Despite turning to alternative energy, RP oil remains expensive
The Philippines now finds itself in a not-so-unique situation. Like other poor countries not producing enough oil for its needs, it remains dependent on the world market. And even if it soon shifts to alternative or renewable energy like solar and geothermal, which will be expensive to develop as well, prices of fossil-based fuels like unleaded gasoline and diesel are expected to remain high. In short, as world oil prices now surge, expect more of the same locally in the coming years, even as the country reduces its use of fossil fuels.The Philippines actually produces slightly more than enough energy (oil and electricity) to meet demand, but it appears that what is readily available now is not necessarily what people need. Data from the Department of Energy showed the country’s energy production totaled 268.3 million barrels of fuel oil equivalent or MMBFOE in 2004, up by 4.7% from 256.4 MMBFOE in 2003. In contrast, energy consumption was 200 MMBFOE in 2004, up by 2.6% from 195.5 MMBFOE the year before. The same data showed that electricity supply was now in excess, but that oil supply was severely limited, forcing the counrty to import about 99% of its oil. "Oil demand is 320,000 barrels a day. We have zero supply. Power demand in turn is less than supply. But demand is catching up," said Energy Undersecretary Peter A. Abaya.
Energy department data also showed that of the total energy consumed last year, biomass was the largest with 41.7%. Its consumption went up to 83.7 MMBFOE from 80.3 MMBFOE. Oil came in second with 41.3% of consumption, slightly lower than 44% in 2003, which also went up to 86.08 MMBFOE. The use of electricity, which grew by 3.4% from 23.8 MMBFOE in 2003, came in third at 12.2% of total energy consumed. Use of coal (non-power) also rose by 5.8% to 6 MMBFOE given higher demand by cement industries.
In recent years the Philippines has reduced its use of oil, particularly with the shift of power plants to fuels other than bunker. This could also be attributed partly to the discovery of natural gas in Malampaya off Palawan, which could fuel the production of 2,700 megawatts of electricity -- a third of the country’s needs.
"This is substitution. You’re not importing fuel oil for the 2,700 megawatts of power anymore. You’re reducing the usage of liquid fuels, which are all imported either as fuel oil or as crude," said Edgar Chua, country chairman of Shell Philippines and director of the Shell Philippines Exploration BV, operator of the Malampaya gas project.
Besides electricity production, Malampaya’s output is also now being tested for use in public transport. Malampaya, located 70 kilometers off Northwest Palawan, is estimated to have natural gas reserves of about 2.7 trillion cubic feet, and 85 million barrels of condensate. Geothermal energy, which displaced 17.75 MMBFOE; hydroelectric energy, and biomass have also contributed to reducing the country’s dependence on oil.
Under the Philippine Energy Plan, by this year indigenous energy sources should increase their contribution to energy supply to 57.1%, from around 54% in 2003 and 2004, with gas, coal, and oil contributing more to the mix. And by 2010, indigenous energy should make up 61.5% of the energy mix, in line with the government’s goal to become largely energy self-sufficient. From existing oil fields, the government expects to supply the demand of 50,000 barrels of oil per day, or 18 million barrels of oil in a year, Mr. Abaya said.
In five years natural gas is also expected to increase its capacity to fuel electricity needs by another 1,500 megawatts. Geothermal sources are expected to add another 220 megawatts; hydroelectric power, 1,212 megawatts; coal, 300 megawatts; biomass, 55 megawatts; and wind, 245 megawatts.
To expand the country’s oil and gas reserves, the government has also revived exploration and production in sedimentary basins. Two years ago, the Energy department started auctioning 46 exploration blocks covering 222,914 square kilometers of shallow and ultra deep waters in Northwest Palawan and in vast frontier basins in Southeast and East Palawan, the Sulu Sea, and the Reed Bank.
The exploration program will be replicated this year, Mr. Abaya said. "The recent ruling of the Supreme Court upholding the constitutionality of the Mining Act is expected to spur more investments in the upstream sector," he said.
To develop geothermal resources, the government is also auctioning five geothermal exploration sites: the Tanwaon-Rangas sector in Sorsogon, which is expected to generate up to 80 megawatts; the Mindanao Optimization North Cotabato Project, 20 megawatts; the Manito Kayabon sector, 40 megawatts; a block in Cabalian, Southern Leyte, up to 110 megawatts; and a block in Negros Oriental, up to 80 megawatts.
For wind, the government, through the Philippine Naitonal Oil Co.-Energy Development Corp., plans to complete a 40-megawatt wind farm in Burgos, Ilocos Norte, which is estimated to produce 140 gigawatt hours of electricity per year. The government has also identified 16 wind power areas in the country with a total potential capacity of 34 megawatts: 11 are in Luzon, four in the visayas, and one in Mindanao.
Two wind power projects are already up: a 25-megawatt wind power plant in Bangui Baya, Ilocos Norte, owned by Northwind Development Corporation, and another wind farm on Batan Island, Batanes, expected to generate 1.18 megawatts.
The government is also pushing for oil stockpiling, Mr. Abaya said. And the Energy department has already sought the support of its US counterpart for the initiative, he said. The Philippines has also signed a memorandum of understanding with Thailand for a joint cooperation on oil stockpiling.
"A five-man strategic oil stock-pile advisory team was sent to the Philippines to conduct a feasibility study on the potential facilities in the country, and to develop recommendations for the establishment of a strategic oil reserve," Mr. Abaya said.
H&WB Corp., in partnership with US-based Headwaters Corp., is also looking to convert indigenous coal into low grade diesel fuel. Mr. Abaya said local coal had already passed initial tests. Eduardo V. Mañalac, president of state-run Philippine National Oil Company, also told BusinessWorld that Semirara Mining Corp., the country’s main coal producer, would support the project, "provided it [would be] technologically and economically viable and sustainable."
"Viability will depend on the cost of conversion against the cost of fossil fuel and sufficiency of local coal supply. I assume this is being studied now," he added.
But Semirara’s vice-chairman, Isidro Consunji, said the proposed conversion might be inefficient, and that coal could be best used for electricity. "It’s too costly [to convert coal to petroleum]. Better to use coal for electricity," he said.
Similarly, the success of initiatives for energy self-sufficiency seems to depend on how much money investors are willing to put in. The cost of developing additional hydroelectric energy, for instance, has become too high, said Fernando Y. Roxas, a professor at the Asian Institute of Management. "Although existing hydro plants are very competitive, the sites to be developed next are really more expensive," he said. He noted that all major sites have already been developed, and those left were "marginal sites."
"The projects before were cheap because many of them did not internalize costs which we now have to figure. We never really bothered to factor in the cost of relocating those who will be displaced. Now, because of higher social and environmental awareness, we have to figure those costs. The old projects also did not figure the cost of maintaining and preventing siltation in excessive logging in water sheds...If you take all of these into consideration, plus the more difficult engineering problems to be overcome, plus the location of the sites that you develop in the future, hydro is expensive," Mr. Roxas added.
He also noted that hydroelectric energy was not always reliable given the country’s long dry spells. "Hydro is not dependable all the time. You have to install also thermal units [for periods of drought], and that’s also expensive."
As for geothermal energy, the way to tap it and expand its contribution to the energy supply mix is to connect plants in Leyte to other parts of the country through underwater cables, Mr. Roxas said. "Although geothermal in itself is cheap, you’ve got to invest in submarine cables to bring [the electricity it generates] somewhere else," he said.
Mr. Roxas also said that by 2020, all local indigenous energy resources would have been consumed. "We will have to look for other resources. It’s nice to aim for energy self-sufficiency, but the numbers really don’t back us up," he added.
Even oil stockpiling "is a nice concept," he said, but "it is going to have tremendous amounts of cost." Oil companies, meanwhile, said the country lacked facilities big enough to support the stockpiling initiative. They also noted that keeping a huge inventory of oil at a time when prices were surging would mean incurring opportunity costs.
And while the Philippines geographically has a good chance of striking oil from exploration, being located near some oil-producing countries, such activity also requires huge investments, said Fernando Martinez, Independent Philippine Petroleum Companies Association chairman.
"Independence is when you have substantially discovered oil resources, and what is needed is investments. The problem is there is more investments in other areas in the world...If we are drilling more experimental wells, we have better chances of hitting reserves," he said.
Even the government admits that the country cannot do away entirely with importing energy resources. The Energy department had noted that the country would "continue to rely on energy imports...foreseen to increase at an average annual growth rate of 3.9%."
It said that oil and oil products would continue to account for the bulk of energy imports, with 104.2 MMBFOE in 2005, and 105.5 MMBFOE in 2010. This will later balloon to 135.2 MMBFOE by 2015, the government had noted. Coal importation will also hit 35 MMBFOE by 2015, while importation of liquefied natural gas, which will start at 2010, will initially be at 8 MMBFOE.
"It is evident that imported fuels will continue to play a critical role in the country’s future needs. The government’s policy to develop and utilize indigenous and renewable energy will, however, temper this reliance on imported sources of energy, particularly oil," the Philippine Energy Plan stated.
But Mr. Roxas said this dependence on imported energy resources would not mean the Philippine economy could not be competitive.
"It just means that if you want the economy to be competitive, we cannot rely on energy as a competitive advantage the way Brunei and Indonesia did. We have to rely on other factors -- skill of the work force, the competency of management staff...but not energy cost," he added.
He also said that instead of putting too much focus on energy production or energy output, more attention should be given to controlling consumption particularly of oil. Noting that the transport sector uses up most of the oil that the country imports, Mr. Roxas said the government should look into banning motor vehicles with huge engines. Last year, the transport sector used 47 MMBFOE for road transport, consuming 30.3 MMBFOE of diesel and 21 MMBFOE of gasoline.
But the government and oil companies have taken a less confrontational stance by promoting the use of alternative fuels like ethanol and coco-methyl ester, as well as compressed natural gas. "There is no one silver bullet in the move towards energy independence. Every bit helps," Mr. Chua said.
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