MOVING FORWARD IN DEVELOPING LNG INFRASTRUCTURE FOR POWER GENERATION

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1 MOVING FORWARD IN DEVELOPING LNG INFRASTRUCTURE FOR POWER GENERATION Jose B. T. Aldon Senior Adviser Natural Gas Business 3 RD LNG Supply, Transport and Storage Philippines SM AURA, BCG METRO MANILA October

2 DISCLAIMER This presentation is prepared by First Gen Corporation (First Gen) for the rd 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 forwardlooking 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. 2

3 OUTLINE 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 3

4 OUTLINE 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 4

5 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 First Gen s Portfolio of Assets First Gen Total Installed Capacity and Generation Mix 1,000 MW Santa Rita 500 MW San Lorenzo 100% economic ownership 150 MW Burgos (EDC) 50% economic ownership Hydro 5% Wind 5% +414 MW San Gabriel --& 100MW Avion -Completed 100% economic ownership Luzon 1,159 MW Energy Development Corp. 50% economic ownership Geothermal 32 % 3459 MW Natural Gas 58 % 132 MW Pantabangan-Masiway 70% economic ownership (both direct and indirect) Visayas 1.6 MW Agusan 100% economic ownership Mindanao 2,647 MW Net Attributable Capacity 25% of the country s gross generation (1) 22 % of Luzon (2) 34 % of Visayas-Mindanao (3) 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

6 FIRST GEN HAS PLAYED A KEY ROLE IN THE PHILIPPINE NATURAL GAS INDUSTRY SINCE THE MALAMPAYA GAS-TO-POWER PROJECT About Malampaya 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 45% 45% 10% Ilijan Power Plant Santa Rita and San Lorenzo Power Plants 6

7 FIRST GEN IS WELL-POSITIONED TO EXPAND THE PHILIPPINE NATURAL GAS INDUSTRY BY BUILDING NEW GAS-FIRED PLANTS AND AN LNG IMPORT TERMINAL NEAR TERM: Using Malampaya MW Avion MW San Gabriel Unit LNG Import** Terminal Phase 1 LNG Import Terminal Phase 2 LONG TERM: Using LNG First Gen Plants 414 MW San Gabriel U MW Avion 450 MW Santa Maria Unit MW Santa Maria Unit 90 1,000 MW Santa Rita 500 MW San Lorenzo Third Party Users Non-First Gen Plants Industrial Users Transportation **NOTE: Terminal Phase 1 might move to 2022 COD, 7

8 OUTLINE 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 8

9 mwh RELATIVE TO ITS LARGE POPULATION, THE PHILIPPINES IS A LOW- ENERGY USING COUNTRY In the 10-member ASEAN region, the Philippines ranked 8 th in terms of electricity consumption per capita. Only Cambodia and Myanmar had lower electricity usage $ Electricity Intensity 1 and GDP 2 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $ 000s (for GDP data) - $- mwh/capita Sources: US EIA, International Monetary Fund, ASEAN website GDP/capita 1 Per US EIA data, At purchasing power parity in international dollars (rounded IMF 2012) THERE IS SIGNIFICANT UPSIDE IN THE PHILIPPINE ECONOMY PROVIDED THAT NEW POWER CAPACITIES ARE INSTALLED IN THE COUNTRY 9

10 COAL CURRENTLY ACCOUNTS FOR BULK OF THE PHILIPPINES POWER GENERATION MIX at 43% WHILE NATURAL GAS IS AT 25% JAPAN Population: 128M Installed Capacity: 287 GW SOUTH KOREA Population: 51M Installed Capacity: 82 GW Others 3% Oil 9% Coal 30% Nat Gas 25% Nuclear 25% Hydro 8% THAILAND Population: 68M Installed Capacity: 49 GW Oil 1% Coal 21% Hydro 5% Nat Gas 71% TAIWAN Population: 24M Installed Capacity: 41 GW Renewa bles 9% Nuclear 13% Hydro 6% Oil 8% Coal 27% Nat Gas 37% INDONESIA Population: 253M Installed Capacity 44 GW Geo 2% Others 5% Hydro 11% Oil 12% Nat Gas 22% Coal 48% Oil 6% MALAYSIA Population: 30M Installed Capacity 29 GW Hydro 12% Coal 26% Biofuel 3% Nat Gas 53% PHILIPPINES Population: 100M Installed Capacity: 19 GW 1 Available Capacity: 17 GW 2 Geo 18% Hydro 10% Nat Gas 25% 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 Coal 43% Renewables 1% Oil 3% SINGAPORE Population: 5.5M Installed Capacity: 10 GW Oil 5% Others 4% 1 US EIA 2 Source: DOE 2016 Nat Gas 91% 10

11 THE COUNTRY IS ALREADY IN A TIGHT POWER SITUATION. THE LUZON GRID NEEDS A TOTAL OF 10,500 MW OF NEW CAPACITY THROUGH 2030 FORECAST SUPPLY-DEMAND CURVE, LUZON GRID ( ) Source: Philippine Department of Energy s Philippine Energy Plan 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 11 11

12 OUTLINE 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 12

13 DUE TO LIMITATIONS ON INDIGENOUS SOURCES, THE COUNTRY S LONG-TERM GAS REQUIREMENTS WILL NEED TO BE SERVED WITH LNG IMPORTATION LNG USERS MW San Gabriel U MW San Gabriel U MW Avion MW San Gabriel U ** 1,000 MW Santa Rita 500 MW San Lorenzo ,200 MW Ilijan (government-owned under a BOT scheme) Industrial users/ transportation ESTIMATED AND CUMULATIVE LNG DEMAND (million tons per annum) **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. 13

14 INDEXATION AND WELL HEAD COSTING WILL BE VERY CRITICAL IN DETERMINING THE COST-COMPETITIVENESS OF LNG TO THE PHILIPPINES The Global Gas Pricing Groups US, UK and Canada Continental Europe, South East Asia Japan, Korea and Taiwan Middle East, Russia, China, India, SE Asia Prices are set in relation to real gas supply and demand Primarily oil-linked Oil-linked Consumer price is government regulated Source: Fundamentals of Natural Gas: An International Perspective (Vivek Chandra) 14

15 THE KEY DRIVER OF THE LNG PROJECT IS SECURING COST COMPETITIVE AND RELIABLE FUEL SUPPLY FOR FIRST GEN S NEW GAS PLANTS LNG PROCUREMENT PROCESS FOR FIRST LNG SUPPLY TRANCHE LNG Roadshows for LNG/Gas Suppliers Receipt and Evaluation of Term Sheets Shortlisting of LNG Suppliers Negotiation of key supply terms Definitive LNG Supply Agreeme nt Heads of Agreement (HOA) 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 Simultaneous with Off-take Agreement for the New Gas Plants FID on the LNG terminal 15

16 BUILDING AN OPTIMAL BUT CALIBRATED LNG RECEIVING, STORAGE AND REGASIFICATION TERMINAL IS CRITICAL FOR THE PHILIPPINE LNG MARKET Floating Storage & Regasification Unit (FSRU) or Floating Storage Unit (FSU) Pros Lower capital investment for interface facilities subsea pipelines, jetty, etc. Quicker development period of 24 to 30 months Cons 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 Onshore LNG Import Terminal Pros High availability even during turbulent weather/ sea conditions Lower O&M costs Potential for multiple tanks/ higher storage capacity Cons Higher capital investment Longer development period of 4 to 5 years 16

17 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 KEY SUCCESS FACTORS Proactive and Supportive Regulatory Environment Cost-Competitive LNG Supply Successful Development of an LNG Import Terminal and Other Gas Infrastructure Successful Project Financing/ Partnering CHALLENGES 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 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 pricesensitive 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 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 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 17

18 CHALLENGES IN LNG INFRASTRUCTURE DEVELOPMENT 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 18

19 CONCLUDING STATEMENTS 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. 19

20 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 NOTE: SG U70 and AVION units are now (2016) physically complete and operational San Gabriel, Avion, and LNG terminal images are indicative and not to scale SITE MAP OF FIRST GEN S BATANGAS PROPERTY 20

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