Natural Gas Bill: Understanding priority for ‘Filipino gas’

MANILA, Philippines—As the Philippines continues to grapple with the challenges of energy security and sustainability, lawmakers are pushing forward with Senate Bill (SB) No. 2793, also known as the proposed “Philippine Natural Gas Industry Development Act.”

Formally endorsed by the Senate Committee on Energy, the bill seeks to establish a comprehensive framework for the development of the country’s natural gas industry, focusing on downstream activities such as processing, distribution, and supply.

READ: ‘Filipino gas first:’ Natural gas bill moves in Senate

But what does this bill entail, and why is it significant?

Need for natural gas dev’t

In a sponsorship speech, Sen. Pia Cayetano, energy committee chairperson, highlighted the Philippines’ historical reliance on renewable energy for electricity. However, from the 1930s to the 1980s, the country diversified its energy mix by incorporating fossil fuels and nuclear energy.

This shift was further driven by the 1990s power crisis, leading to key legislation like the establishment of the Department of Energy (DOE) in 1992 and the enactment of the Electric Power Industry Reform Act (EPIRA) in 2001, which restructured the energy sector and created the Energy Regulatory Commission.

READ: Epira review targets: High power rates, cross-ownership

Since 2001, the Philippines has renewed its focus on green energy, aiming for renewable sources to make up 35 percent of the energy mix by 2030 and 50 percent by 2040, as outlined in the Philippine Energy Plan’s Clean Energy Scenario.

However, as of January this year, coal and oil still dominate the energy mix, accounting for over 60 percent, while natural gas contributes only 13 percent.

“We are clearly vulnerable to geopolitical conflicts with more than half of our energy requirements being imported,” said Cayetano in her speech endorsing SB No. 2793.

“As the country moves towards renewable energy sources, we need to find additional baseload resources, aside from oil and coal, which are less harmful to the environment and less volatile to international conflicts,” she said.

She emphasized natural gas as a crucial “transition fuel” to bridge the gap between fossil fuels and the country’s goal of integrating more renewable energy.

“While the renewable energy industry is developing, natural gas can help decrease our dependence on imported coal and oil,” said Cayetano.

“The growth in renewables requires a growth in natural gas. It will enable the country to manage the transition to clean energy without having to sacrifice economic performance,” she added.

Key provisions

SB No. 2793 focuses on various aspects of the natural gas industry, specifically targeting the development of the Philippine Downstream Natural Gas Industry (PDNGI).

The PDNGI refers to all activities and facilities involved in the transmission, distribution, and supply of natural gas within the Philippines, ensuring that natural gas is a safe, efficient, and cost-effective energy source for the country.

The bill outlines several key objectives, including:

• Promoting natural gas as an energy source: The bill seeks to establish natural gas as a safe, efficient, and cost-effective energy source, contributing to grid security and supporting the integration of renewable energy.
• Prioritizing indigenous natural gas: One of the bill’s cornerstone provisions is the prioritization of indigenous natural gas over imported gas. This includes mechanisms to ensure that power generated from local natural gas sources is given precedence in supply agreements and grid integration.
• Liberalizing the industry: To attract private sector investment, the bill promotes the liberalization of the natural gas industry through competition and transparent policies. This includes allowing third-party access to natural gas facilities and encouraging the conversion of existing fossil fuel-operated facilities to natural gas where feasible.
• Developing PDNGI: The bill calls for the development of infrastructure and regulatory frameworks to support the PDNGI. This includes the construction of liquefied natural gas (LNG) storage and regasification terminals, pipelines, and other facilities necessary for the distribution and supply of natural gas.
• Ensuring environmental responsibility: The bill emphasizes the need for environmentally responsible operations in the natural gas industry, with strict adherence to national and international standards for health, safety, and environmental protection.

Waning Malampaya

The Malampaya gas field, the country’s only significant natural gas reserve, has been a critical source of energy for over two decades, supplying stable-cost gas to power much of Luzon.

The gas field is also responsible for remitting more than $13.5 billion worth of revenue to the Philippine government, or roughly $680 million annually since its inception in 1989.

According to Cayetano, 60 percent of the revenue from indigenous gas is remitted to the government. For every peso of electricity fueled by Malampaya, 40 to 60 centavos are returned to the government as revenue.

However, with the Malampaya field expected to become depleted as early as 2027, there is a pressing need to explore and develop new indigenous natural gas sources.

READ: PH at crossroads between LNG dependence and clean energy

The legal groundwork for developing indigenous petroleum resources was laid out in 1972 with the Oil Exploration and Development Act. Soon after, over 150 wells were drilled, leading to the discovery of the Malampaya gas field near Palawan.

The late 1970s saw a surge in drilling, marking significant progress in the Philippines’ natural gas exploration.

“But over the past decades, there has been a decline in exploration activities. The last significant discovery was the Camago Malampaya reserve, discovered in 1992 and initially drilled in 1989,” said Cayetano.

“As of now, the drilling of two development wells is currently in its preparation phase and set to start in 2025. They hope the new wells can start producing gas by 2026,” she added.

She was referring to ongoing efforts by the Malampaya consortium, led by Prime Energy, to develop new wells around Malampaya.

Last year, President Ferdinand “Bongbong” Marcos Jr. signed a service contract renewal agreement allowing the Malampaya consortium to operate for another 15 years, or until February 2039, and requiring it to search for new gas deposits to augment the Malampaya field’s depleting reserves.

While the agreement, known as Service Contract 38, led to anticipation of increased drilling operations to sustain natural gas production in the Philippines, interest in exploration has sharply declined.

READ: Razon-led consortium investing $180M to extend Malampaya life

“From more than 150 wells in the 1970’s, only 11 were drilled in the late 1990’s then down to 6 in the past administration. Due to the lack of drilling exploration since 2019, no new discoveries have been made,” Cayetano explained.

She also stressed that compared to other Southeast Asian nations, the Philippines lags behind, with no new natural gas discoveries in the past decade, while Indonesia, actively drilling, ranks second in the region for gas finds.

“The proposed measure aims to develop the natural gas industry which is critical to energy security by revitalizing indigenous gas explorations, and developing Liquified Natural Gas or LNG infrastructures,” the lawmaker said.

Indigenous natural gas as a priority

The bill seeks to increase the share of natural gas in the energy mix by ensuring that locally sourced natural gas is given priority in power supply contracts.

“This is not a battle between indigenous gas and imported gas. Given our country’s future energy needs, the supply of indigenous gas, like it or not, may not be enough,” Cayetano explained.

“We would still need to import LNG to cover any shortfalls in indigenous gas supply, which this bill will ensure through the development of LNG infrastructures,” she added.

The proposed measure offers incentives to boost investments in the Philippine natural gas industry. Additionally, it seeks to improve pricing and transparency within the natural gas market.

READ: Understanding power rates: Impact of WACC, generation costs

“[W]e will not be as vulnerable regarding fluctuating energy prices due to events happening halfway across the world. With Filipino gas, we will not be heavily dependent on foreign suppliers, who may suddenly pull out of the Philippines to sell their gas to richer buyers elsewhere,” Cayetano stressed.

“Filipino gas will give us a significant measure of energy security and sovereignty underpinning our economic development,” she continued.

“[T]his law will provide a blue path to a greener future. Filipino gas for the Filipino people.”

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