Control of West PH Sea oil seen in takeover of Malampaya project

MANILA, Philippines—Davao City-based businessman Dennis Uy’s Udenna Corp. could “seriously influence and control any further offshore petroleum development in the West Philippine Sea, as well as Luzon’s electricity supply” following its takeover of the Malampaya project, according to a maritime security expert on Thursday (May 27).

Maritime security expert Jay Batongbacal said this was a development that needed closer scrutiny.

Uy is poised to gain control of 90 percent of the Malampaya gas field in offshore Palawan if Malampaya Energy XP Pte. Ltd., Udenna’s subsidiary, completes its deal to buy Shell Petroleum NV’s 45 percent stake for up to $460 million.

Udenna Corp.’s unit earlier bought Chevron’s 45 percent stake in the gas field in March 2020. The government’s Philippine National Oil Company (PNOC) will be left with 10 percent.

The Department of Energy said it has yet to review the potential acquisition.

Service Contract No. 38 (SC38), or the Malampaya gas-to-power project, is expected to start drying up as early as 2024. Batongbacal said revenue from the dying gas deposit is not likely the biggest windfall from taking control of the Malampaya project.

“Additional extraction is possible, but requires spending more to extract the natural gas from the reserve, which seriously cuts into profits,” Batongbacal said on Facebook.

“At some point, the expense of extraction will outweigh the profit of selling and using the resource,” he said.

“It does not make good business sense to invest in a depleting reserve, so the benefits to be derived from this cannot be expected from further production of natural gas,” he added.

But Batongbacal said that Uy could suddenly gain advantage through the existing 501-kilometer underwater pipeline that carries natural gas from the Camago-Malampaya Reserve through Linapacan around Mindoro to Batangas, from where it is piped into three natural gas power plants.

“This is where the potential windfall can really come from,” Batongbacal said.

He said the 16-inch pipeline will allow direct transportation of any natural gas and oil between Luzon and the potential oil fields that may be found off Palawan and Recto (Reed) Bank, sidestepping the natural and technical barrier presented by the southern end of the Manila Trench between Luzon and the West Philippine Sea.

“Pipelines remain the cheapest and most cost-effective means of transporting petroleum from the field to the power plants,” Batongbacal said.

The ownership of the pipeline was supposed to be transferred to the Philippine government upon the expiration of the service contract which are provided in Shell’s contract.

“The three natural gas plants that are currently supplied by Malampaya produce a significant proportion of Luzon’s electricity,” Batongbacal said.

“The pipeline can make or break the commercial viability of any large petroleum reserves in those areas, especially SC 57, 58, 72, and 75 which are currently active contracts,” he said.

“Interconnection with the Malampaya pipeline would make petroleum exploration and development of the Northwest Palawan shelf and Reed Bank commercially and technically viable, not to mention very profitable, for any potential petroleum investors in the West Philippine Sea,” he added.

Malampaya is close to Recto Bank, which is believed to be rich in gas. In 2016, the International Tribunal ruled that Recto Bank belonged to the Philippines.

Uy also happened to be a partner of the China National Offshore Oil Corp. (CNOOC), a Chinese state-owned commercial company, in a Liquefied Natural Gas terminal project in Batangas.

The PNOC said in 2020 that it was set to start an energy exploration venture with CNOOC in the West Philippine Sea by 2021, one of the projects that can go ahead after President Rodrigo Duterte lifted a six-year-old moratorium on energy-related activities there.

TSB