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MOVING FORWARD IN DEVELOPING LNG INFRASTRUCTURE FOR POWER GENERATION
3RD LNG Supply, Transport and Storage Philippines
SM AURA, BCG METRO MANILA 13-14 October 2016
Jose B. T. Aldon Senior Adviser Natural Gas Business
This presentation is prepared by First Gen Corporation (First Gen) for the 2016 3rd LNG Supply, Transport and Storage Philippines Conference organized by The All Events Group. It is for general information purposes only and not intended to serve as a form of advice, offer, invitation, or solicitation of any kind and shall not give rise to any legally binding obligation on First Gen nor upon any of its subsidiaries or affiliates.
First Gen has composed this presentation with utmost care. However, no expressed or implied representation or warranty is given as to the accuracy and completeness of the information contained herein. In no event shall First Gen nor any of its shareholders, directors, officers, employees, or advisors accept any responsibility or liability for any loss or damage, whether or not arising from any error or omission in compiling such information or as a result of any party’s reliance or use of such information. The information and opinions in this presentation are subject to change without notice.
This presentation may contain certain “forward looking statements.” These forward looking statements can generally be identified by use of statements that include words or phrases such as First Gen or its management “believes”, “expects”, “anticipates”, “intends”, “plans”, “foresees”, or other words or phrases of similar import. Similarly, statements that describe First Gen’s objectives, plans or goals are also forward-looking statements. All such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Such forward looking statements are made based on management’s current expectations or beliefs as well as assumptions made by, and information currently available to, management.
The information contained in this presentation is solely for the information of the participants of the 2016 LNG Supply, Transport and Storage Philippines Conference and must not be reproduced, redistributed, passed on to any other person, or published, in whole or in part, for any other purpose without the prior written consent of First Gen.
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DISCLAIMER
• FIRST GEN CORPORATION – CONTRIBUTING TO ECONOMIC GROWTH THROUGH NEW INVESTMENTS IN THE NATURAL GAS AND LNG INDUSTRY
• THE PHILIPPINES’ CURRENT ENERGY UTILIZATION AND FORECAST GROWTH
• OPPORTUNITIES AND CHALLENGES OF FIRST LNG IN THE PHILIPPINES
OUTLINE
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• FIRST GEN CORPORATION – CONTRIBUTING TO ECONOMIC GROWTH THROUGH NEW INVESTMENTS IN THE NATURAL GAS AND LNG INDUSTRY
• PORTFOLIO OF ASSESTS
• BACKGROUND IN NATURAL GAS
• PIPELINE OF NEW GAS PROJECTS
• THE PHILIPPINES’ CURRENT ENERGY UTILIZATION AND FORECAST GROWTH
• OPPORTUNITIES AND CHALLENGES OF FIRST LNG IN THE PHILIPPINES
OUTLINE
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Natural Gas 58 %
Geothermal 32 %
Hydro 5%
Wind 5%
of the country’s gross generation (1)
25%
22 % of Luzon (2)
34 % of Visayas-Mindanao(3)
First Gen Total Installed Capacity and Generation Mix First Gen’s Portfolio of Assets
FIRST GEN IS A LEADING POWER PRODUCER IN THE PHILIPPINES WITH A DISTINCT SET OF ASSETS THAT PRIMARILY UTILIZE INDIGENOUS, CLEAN AND/OR RENEWABLE FUELS
2,647 MW Net Attributable Capacity
132 MW
Pantabangan-Masiway 70% economic ownership
(both direct and indirect)
1.6 MW Agusan 100% economic ownership
1,000 MW Santa Rita
500 MW San Lorenzo 100% economic ownership
1,159 MW Energy
Development Corp. 50% economic
ownership
+414 MW San Gabriel
--& 100MW Avion -Completed
100% economic ownership
150 MW Burgos (EDC)
50% economic
ownership
Visayas
Mindanao
Luzon
Notes: (1) Based on DOE Power Statistics 2013
(2) Based on Santa Rita, San Lorenzo, Pantabangan-Masiway and BacMan plants as a percentage of Luzon grid capacity
(3) Based on Palinpinon, Tongonan, Mindanao 1&2, Unified Leyte and Agusan Hydro plants as a percentage of Visayas and Mindanao grid capacity 5
3459 MW
• The Malampaya Gas-to-Power project is the single biggest industrial investment in the Philippines totaling US$4.5B
• The Malampaya gas field has approximately 2.7 tcf of gas and 85 million barrels of condensate located some 3 kms. below sea level
• Operation of the field is under a Service Contract with the consortium of Shell, Chevron and PNOC-EC
• Gas is fed through a 504 kilometer pipeline fuelling three power plants – the 1,000 MW Santa Rita and 500 MW San Lorenzo, and the government-owned 1,200 MW Ilijan power plant
Santa Rita and San
Lorenzo Power Plants
About Malampaya
Ilijan Power Plant
FIRST GEN HAS PLAYED A KEY ROLE IN THE PHILIPPINE NATURAL GAS INDUSTRY SINCE THE MALAMPAYA GAS-TO-POWER PROJECT
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45% 45% 10%
FIRST GEN IS WELL-POSITIONED TO EXPAND THE PHILIPPINE NATURAL GAS INDUSTRY BY BUILDING NEW GAS-FIRED PLANTS AND AN LNG IMPORT TERMINAL
2022 2015
NEAR TERM: Using Malampaya
LONG TERM: Using LNG
2019
100 MW Avion
• 1,000 MW Santa Rita • 500 MW San Lorenzo
2016
• 414 MW San Gabriel U70
• 100 MW Avion
LNG Import** Terminal Phase 1
LNG Import Terminal Phase 2
414 MW San Gabriel
Unit 70
• Non-First Gen Plants • Industrial Users • Transportation
First Gen Plants
Third Party Users
2020
450 MW Santa Maria
Unit 90
450 MW Santa Maria
Unit 80
7 **NOTE: Terminal Phase 1 might move to 2022 COD,
• THE PHILIPPINES’ CURRENT ENERGY UTILIZATION AND FORECAST GROWTH
OUTLINE
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• OPPORTUNITIES AND CHALLENGES OF FIRST LNG IN THE PHILIPPINES
• FIRST GEN CORPORATION – CONTRIBUTING TO ECONOMIC GROWTH THROUGH NEW INVESTMENTS IN THE NATURAL GAS AND LNG INDUSTRY
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Electricity Intensity1 and GDP2
mWh/capita GDP/capita
RELATIVE TO ITS LARGE POPULATION, THE PHILIPPINES IS A LOW-ENERGY USING COUNTRY
In the 10-member ASEAN region, the Philippines ranked 8th in terms of electricity consumption per capita.
Only Cambodia and Myanmar had lower electricity usage.
mW
h
$ 0
00
s (fo
r GD
P d
ata)
THERE IS SIGNIFICANT UPSIDE IN THE PHILIPPINE ECONOMY PROVIDED THAT NEW POWER CAPACITIES ARE INSTALLED IN THE COUNTRY
Sources: US EIA, International Monetary Fund, ASEAN website
1 Per US EIA data, 2011 2 At purchasing power parity in international dollars
(rounded IMF 2012)
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COAL CURRENTLY ACCOUNTS FOR BULK OF THE PHILIPPINES’ POWER GENERATION MIX at 43% WHILE NATURAL GAS IS AT 25%
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PHILIPPINES Population: 100M
Installed Capacity: 19 GW1
Available Capacity: 17 GW2
Nat Gas 53% Coal
26%
Oil 6%
Hydro 12%
Biofuel 3%
Nat Gas 71%
Coal 21%
Oil 1%
Hydro 5% Nat
Gas 25%
Hydro 8%
Nuclear 25%
Coal 30%
Oil 9%
Others 3%
JAPAN Population: 128M
Installed Capacity: 287 GW
Sources: US Energy Information Administration (EIA), Japan Ministry of Economy Trade and Industry, Singapore Energy Market Authority, Taipower.com, Phil. NGCP, Thailand Ministry of Energy, PFC Energy
MALAYSIA Population: 30M
Installed Capacity – 29 GW
THAILAND Population: 68M
Installed Capacity: 49 GW
SINGAPORE Population: 5.5M
Installed Capacity: 10 GW
Coal 48%
Nat Gas 22%
Hydro 11%
Geo 2% Others
5%
Oil 12%
INDONESIA Population: 253M
Installed Capacity – 44 GW
1 US EIA 2 Source: DOE 2016
SOUTH KOREA Population: 51M
Installed Capacity: 82 GW
Nat Gas 37%
Coal 27%
Oil 8%
Hydro 6%
Nuclear 13%
Renewables 9%
TAIWAN Population: 24M
Installed Capacity: 41 GW
Coal 43%
Oil 3%
Nat Gas 25%
Geo 18%
Hydro 10%
Renewables 1%
Nat Gas 91%
Oil 5%
Others 4%
Source: Philippine Department of Energy’s Philippine Energy Plan
THE COUNTRY IS ALREADY IN A TIGHT POWER SITUATION. THE LUZON GRID NEEDS A TOTAL OF 10,500 MW OF NEW CAPACITY THROUGH 2030
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NEW COAL-FIRED CAPACITIES ARE BEING PLANNED TO ADDRESS THE SUPPLY DEFICIT, BUT EXECUTION OF MOST OF THESE PROJECTS ARE GETTING DELAYED DUE TO ENVIRONMENTAL AND COMMUNITY ISSUES
FORECAST SUPPLY-DEMAND CURVE, LUZON GRID (2012-2030)
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• THE PHILIPPINES’ CURRENT ENERGY UTILIZATION AND FORECAST GROWTH
• FIRST GEN CORPORATION – CONTRIBUTING TO ECONOMIC GROWTH THROUGH NEW INVESTMENTS IN THE NATURAL GAS AND LNG INDUSTRY
• OPPORTUNITIES AND CHALLENGES OF FIRST LNG IN THE PHILIPPINES
OUTLINE
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0 1 2 3 4 5 6
LNG USERS
ESTIMATED AND CUMULATIVE LNG DEMAND (million tons per annum)
DUE TO LIMITATIONS ON INDIGENOUS SOURCES, THE COUNTRY’S LONG-TERM GAS REQUIREMENTS WILL NEED TO BE SERVED WITH LNG IMPORTATION
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2019
2022
414 MW San Gabriel U70 450 MW San Gabriel U80 100 MW Avion
2022** 1,000 MW Santa Rita 500 MW San Lorenzo
1,200 MW Ilijan (government-owned under a BOT scheme)
Industrial users/ transportation
1.0
3.6
5.0
2020 450MW San Gabriel U90 1.4
**NOTE: Term Phase 1 might move to 2022 COD, thus the volume requirement
might be 3.6 MTPA at start of “first “ LNG delivery in that year.
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INDEXATION AND WELL HEAD COSTING WILL BE VERY CRITICAL IN DETERMINING THE COST-COMPETITIVENESS OF LNG TO THE PHILIPPINES
The Global Gas Pricing Groups
Prices are set in relation to real gas supply and demand
Primarily oil-linked Consumer price is government
regulated
Oil-linked
US, UK and Canada
Continental Europe, South
East Asia Japan, Korea and
Taiwan
Middle East, Russia, China, India, SE Asia
Source: “Fundamentals of Natural Gas: An International Perspective” (Vivek Chandra)
LNG Roadshows for LNG/Gas Suppliers
Receipt and Evaluation of Term Sheets
Shortlisting of LNG
Suppliers
Negotiation of key supply
terms
Heads of Agreement
(HOA)
Definitive LNG
Supply Agreeme
nt
LNG PROCUREMENT PROCESS FOR “FIRST “ LNG SUPPLY TRANCHE
Simultaneous with
• Off-take Agreement for the
New Gas Plants
• FID on the LNG terminal
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THE KEY DRIVER OF THE LNG PROJECT IS SECURING COST COMPETITIVE AND RELIABLE FUEL SUPPLY FOR FIRST GEN’S NEW GAS PLANTS
Key Selection Criteria for “First” LNG Supply • Price competitiveness and flexibility
• Volume flexibility
• Track record in long-term LNG supply agreements
• Reliability of portfolio/ volume certainty - geopolitical risk of export points
• Credit requirements for LNG supply
• Co-investment appetite and O&M experience in an LNG import terminal
Floating Storage & Regasification Unit (FSRU) or Floating Storage Unit
(FSU)
Onshore LNG Import Terminal
Pros Cons
• Lower capital investment for interface facilities – subsea pipelines, jetty, etc.
• Quicker development period of 24 to 30 months
• High O&M costs - LNG ships and FSRU are currently under long-term lease arrangements
• Limited storage capacity
• Potential availability constraints during turbulent weather / sea conditions
Pros Cons
• High availability even during turbulent weather/ sea conditions
• Lower O&M costs
• Potential for multiple tanks/ higher storage capacity
• Higher capital investment
• Longer development period of 4 to 5 years
BUILDING AN OPTIMAL BUT “CALIBRATED” LNG RECEIVING, STORAGE AND REGASIFICATION TERMINAL IS CRITICAL FOR THE PHILIPPINE LNG MARKET
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KEY SUCCESS FACTORS CHALLENGES
Proactive and Supportive Regulatory Environment
• Fuel mix policy to incentivise cleaner, more environment friendly fuels • More proactive government role in promoting natural gas utilization (similar
to Malampaya development in the 1990s) • Carbon credits, tax incentives for cleaner fuel (e.g. carbon taxes are imposed
for coal in other countries) • Policies to promote security of power supply
Cost-Competitive LNG Supply
• Asian contracts are currently oil-indexed and expensive compared to the indigenous Malampaya gas
• LNG will compete in the country’s fuel generation mix under a price-sensitive consumer environment
• The Philippines is a greenfield country in the global LNG market. Credit worthiness and track record of the Philippine market/buyers will be an issue
Successful Development of an LNG Import Terminal and Other Gas Infrastructure
• Huge capex requirement for an onshore terminal • Operational issues in an FSRU- Philippines is typhoon-prone • Terminal inefficiency during initial years of LNG volume ramp-up
Successful Project Financing/ Partnering
• Counterparty strength and credit risks • Underpinning “bankable” contracts
• Terminal User Agreement (TUA) for the LNG terminal • Power Purchase Agreement (PPA) for the anchor power plants
THE ENTRY OF LNG WILL PROVIDE GREATER SECURITY OF SUPPLY AND CLEANER, MORE EFFICIENT FUEL TO THE COUNTRY. HOWEVER, A NUMBER OF KEY CHALLENGES NEED TO BE ADDRESSED
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Regulations – international conventions, national laws, local rules, etc. Technical Aspects – size, volume, location, berthing, typhoon design
factors, tsunamis, earthquake loading, etc. Financial Aspects – maturity of the project, demand and supply
analysis, investment cost and benefit ratio analysis, equity and debt coverage, etc.
Security Issues – terrorism, conflicts, theft, sabotage, vandalism, etc. Risk and Safety – fire scenarios, cryogenic issues, dispersion, safety
zone, evacuation procedures, etc. Permitting Process – harmonization and understanding of local and
international rules. Who is (are) in charge? What’s are the steps? Stakeholders’ Engagement inclusive of Financiers – dialogue with
relevant authorities both from the marine and land sides
CHALLENGES IN LNG INFRASTRUCTURE DEVELOPMENT
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There are big opportunities in the total LNG Value Chain, from Upstream to the Downstream markets in the Philippines.
The challenge would be how to integrate and connect properly all the various sections of the value chain, with due respect to schedule and (investment) costs specially as it competes with other existing fuels such as “king” coal and renewables with subsidy (FIT).
And give the proper risk-adjusted return to each Investor/ Participant in each Section of the Value Chain.
And most importantly, the Host Government and the Regulatory Agencies need to give the proper coverage and policies (i.e., fuel mix, fiscal incentives, etc.) to incentivise the participation in the massive (US$20-25 billion) investment in the total LNG Value Chain.
CONCLUDING STATEMENTS
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San Gabriel, Avion, and LNG terminal images are indicative and not to scale
FIRST GEN BELIEVES IN THE PHILIPPINE GROWTH STORY. WE WILL CONTINUE TO PURSUE OUR GAS-FIRED AND LNG PROJECTS TO HELP SPUR THE COUNTRY’S ECONOMIC GROWTH
SITE MAP OF FIRST GEN’S BATANGAS PROPERTY
NOTE: SG U70 and AVION units are now (2016) physically complete and operational
THANK YOU Visit us at www.firstgen.com.ph
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