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LNG Projects in the Philippines: Share of San Miguel Corporation

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LNG Projects in the Philippines: Share of San Miguel Corporation

Photo: Shutterstock / lito_lakwatsero

The Philippines continues its liquefied natural gas (LNG) development trajectory despite its cost, environmental impact and widespread disapproval. Manila-based conglomerate San Miguel Corp. (SMC) is spearheading this development.

08 July 2024 – by Tim Daiss   Comments (0)

The Philippines is at an energy crossroads. Natural gas from its Malampaya offshore gas field is nearing depletion. Since its inception in 2001, Malampaya reserves have met as much as 40% of Luzon’s power needs. Luzon is the Philippines’ main and most populous island, which includes metro Manila, the country’s capital, with 15 million people. The Malampaya gas field is expected to be depleted as early as 2027, creating a need for LNG projects in the Philippines.

Malampaya’s dwindling gas reserves have left the country scrambling for solutions, including pivoting to liquefied natural gas (LNG) imports and project development. That decision comes at a substantial environmental and financial cost.

The transition to more gas to boost energy security sits well with several key energy planners in Manila, showing conflicting views within the government. “We just have to make our best choice, which is natural gas,” Philippine Department of Energy (DOE) fossil fuels director Rino Abad recently said. He described gas as the least expensive, flexible and clean energy source. “We cannot increase our energy capacity by RE (renewable energy) alone,” he added.

However, to his credit, Philippine President Ferdinand Marcos Jr. has been trying to jump-start more foreign investment in renewable energy projects in the Philippines. In December 2022, the DOE authorised 100% foreign ownership of renewable energy projects. This includes exploring, developing and utilising solar, wind, hydro and ocean or tidal energy resources.

Going Long on Liquefied Natural Gas (LNG)

Seven Philippine LNG terminals are currently in various stages of construction, representing some 36.5 million tonnes per annum (mtpa) of LNG import terminal capacity. The country’s first LNG terminal is operational in Batangas province, 106 km south of Manila.

These LNG import terminals will be connected to new and existing gas-to-power projects. Notably, the Philippines has the second-largest planned gas expansion in Southeast Asia, with 29.9 gigawatts (GW) in development.

What Are the Philippines’ LNG Projects in 2024?

So far this year, the Philippines has maintained its LNG and gas-to-power development trajectory.  In March, three leading power companies formed an alliance to launch the country’s first integrated LNG facility.

The USD 3.3 billion project is a joint venture between major electricity distributors Meralco PowerGen (MGen), Aboitiz Power (AP) and San Miguel Global Power (SMGP). Gas-to-power development is also underway. The alliance of these energy companies marks the largest Philippine energy deal since 2008.

Philippines LNG Import

The Philippines also receives imports for its first operational LNG facility. On June 14, First Gen Corp. awarded a contract to a Tokyo Gas subsidiary for the delivery of the company’s fifth LNG cargo.

San Miguel Corporation in the Crosshairs of Green Groups

The company spearheading much of the Philippines’ LNG development is Manila-based conglomerate San Miguel Corporation (SMC), better known for its beer, ice cream and dairy products than its energy development. However, SMC’s energy development is at odds with much of the Philippine populace due to concerns over the company’s climate mitigation strategy.

SMC’s Fossil Fuel Mix

The controversy over SMC’s operations also stems from its power generation mix. It focuses heavily on fossil fuels. The portfolio of SMC Global Power (SMCGP), SMC’s power generation business arm, has a total capacity of 4.7 GW. Fossil fuels make up 87% of the portfolio, with hydropower at 12% and battery energy storage and peaking points at 1%.

SMC Projects and Gas-fired Power Plants

Moreover, SMCGP’s 14.1 GW of proposed projects account for half of the planned gas expansion in the Philippines. The company is also by far the largest gas player in the Southeast Asia region. SMCGP’s eight proposed gas-fired power plants will have a combined capacity of 14.1 GW, and a 1.75 GW gas-fired power plant is under construction.

SMC’s Sustainability Game Plan

SMC readily admits that its journey from a food, beverage and packaging company to a diversified conglomerate with investments in fuel, power and infrastructure generates a larger environmental footprint due to the use of fossil fuels.

It further states that it is now committed to two major environmental goals. These are using more of the waste it generates across all of its operations and setting a net-zero carbon emissions 2050 goal. Part of that pledge includes “making sure that San Miguel is pursuing a sustainable business model and making a positive impact on society and the environment.”

It’s also pledged “to accurately measure emissions in line with globally accepted GHG accounting and reporting standards.”

The company also claims it supports the Philippine government’s goal of building more renewable energy projects and reducing greenhouse gas emissions, while employing low-carbon solutions and initiatives across its various businesses and operations.

SMC president and CEO Ramon Ang added to that claim in February, stating that the conglomerate was going to diversify its power generation portfolio by adding a hydro dam, an additional solar farm and what he referred to as “inland wind energy facilities,” more commonly known as onshore wind power.

The company already has solar power assets operational, including an 80 MW solar PV power project in central Luzon.

SMC has also pledged to develop 32 battery energy storage systems (BESS) nationwide, which would have a combined capacity of 1,000 MW.

It seems, at least in part, that SMC is making good on some of its recent pledges. In a Philippine Stock Exchange release on July 1, SMC subsidiary SGLP and Citicore Renewable Energy Corp. (CREC) agreed to develop a 153.5 MW solar power plant in Bataan, some 128 km from Manila, the country’s capital.

SMC’s recent renewable energy disclosures, however, could be designed to offset a scathing Institute for Energy Economics and Financial Analyis (IEEFA) report in September that alleged that the conglomerate’s “fossil fuel oriented growth raised financial red flags.”

The problems largely stems from SMC’s shift from coal-based power generation to LNG. The IEEFA recommends a shift to more renewable energy as  “the best hedge against exposure to imported fossil fuels and the best way to position the company within the Philippines’ rapidly accelerating energy transition.”

The Problem with Gas

While this sounds promising, there are several complications. First, SMC still considers gas a “cleaner energy source.” Nothing could be further from the truth.

When used for the power sector, gas still emits around 50% of harmful carbon dioxide (CO2) emissions as coal, the dirtiest-burning fossil fuel. SMC, therefore, is merely adhering to the global gas industry’s false climate change mitigation narrative that gas is a clean fossil fuel.

Gas also has methane leakage problems across the entire gas value chain. Due to its structure, methane traps more heat in the atmosphere per molecule than CO2, making it 80 times more harmful than CO2 for 20 years after its release.

Furthermore, according to a report by the Manila-based Center for Energy, Ecology and Development (CEED), SMC lacks a clear pathway to meet its 10,000 megawatt (MW) renewable energy target while lagging behind climate commitments. The company has also failed to make any commitments to align with the 1.5°C Paris temperature goal.

SMC also showed limited support for the now phased-out Task Force on Climate-related Financial Disclosures (TCFD) requirements, which help investors, lenders and insurance underwriters evaluate climate change risks.

Notably, by the end of 2021, 62% of publicly listed companies in the Philippines had started preparing a TCFD report or were actively discussing climate disclosures internally.

by Tim Daiss

Tim has been working in energy markets in the Asia-Pacific region for more than ten years. He was trained as an LNG and oil markets analyst and writer then switched to working in sustainable energy, including solar and wind power project financing and due diligence. He’s performed regulatory, geopolitical and market due diligence for energy projects in Vietnam, Thailand and Indonesia. He’s also worked as a consultant/advisor for US, UK and Singapore-based energy consultancies including Wood Mackenzie, Enerdata, S&P Global, KBR, Critical Resource, and others. He is the Chief Marketing Officer (CMO) for US-based lithium-sulfur EV battery start-up Bemp Research Corp.

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