DOE: Malampaya gas project remains crucial to ensuring stable power in Luzon

MANILA, Philippines—The Department of Energy continues to evaluate the proposed extension of Service Contract 38, covering the Malampaya deepwater gas field off Palawan, which remains a key project in ensuring stable power supply in Luzon.

According to Energy Undersecretary Jose M. Layug Jr.’s mobile text message, the Malampaya consortium’s application remains pending as the DOE is still awaiting the submission of the latest evaluation of the remaining or existing reserves in the field.

The SC 38 consortium’s application for a 15-year extension of its service contract, which will extend the license to 2039 from the existing contract validity of up to 2024, is within the maximum allowable term of the service contract under Presidential Decree 87 (PD 87).

To ensure the continuity of gas supply even with the contract extension, the Malampaya consortium is now pursuing the $1-billion Phases 2 and 3 development projects, which were aimed at ensuring operational efficiency and enhancing natural gas production from the wells.

“Throughout the life cycle of a natural gas field, it is common to experience depletion and pressure reduction in the reservoir as production progresses. The Malampaya Phases 2 and 3 intend to reduce the impact of such occurrence in order to sustain current production levels and guarantee the continued remittance of the national government’s share from the output of the project,” the DOE, in a statement, explained.

According to the DOE, the absence of a liquefied natural gas (LNG) terminal or another natural gas producing field at present makes the continued operation of the Malampaya gas field a critical component in the DOE’s long-term program to ensure energy security in the country.

“It must be recognized that the Malampaya natural gas supplies an aggregate 2,700 megawatts power generation capacity, which translates to roughly 36 percent of electricity supply in the Luzon grid,” it added.

Last August, the Malampaya consortium — composed of Shell Philippines Exploration BV, Chevron and PNOC Exploration Corp.—has cemented its commitment to invest $1 billion to increase production and extend the life of the field, following the signing of the first engineering design contract for Phase 2.

Originally, the existing five wells of the Malampaya field were estimated to produce gas until 2024. With Phases II and III, the SC38 consortium would like to stretch the life of the field by 15 years to 2039, Layug said.

The consortium is looking to invest about $250 million for the second phase, which will entail the drilling and development of two additional wells. This is expected to be completed by February 2014. Another $750 million will be invested for the third phase, which will involve the installation of a new platform where additional equipment and facilities will be housed by December 2015.

Malampaya is one of the largest and most significant industrial endeavors in the Philippine history, which cost $4.5 billion. Since it began producing natural gas in October 2001, the Malampaya gas field has been providing benefits including meeting Luzon’s clean power generation requirements, reducing oil imports and increasing government revenues.

The Philippine government has so far received a hefty P200.41 billion (about $4.64 billion) in royalties from the Malampaya field as of May this year.