The Philippines and Vietnam are nearing their long-delayed debut as importers of liquefied natural gas, even as competition from renewables and concerns about future gas supply disruptions fuel debate over the fuel’s role in supporting Southeast Asia’s growing economies.
Developing Asian countries such as the Philippines and Vietnam currently rely on coal as the main source of cheap energy for their industries, but growing pressure to decarbonise has led them to look to gas as a less harmful alternative.
Both countries had hoped to start operations at several LNG import terminals in 2022 or earlier, but those projects have been delayed by months or years due to coronavirus supply chain disruptions and other obstacles.
Now that the Philippines and Vietnam are set to start importing gas this year, some analysts are warning that the new LNG facilities will be “underutilized.” Both countries are placing greater emphasis on renewable energy sources such as solar and wind power, and neither has been able to secure long-term contracts to purchase natural gas that would ensure price stability.
In the Philippines, Singapore-based Atlantic, Gulf and Pacific gas infrastructure builder is completing one of the nation’s first LNG import terminals, scheduled for April, at the tip of a sandy coastal area in Batangas Bay.
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The facilities can store and gasify up to 5 million tonnes of LNG per year and will supply industries including the power sector, where the gas is expected to replace coal as the main fuel. The company hopes to add another 3 million tons of capacity at the terminal in the coming years to meet demand growth, Nikkei Asia CEO Joseph Sigelman told the company.
The Philippines will need nearly 9 million tons of LNG a year to power its existing and approved gas-fired power plants after its current source of supply, the domestic Malampaya gas field, dries up by 2024, Fitch Solutions, the research arm of Fitch Group, said. February.
The government expects natural gas consumption to rise twelvefold by 2040 and wants to prepare for imports. Two more terminals are scheduled to start operating this year in the Philippines, and four more projects are being prepared.
Vietnam is due to start importing gas this year at two long-delayed LNG terminals, with five more due to start operating by 2027. Their owners did not respond to Nikkei’s requests for comment, but they plan to supply the energy sector.
Projects are coming on stream even as renewables have the wind at their backs.
Renewable deployment in Southeast Asia will “accelerate in the coming years,” growing by 51 gigawatts, or 56 percent, between 2022 and 2027, the International Energy Agency said in December. It said solar and wind power are “rapidly becoming more competitive” with coal.
Countries in the region are “reassessing” the long-term role of gas in their energy mix, according to a December report by research specialist Wood Mackenzie.
Vietnam’s government is “reworking” its latest draft national energy plan to reduce gas consumption in the power sector “in favor of offshore wind farms”, according to a report. Thailand is also working to attract more investment in renewable energy because “its high dependence on gas generation has meant an inability to shift away from gas in times of high prices.”
Fitch said Philippine policies, while “supportive” of gas-fired electricity generation, are “leaning more” towards renewables and may pose “significant downside risks” to gas consumption in the power sector. Fitch “does not rule out” long-term changes towards a “revival of coal and acceleration of renewable energy generation as key sources of affordable electricity versus costly imported LNG.”
While natural gas prices “moderated significantly” in January, they remain “well above historical averages” in Asia and Europe, the International Energy Agency said in its latest update. It said importers remained exposed to a “tight supply environment” and the impact of further cuts from Russia was “a cause for concern”.
The Philippines and Vietnam were unable to secure long-term purchase contracts that would have offered greater price stability; they will rely on more volatile spot markets, according to several research firms.
Asti Asra, principal analyst at Wood Mackenzie, said new LNG facilities in the Philippines and Vietnam are “likely to be underutilized” in the short term and some proposed terminals may be delayed or canceled depending on demand.
In the long run, her view is more nuanced. LNG import facilities in the two countries could become busier in a few years, she said, as domestic supplies dwindle and renewables take time to develop.
Sam Reynolds, an energy finance analyst at the US non-profit Institute for Energy Economics and Financial Analysis, said last year’s volatility in gas prices had cast “serious doubts” about the two countries’ long-term LNG expansion plans, and he expected them to “pivot” to alternative energy sources such as renewable sources and domestic fossil fuel sources.
Minimizing the role of LNG and maximizing domestic renewables in the national energy mix would provide the “biggest benefit” in terms of cost, reliability and development, he said.
Additional reporting from Cliff Venzon in Manila and Lien Hoang in Ho Chi Minh City.
AND version of this article was first published by Nikkei Asia on March 7, 2023. ©2023 Nikkei Inc. All rights reserved.