SMC’s debt scourge
The Philippines has 36.5 million tons per annum of LNG import terminal capacity under development, along with 29.9 gigawatts of gas-fired power projects.
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The Philippines has 36.5 million tons per annum of LNG import terminal capacity under development, along with 29.9 gigawatts of gas-fired power projects.
Liquefied natural gas projects, which are emerging as the next wave for the transition towards clean energy, face huge financial challenges that underline the urgency of going direct to renewable energy investments.
San Miguel Corporation Global Power is investing more than $1 billion in LNG generation, making it the biggest user of imported fuel.
The shift has been triggered by the spike in the global prices of coal which is expected to persist because of the still unresolved East European conflict.
A study, however, sees huge risks in the SMC Global Power shift as prices in the international market remain high while global supplies are projected to stay limited.
SMC Global Power's South Premiere Power Corp. has entirely shifted from the indigenous Malampaya natural gas to imported LNG as fuel for two high-capacity power plants in Ilijan, Batangas.
SMC Global Power acquired ownership of the 1,200-megawatt natural gas plant last June as a result of the independent power producer agreement with the state-owned National Power Corp., the plant's erstwhile owner.
At the same time as the ownership transfer, SPPC ended the supply contract with Malampaya.
SPPC is relying on the LNG project and the banked gas supply which it bought for $1.2 billion, but both sources of supply were delayed.
According to a report from the Center for Energy, Ecology, and Development, the Philippines is entering the global LNG market at a time of extreme uncertainty.
Global LNG supply was partly constrained by the Russian invasion of Ukraine, which triggered record-high LNG prices.
Following the Russian invasion of Ukraine, Europe has turned to LNG to reduce its dependence on Russia. With almost no spare LNG supply capacity worldwide, European buyers have been forced to outbid other countries for existing supplies.
The report warned that inability to buy LNG at competitive rates could leave new terminals and power plants unused and stranded.
The Philippines has 36.5 million tons per annum of LNG import terminal capacity under development, along with 29.9 gigawatts of gas-fired power projects. San Miguel Corporation alone accounts for 14.1 GW or nearly half of the capacity in the pipeline.
The terminal complex that SMC Global Power will rely on for its LNG project encountered delays, setting back its power generation plans for Ilijan, which has an existing supply contract with Meralco.
Singapore-based AG&P, which is building the import terminal that will connect to SMC Global Power's Ilijan gas plants, has moved the opening of the project to next year.
CEED, however, said it remains unclear how the company intends to procure LNG given limited supplies globally.
Based on CEED's computation, high imported fuel costs translate directly into elevated generation costs. Current LNG prices of roughly $35/MMBtu would result in power prices jumping from P12.33 to P15.70 per kilowatt hour.
Thus, CEED is wondering how San Miguel subsidiary Excellent Energy Resources Inc. can sustain a power supply agreement it won in 2021 with Meralco that promised to deliver electricity from its proposed LNG-fired power plant at a price of just P4.1462/kWh.
Its previous straight-pricing PSAs with extremely low terms were the subject of its rate hike petition that the Energy Regulatory Commission turned down.
Without the price relief, SMC threatened to end the PSAs but later said it will maintain the deals with Meralco as a result of the public backlash on its planned pullout.
Consumers' interest, however, remains solely on SMC maintaining the supply of electricity at affordable cost, a requirement provided under the Electric Power Industry Reform Act.
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