages have been met with much skepticism—even without the dream switch to renewable alternatives. Tanchuco, for instance, warns that “the DOE assurance should be taken with caution” because reserve margins of electricity in the Luzon grid remain below 20 percent, or what energy specialists find adequate.
Among other officials, Sen. Sherwin Gatchalian had reminded DOE prior to the shutdown, “We’ve been assured that brownouts will not happen during the summer season and that there’s sufficient supply, yet power interruption still took place from May 31 to June 2.” Fuentebella asserts, however, that the Red Alerts in Luzon earlier this year “boil down to non-compliance” of generation agencies.
In 2019, DOE issued a circular mandating the National Grid Corporation of the Philippines to begin importing power reserves from offshore contractors, to which the grid operator had protested, saying that it is “not the solution to the power supply shortage” and may only increase electricity rates instead of lowering them.
Pandemic-driven global energy crisis
Despite global efforts in shifting to renewable and cleaner sources, a bulk of the world’s energy providers remains dependent on fossil fuels. As such, consumers worldwide suffer from surging electricity prices due to insufficient energy production from oil and gas companies, coupled with the sudden burst of demand from economies recovering from the impact of the COVID-19 pandemic.
In China, numerous factories are forced to close or slow down production because of power outages, thereby affecting the production of manufactured goods. Meanwhile, the European Union is suffering a decline in both fossil fuels and clean energy supply due to slower offshore wind speeds, subsequently hurting its own private sector.
In the Philippine context, Business columnist Ben Kritz notes in a Manila Times article that increasing oil prices directly affect local electricity expenses, considering that about 16 percent of the Philippines’ 2020 power is supplied by oil-based—diesel and bunker oil—generation plants.
The Malampaya issue now opens an avenue for concerned local actors to utilize other possible domestic sources of renewable energy. As Kritz mentions, Filipinos “can perhaps at least avoid being blindsided by the Malampaya supply depletion amid a global energy crisis and take a few mitigating steps.”
Considering that 24 percent of the Philippines’ total energy mix already comes from renewables, now is the right time to boost the transition. For energy specialists, these include exploring the possibility of using renewable and alternative sources of electricity, which remains imperative to secure an adequate energy supply for the upcoming years. After all, every investment in clean energy would provide three to eight times the return.