We take note of the statements made by the Malampaya consortium on the issue of the supply of 70 petajoules (PJ) in banked gas from Malampaya that SPPC acquired from PNOC in June 2022.
While the Consortium sought to communicate, among other things, that there is no “live contract” for Malampaya gas between SPPC and the Consortium, the facts of the issue stand:
SPPC bought the Malampaya banked gas owned by the government through PNOC for US$1.2 billion
⁃ SPPC signed a Gas Supply and Purchase Agreement (GSPA) worth P1.2 billion with PNOC for such banked gas last June 23, 2022, under the direct supervision of the Department of Energy (DoE), the PNOC Board, and the Office of the Government Corporate Counsel (OGCC). Government, through PNOC, owns and exercises rights over 70.26PJ banked gas.
⁃ While SPPC does not have a direct agreement with the Consortium, it is PNOC on behalf of government that has an existing contract with SPPC. In fact, in our discussions for the sale of the banked gas, PNOC disclosed to SPPC that the government has fully paid the Consortium for the gas, which means that 100% of the gas should be deliverable to SPPC.
The SPPC-PNOC agreement is more advantageous to government
⁃ With gas volumes from Malampaya on the decline, the prioritization of the SPPC and PNOC contract over the banked gas is widely considered to be more advantageous to government, as it was bought by SPPC at a significantly higher contract price compared to those of existing gas supply agreements from Malampaya with another power company.
Delivering the purchased gas supply to Ilijan will benefit consumers and reintegrate 1200 MW of baseload capacity to the grid
⁃ Reintegrating Ilijan into the Grid using Malampaya gas supply will immediately add 1,200 MW of baseload capacity, helping stabilize power supply and prices. Historically, Ilijan contributes up to 10% of the net reliable capacity in Luzon. However, since Ilijan was cut off from Malampaya supply last June 2022, the system demand and supply situation has been very fragile with elevated and volatile electricity spot prices. From June to November 2022, electricity spot market prices averaged P8.67/kwh compared to only P4.31/kwh for the same period over the past three years. Compounding the problem is the exponential growth of demand over the past two years, which is seen to create a massive supply deficit by summer 2023. With no new major baseload capacities expected in the coming months, it is crucial for government to reintegrate Ilijan’s 1,200 MW capacity into the Grid in the interest of energy security.
Adding Ilijan’s 1,200 MW to the Grid will stabilize overall prices
⁃ With Ilijan operating at full load, the addition of 1,200 MW of baseload capacity to the grid will reduce the overall power supply costs of industrial customers and distribution utilities including MERALCO, that source a large portion of their supply from the electricity spot market (or WESM). Stabilizing WESM prices will also mean that there will no longer be a pressing need to operate aging diesel plants that act as power reserves, but run at generation costs more than double the cost of coal power, yet deliver poor power quality.
⁃ Should the Malampaya supply be delivered to Ilijan, other affected power facilities can alternatively use condensate fuel, as allowed under their PSAs with Meralco. This will avoid disruptions to the energy trading market. Any increase in power supply costs will only affect the pertinent contract capacities using condensate fuel.
The SPPC- PNOC contract is the true win-win solution for all stakeholders
The SPPC and PNOC contract is the true win-win solution, not just for players in the Malampaya business supply chain, but all stakeholders–especially consumers. Also, PNOC owns 70.26 PJ of banked gas, which it sold to SPPC for $1.2B or $18/MMbtu compared to competing gas supply contracts that are believed to be priced significantly lower from the government’s perspective. By preventing or limiting the utilization of the banked gas, PNOC will not be able to fully monetize, if at all, this government asset valued at $1.2B before the end of the concession in 2024 as the gas volumes extracted from Malampaya continue to rapidly decline.