Malampaya late-life and decommissioning concerns

BIZLINKS - Rey Gamboa - The Philippine Star

(Part 2)

Malampaya is a significant national wealth. Various reports have indicated that there are remaining hydrocarbons in the existing reservoir and near field areas, such as Malampaya East and Camago. The country being dependent on fossil fuels, further exploration needs to be done to utilize any available reserves.

For many years, Malampaya had provided an estimated 20 percent of the country’s energy requirement. The Luzon grid, in particular, has made good use of the power security and price stability and affordability that Malampaya has offered.

But with the existing fields now at their late lives, the current leadership at the Department of Energy (DOE) must take appropriate steps to ensure that the ongoing changes in the consortium involved in the Malampaya-Camago service contract will not be disruptive or diminishing of the benefits that this national wealth offers.

Politics was heavily rumored to play a hand in the eventual sale of Chevron Malampaya LLC, which owned 45 percent of the originally joint venture partnership, to Udenna Corp., owned by businessman Dennis Uy and known to be close to former president Rodrigo Duterte while he was Davao City mayor.

A subsequent disclosure of a sale agreement between Shell Philippines Exploration BV (SPEX), the operator of the Malampaya-Camago gas and condensate fields and joint venture partner with 45 percent stake, and Udenna similarly gave rise to questions of impropriety given the latter’s lack of technical experience in upstream oil and gas operations.

While the Chevron sale was consummated with the approval of the PNOC Exploration Corp. (PNOC-EC), the third joint venture partner with the remaining 10 percent share, the SPEX sale was never given the green light. (Any change in ownership of joint venture partners has to be unanimously approved by all members of the consortium.)

Udenna’s entry in the consortium also fanned speculations on why SPEX’s requests in the mid-2010s to extend its operatorship of the natural gas fields had been snubbed. SPEX, though, continues to be silent on this issue.

DOE approval imminent?

With a possible approval by PNOC-EC of the sale of the SPEX operatorship and share in the joint venture to billionaire Enrique Razon’s Prime Infrastructure Holdings (PIH), the final step that would seal the deal would be the DOE’s approval.

Razon’s Prime has committed, should PNOC-EC and DOE approve of its buyout of the SPEX share, to invest in the expansion of Malampaya. This could be a tough decision since SPEX had previously indicated that new reserves may likely be available in nearby fields, but outside the current service contract area.

Prime will have to seek an extension, plus apply for permits to explore in prospective adjoining service contract areas that SPEX had earlier identified. The Razon company would then have to mobilize resources specializing in deep water oil and gas exploration.

Should DOE approve Prime’s application for extension, it should also answer why SPEX was not allowed to extend its operatorship despite its far-superior technical and financial capability.

Depletion woes

With just two years left before the joint venture contract with the Philippine government ends, many are saying that Prime, with its immense resources, will have no problem in keeping the gas flow steady. To this, DOE must be very sure in view of depletion issues that have already manifested.

Last year, Malampaya was only able to produce 80 billion cubic feet of natural gas, which was a sharp decline from its 2020 production. (The original production was at 156 bcf a year.) In fact, a number of the yellow alerts raised on the power sector in 2021 were due to calls of Malampaya gas “restrictions.”

The latest estimate of field reserves puts full depletion of the fields by the first quarter of 2017, although SPEX had said in 2019 (before entertaining talks with Udenna) that it may be able to continue delivering the full requirements of associated power plants until 2030 if allowed to explore areas adjacent to its service contract area.

Four Batangas-based power plants with a total rated capacity of 2,000 megawatts currently receive natural gas from Malampaya, which need to be assured of continued supply if serious power outages in Luzon and Metro Manila are to be avoided.

A fifth power plant, the biggest with a rated capacity of 1,200 MW, has just terminated its supply contract for Malampaya gas. Most likely, it will bank its future operations on imported liquefied natural gas (LNG), which would also be what the other four power plants would resort to as Malampaya struggles with its depletion woes.

Disposal challenges

In the face of all these uncertainties, oil and gas exploration being risky ventures, the only thing that remains sure is the eventual decommissioning of the Malampaya facilities, from its concrete gravity sub-structure (CGS) to its wells and pipelines, and its onshore gas plant, that the new operator will take on.

There is a growing literature of rules and regulations on the disposal of offshore oil and gas facilities by governments, as well as international treaties and organizations, accumulated since the late 1950s in recognition of end-life operations by oil companies.

Dismantling and the disposal of the deep-sea facilities are by far considered most challenging in the industry, and its cost heavily factors in late-life operations. The topside of the Malampaya CGS, for example, weighs 13,000 tons. Most of the pipelines and the wellheads are under very deep water.

Environmental activists have never been so active as today in demanding that the operations and decommissioning of offshore oil and gas platforms pose no hazard to sea life.

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We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us on www.facebook.com/ReyGamboa and follow us on www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.


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