Lift force majeure moratorium

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In my 19 January 2019 column, I raised the question on what is the best option the country has to take — exploration or importation of LNG (liquified natural gas) — to ensure we have sufficient gas when the Malampaya gas facility field dries up and prevent interrupted power supply.

If we are to read between the lines on Energy Secretary Alfonso Cusi’s recent pronouncement, it seems that we are heading in the direction of an imminent gas exploration. The Energy head said the huge spike in the cost of electricity in 2013 as a result of a one-month shutdown of the Malampaya natural gas facility will not happen again by being prepared.

When Cusi came on board the Department of Energy (DoE), he said he was surprised about a maintenance shutdown in 2017. The result was an upswing in the price of electricity, since power plants with a total capacity of 3,000 megawatts are dependent on Malampaya. It is for this reason that Cusi is calling the energy sector to prepare “so we won’t be surprised.” He wanted that (maintenance) planned to prevent an upswing in prices.

One option that DoE should consider is the lifting of the moratorium on oil exploration in the disputed Recto Bank in the West Philippine Sea (WPS), following the signing in November last year of a memorandum of understanding that creates a framework for future discussions on joint oil and gas exploration between the Philippines and China. The moratorium covers the Recto Bank concession or Service Contract 72 (SC 72) which falls within the contested area of the WPS.

Upon the advice of the Department of Foreign Affairs, the moratorium, which was triggered by a force majeure, was imposed by the DoE effective 15 December 2014 and remains in place until the DFA notifies the affected parties that they can commence drilling. The force majeure pertains to the case lodged in 2013 by Manila against Beijing before the Permanent Court of Arbitration at The Hague in The Netherlands. The case was eventually decided in favor of the Philippines on 12 July 2016.

It is encouraging to know that the current administration is supporting the lifting of the moratorium on oil exploration activities. The DoE has recommended to the DFA the lifting of the moratorium in response to the request of Forum GSEC. PXP Energy (formerly Philex Petroleum) holds a 78.98 percent direct and indirect interest in Forum Energy which, in turn, has a 70 percent participating stake in SC 72 through its wholly owned subsidiary Forum GSEC.

Underscoring the urgency of beefing up the country’s energy resources as demand continues to rise, DoE has opened to interested investors 14 prospective petroleum areas for exploration under the Philippine Conventional Energy Contracting Program. All these 14 areas are within the Philippines’ EEZ and covers onshore and offshore blocks in Luzon and Mindanao. DoE realizes that we need to do something concrete since we are trailing behind our neighbors in upstream petroleum activities.

We only have drilled an annual average of five wells over a 10-year period, compared to the double- and triple-digit averages of other Southeast Asian countries; Forum GSEC shared the same concerns. In a letter to DoE, it called for the lifting of the force majeure moratorium on SC 72, which once granted, will not only be a positive development for its SC 72 block but also for the country.

Once the moratorium is lifted, it will allow Forum and another company with a stake in SC 72 – Monte de Oro – to resume exploration and appraisal activities in the area, which include the drilling of two appraisal wells on their Sampaguita gas discovery. This discovery “has a potential” to contain approximately 2.5 trillion cubic feet of recoverable gas. This would be a new source of gas as replacement for Malampaya which is expected to start a decline in production by 2022. However, to be an effective replacement for the Malampaya energy source off Palawan, the development of SC 72 must commence not later than 2027 as it will take at least six years from start to development of SC 72 to first gas.

Given these realities on the ground, the government should waste no time in lifting the force majeure moratorium on SC 72. Forum and Monte de Oro are said to be allocating up to $100 million in the next two to three years to fully appraise the Sampaguita Gas Field and other identified prospects. The work done in this area is already in the advanced stages compared to the activities that have yet to commence in the 14 petroleum contracting blocks recently opened by the DoE to investors.

Cusi sums it all when he was quoted in the recent “Straight Talk with Daily Tribune” interview: “It (Malampaya) could be depleted in 2027. So, that’s the reason for the government to push oil exploration. Again, we don’t want to act when the problem is already there.”
As the Nike motto says: Let’s ‘Just do it!’

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