The Philippines and Vietnam are nearing their long-delayed debuts as importers of liquefied natural gas, even as competition from renewables and fears of future gas supply disruptions are heating up the debate over the fuel’s role in supporting growing south-east Asian economies.
Developing Asian countries like the Philippines and Vietnam currently rely on coal as the main source of cheap energy for their industries, but mounting pressure to decarbonise led them to look to gas as a less harmful alternative.
The two countries had hoped to begin operations at several LNG import terminals in 2022 or earlier, but those projects were delayed for months or years by coronavirus supply-chain disruptions and other obstacles.
Now, with the Philippines and Vietnam poised to begin importing gas this year, some analysts are warning that the new LNG facilities will be “underutilised”. Both countries are placing a greater emphasis on renewable energy sources such as solar and wind, and neither has been able to lock in long-term purchase agreements for natural gas that would ensure price stability.
In the Philippines, Singapore-based gas infrastructure builder Atlantic, Gulf and Pacific is finishing up one of the nation’s first LNG import terminals, scheduled to start operating in April, on the tip of a sandy coastal area in Batangas Bay.
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The facilities can store and gasify up to 5mn tonnes of LNG per year and will supply industries including the power sector, where gas is expected to replace coal as the major fuel. The company hopes to add another 3mn tonnes of capacity at the terminal in the coming years to meet demand growth, chief executive Joseph Sigelman told Nikkei Asia.
The Philippines will need nearly 9mn tonnes of LNG annually to feed its existing and approved gas-fired power plants after its current source of supply, the domestic Malampaya gasfield, dries up by 2024, Fitch Solutions, the research arm of Fitch Group, said in February.
The government expects natural gas consumption to rise up to twelvefold by 2040, and is eager to prepare for imports. Two other terminals are due to start operating this year in the Philippines, with four more projects being developed.
Vietnam is expected to start importing gas this year at two long-delayed LNG terminals, with another five scheduled to begin operations by 2027. Their owners did not respond to requests from Nikkei for comment, but plan to supply the power sector.
The projects are coming on stream even as renewables have the wind at their backs.
Deployment of renewables in south-east Asia “will accelerate in upcoming years” and increase by 51 gigawatts, or 56 per cent, during the period of 2022 to 2027, the International Energy Agency said in December. It said solar and wind were “rapidly becoming more competitive” with coal.
Countries in the region are conducting a “reassessment” of the long-term role of gas in their energy mix, according to a December report by research specialist Wood Mackenzie.
The Vietnamese government is “reworking” its latest draft national energy plan to reduce gas use in the power sector “in favour of offshore wind”, the report said. Thailand is also working to attract more investment in renewables, as “its high reliance on gas-fired generation has meant an inability to pivot from gas during a period of high prices”.
Fitch said Philippine policies, though “supportive” of gas-fired power generation, “lean more” towards renewables and could pose “significant downside risks” to gas consumption in the power sector. Fitch does not “rule out” long-term changes to “revive coal and accelerate energy production from renewables as key sources of affordable electricity over costly imported LNG”.
While natural gas prices “moderated significantly” in January, they remain “well above historic 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 “cause for concern”.
The Philippines and Vietnam have not been able to secure long-term purchase agreements that offer greater price stability; they will rely on more volatile spot markets, according to multiple research companies.
Asti Asra, principal analyst at Wood Mackenzie, said new LNG facilities in the Philippines and Vietnam would “likely be underutilised” in the short term and some proposed terminals may be delayed or cancelled, depending on demand.
In the longer term, her view is more nuanced. LNG importing facilities in the two countries could grow busier a few years from now, she said, as domestic supplies dwindle and renewables take time to develop.
Sam Reynolds, an energy finance analyst at the US-based non-profit Institute for Energy Economics and Financial Analysis, said last year’s gas pricing volatility has cast “serious doubt” on the long-term LNG expansion plans of both countries, and expects they will “prioritise” alternative sources of energy such as renewables and domestic fossil fuel resources.
Minimising the role of LNG and maximising domestic renewables in the national energy mix would provide the “greatest benefit” in terms of cost, reliability and development, he said.
Additional reporting by Cliff Venzon in Manila and Lien Hoang in Ho Chi Minh City.
A version of this article was first published by Nikkei Asia on March 7, 2023. ©2023 Nikkei Inc. All rights reserved.