State oil firm Philippine National Oil Co. is in hot water as it is being asked to account for the $1.2 billion sale of banked gas to San Miguel Corp. amid independent estimates that the volume could fetch as much as $4 billion.

On 23 June 2022, SMC Global Power unit South Premiere Power Corp. signed a gas supply and purchase agreement with the PNOC related to the banked gas but it ended a supply deal with the Malampaya consortium.

The deal was for 70 petajoules of natural gas from the Malampaya field called "banked" gas because it was set aside for the specific purpose of running power plants.

One petajoule is equivalent to more than 30 million cubic meters of natural gas which means 70 petajoules equals more than 2 billion cubic meters of gas.

Questions abound

Without any bidding, the deal was consummated through negotiation as part of SMC's assumption of ownership of the Ilijan natural gas plant under the independent power purchase authority agreement.

An energy sector expert said the government lost as much as $2.8 billion in the transaction which is easily more than P100 billion in forgone revenue.

"What was the formula used in computing the cost of the banked gas? At 70 petajoules, it is enough to power several power plants for more than a year," the expert noted.

Despite the claim, however, SMC can't draw from the banked gas it purchased since the Lopez Group's First Gen was given the entire banked gas allocation for 2022.

It turned out later that since SMC only has a supply deal with PNOC and not Malampaya, it will have to wait until Service Contract 38 which expires in 2024 is extended.

Only when the deal is extended can the Malampaya consortium undertake exploration and development of the field that is fast depleting.