Under the leadership of President Gloria Macapagal-Arroyo, the Philippines has undertaken an economic transformation, deregulating its energy sector and offering new incentives for foreign investment. President Macapagal-Arroyo, a trained economist, came into power when former President Joseph Estrada was forced to resign in 2001. But while a certain degree of success has been achieved, the country’s fiscal deficit and declining currency value are still problematic.
Real gross domestic product (GDP) grew by 4.4% in 2002. This increase exceeded both Philippine and international expectations. Much of the country's renewed economic vibrancy results from improved agricultural yields, as well as from an increase in domestic consumption brought about by reduced inflation, even though exports of consumer electronics have still been relatively weak. Real GDP growth for 2003 is projected at 3.7%.
U.S. troops have been invited into the Philippines to work with local armed forces on the Southern island of Basilan. Basilan is home to the Abu Sayyaf, a violent Philippine rebel group. As of mid-2003, approximately 2,000 American military personnel were stationed in the Philippines.
The Philippines is one of the claimants, along with China, Taiwan, Malaysia, and Vietnam, to the Spratly Islands, located in the South China Sea. Potential oil and natural gas reserves surrounding the islands have sparked the interest of all the littoral states, though no exploratory drilling has been carried out due to the dispute.
OIL
The Philippines began 2001 producing an average of only 1,000 barrels per day (bbl/d) of crude oil. In 2002, however, crude oil production averaged 23,512 bbl/d. This dramatic increase was due primarily to the development of new deep-sea oil deposits beneath the natural gas-bearing structures in the Malampaya field. The increased production volume is still modest, however, in relation to the country's needs. The Philippines consumed 342,000 bbl/d on average in 2002, resulting in net oil imports of 318,488 bbl/d.
This dependence on imported oil makes the Philippine economy vulnerable to sudden spikes in world oil prices. Oil consumption is expected to increase by over 5% annually over the next several years as economic growth increases demand in most sectors. Oil demand for power generation, however, is expected is declining sharply, as many aging oil-fired electric power plants are shut down or converted to burn natural gas.
Despite small proven oil reserves, the Philippines has enjoyed a recent wave of optimism amongst domestic and foreign drillers. In October 2001, exploration underneath the Malampaya gas field revealed an estimated 85 million barrels of oil condensate. Shell Philippines Exploration (SPEX) has committed about billion to the upstream components of the combined oil/natural gas project and currently operates the joint venture with partners Texaco Philippines and the Philippines National Oil Company. Production currently is around 25,000 bbl/d. In addition, six new offshore exploration projects have commenced in the Malampaya basin, led by Nido Petroleum, Philippines National Oil Company Exploration Corp., Trans-Asia Oil, Unocal Corp., and Philodril. Also, Trans-Asia has conducted exploratory drilling at the San Isidro well in the East Visayan Basin. The Philippine government issued a solicitation for bids in early August 2003 under a new licensing system, the First Petroleum Public Contract Round (PCR-1), covering 46 additional exploration blocks. The closing date is March 2, 2004. PCR-1 replaces the old system of negotiations with individual companies.
Refining & Downstream
The Philippines' downstream oil industry is dominated by three companies: Petron; Pilipinas Shell (Royal Dutch/Shell's Philippine subsidiary); and Caltex (Philippines). Petron is the Philippines' largest oil refining and marketing company. The company was a wholly owned subsidiary of the state-owned Philippine National Oil Company (PNOC) until 1994. Currently, the Philippine government and Saudi Aramco each own 40% of the company, with the remaining 20% held by portfolio and institutional investors, making it the only publicly listed firm amongst the three oil majors. Petron's Limay, Bataan refinery has a crude processing capacity of 180,000 bbl/d. Petron's market share as of mid-2003 is around 39%. Caltex (Philippines), a subsidiary of Caltex, the Texaco-Chevron joint venture based in Singapore, operates a 86,500-bbl/d refinery, two import terminals, and more than 1,000 retail gasoline stations throughout the Philippines. Pilipinas Shell has a 153,000-bbl/d refinery, one of the largest foreign investments in the Philippines, and operates some 1,000 Shell gasoline stations. Overall, Philippine refineries run at around 80% of capacity, and there is not a great deal of demand for new refinery construction.
Oil market deregulation, beginning in 1998, continues to have a significant effect on the industry. Since deregulation started, 62 new firms, including TotalfinaElf, Flying V, SeaOil (Philippines), Eastern Petroleum, Trans-Asia Energy and Unioil Petroleum Philippines Inc., have invested heavily and built several hundred new retail stations. While the three original companies still dominate the market, these firms have captured a steadily growing share of the petroleum products market, rising from around 10% in 2000 to 17% by mid-2003. These new entrants have organized the "New Players Petroleum Association of the Philippines" (NPPAP), and have been credited with putting significant downward pressure on retail fuel prices in the country. Currently, the Philippines enjoys the lowest fuel prices of any non oil-exporting Asian country. However, price swings associated with deregulation and higher world oil prices have angered many Filipinos. Despite recurring public calls for price controls, the government has remained committed to deregulation . In December 1999, the Supreme Court upheld the constitutionality of the country's deregulation program.
NATURAL GAS
The Philippines has 3.8 trillion cubic feet (Tcf) of proven natural gas reserves, but had no significant production until late 2001. While in the past the country's natural gas sector has not been developed extensively, the government has made expanding gas use a priority, particularly for electric power generation, in an effort to cut oil import expenses.
The impetus for the dramatic change in the country's natural gas sector is the Malampaya offshore field. Malampaya is the largest natural gas development project in Philippine history, and one of the largest-ever foreign investments in the country. Shell Philippines Exploration (SPEX, operator, with a 45% stake), Texaco (45%), and the PNOC (10%) have come together to form the .5 billion Malampaya Deepwater Gas-to-Power Project. The Malampaya field is located in the South China Sea, off the northern island of Palawan, and contains an estimated 2.6 Tcf of natural gas. A 312-mile (504-kilometer) pipeline links the field to three power plants in Batangas. The pipeline is among the longest deep-water pipelines in the world, with half of its length more than 600 feet deep. With completion of the sub-sea pipeline and conversion of the first of three power stations, (San Rita, operated by British Gas and Philippines 1st Gas Corp.), the Malampaya project was officially inaugurated on October 16, 2001. Natural gas from Malampaya eventually will fuel three power plants with a combined 2,700-megawatt (MW) capacity for the next twenty years and will displace 26 million barrels of fuel oil, according to the Philippine government. The BG/Philippines 1st Gas Corporation partnership has announced that it expects to have a second station, the San Lorenzo facility, converted for natural gas use by 2003. The government has publicly considered selling its10% share in the Malampaya project to the public; however no date has yet been set for the IPO.
A million expansion pipeline from Batangas to Metro Manila ("Bat-Man") has been considered by numerous investors including PNOC, Shell, Brunei's Mashor Group, First Gas, and Sumitomo. This pipeline would supply gas to additional power plants as well as the industrial and commercial sectors. Negotiations on the financial aspects of the project are ongoing, and construction is expected to begin in 2004, with the pipeline commencing operation in 2006.
Exploration continues is other parts of the country, but no major discoveries have been reported. Three small natural gas fields were closed down in 2001. Fields in the Tukankuden and the Cotabato Basin were shut down due to security problems, while another field in Victoria, Tarlac, was closed because the natural gas discovered was too saturated with water for commercial production.
The Philippine government is developing a policy framework for the emerging natural gas industry that foresees the government's role as that of facilitator while attempting to ensure competition. Domestic development is to be encouraged, but competition from imported gas also is to be allowed. Gas supply to wholesale markets will have market-set prices, while prices for captive markets and small consumers will be regulated.
Liquefied natural gas (LNG) has begun to receive added attention as a potential source of natural gas supplies. PNOC has been considering the construction of an LNG regasification terminal in Bataan, which would serve the Manila area. A letter of intent has been signed for natural gas imports into the Philippines from BP's Tangguh LNG project in Indonesia.
COAL
Development of new natural gas projects in the Philippines has come largely at the expense of the country's struggling coal industry. PNOC's coal mining subsidiary produced 1.5 million short tons of coal in 2001. While coal is a declining share of the Philippines fuel mix, there are still new small coal mines under development, mainly on the southern island of Mindanao. The country has decided to restructure the use of its 366 million short tons of estimated coal reserves, which is mostly low-rank lignite, for processing in smaller "clean coal" plants, for eventual end-use as household fuel, and briqueting.
The Philippines consumed 9.3 million short tons of coal in 2001, 7.8 million short tons of which were imported. Indonesia, China, and Australia are major exporters of coal to the Philippines.
World Trade Organization (WTO) regulations require that the Philippines lift import restrictions on coal. Since the 1970s, when the National Coal Authority was created, Philippine coal importers have been required to obtain a government certificate of compliance before importing coal, allowing the authorities to force importers to buy domestic coal each time they purchased coal from abroad. President Macapagal Arroyo has committed to honoring the international coal supply contracts approved by the previous government.
ELECTRICITY
Energy production in the Philippines is concentrated in the electricity sector. Geothermal power accounts for the country's largest share of indigenous energy production, followed by hydropower, natural gas, coal, and oil. The Philippine government has made shifting from reliance on imported oil a major goal, and is pushing the current boom in natural gas-fired electricity development.
The most significant event in the Philippine energy industry in recent years was the Power Industry Reform Act (PIRA) of 2001. After seven years of congressional debate and litigation, the Act came into force on June 26, 2001. The act has three main objectives: 1) to develop indigenous resources; 2) to cut the high cost of electric power in the Philippines; and 3) to encourage foreign investment. Passage of the Act set into motion the deregulation of the power industry and the breakup and eventual privatization of state-owned enterprises.
PIRA required the state-owned utility National Power Corporation (Napocor) to break up its vertically integrated assets into smaller sub-sectors such as generation, transmission, distribution and supply in order to prepare for eventual privatization. The result will be a system in which privatized generators would sell directly to private distribution companies. Working with consultants from the law firm of Hunton and Williams (U.S.), the government has designated two new entities designed solely for the eventual privatization of state assets. These two concerns, Transco and PSALMcorp, will entail the state's high voltage transmission infrastructure, and power plants, respectively. The government also will sell off its share of Meralco, a vital distribution utility on the island of Luzon that serves Manila and the immediate surrounding area by buying power from various Independent Power Producers (IPPs).
Napocor will need to transfer its existing power purchase obligations to private distributors, and also to renegotiate high-priced contracts. The cost savings lie in the fact that private distributors will likely be unwilling to enter into agreements that are above market rates. There are other financial incentives for the government as well. Napocor's huge debt and billion in power purchase agreements are unsustainable, and the government must already contribute million per year to keep Napocor afloat.
In order to make the sale of Napocor more attractive to investors, the government has absorbed a significant amount of Napocor's debt. In addition, the billion in power purchase agreements with IPPs also will be sold off. The transmission system is to be transferred to an independent company, Transco, which is to be privatized. According to deregulation laws, no single potential buyer will be allowed to own more than 30% of the Philippines' generating assets. Privatization of Transco has been delayed, though, due to the fact that only one offer was received during the first two rounds of bidding. It is possible that the Philippine government will pursue negotiated contract with Singapore Power, the lone bidder.
Electricity demand in the Philippines is expected to grow by around 9% per year through the end of the decade, necessitating as much as 10,000 MW of new installed electric capacity. Current contracts will provide about half of that amount, with the remainder expected to be filled once the market deregulates. Medium-term increases in power demand are to be satisfied largely by the three gas-fired plants (Ilijan, Santa Rita, and San Lorenzo) that will be linked to the Malampaya natural gas field. The Korea Electric Power Corporation (KEPCO) began commercial operation of the 1,200-MW Ilijan plant in June 2002. KEPCO will run the plant under a build-operate-transfer scheme for 20 years, after which ownership will revert to Napocor. Minority stakeholders in the plant are Southern Energy of the United States (20%) plus Mitsubishi (21%) and Kyushu Power (8%) of Japan. First Gas Power completed its 1,020-MW plant at Santa Rita in August 2000, and it switched to natural gas as a fuel in January 2002.
There are two new projects in Luzon. The CE Casecnan Water and Energy Company (a subsidiary of California Energy International) is constructing a multipurpose irrigation and 150-MW hydroelectric facility. Also, the Washington Group completed the 350-MW San Roque multipurpose hydro project, which began commercial operation in May 2003.
Mirant is the Philippines' largest IPP, operating five power plants in the country. Mirant's coal-fired Sual plant began commercial operation in late 1999. The 1,218-MW plant is located about 130 miles north of Manila, and is the nation's largest and lowest-cost electricity producer. Napocor is the sole purchaser of power from Sual.
Several power-generating facilities also are under extensive rehabilitation. The 100-MW Binga hydroelectric plant in Itogon, Benguet has been under renovation since 1993 following damage from a 1990 earthquake. After years of delays, it resumed operation in July 2002. A larger project is the million contract with Argentine firm IMPSA (Industrias Metalurgicas Pescarmona Sociedad Anonima ) to rehabilitate and operate the 750-MW Caliray-Botocan-Kalayaan (CBK) power complex in Laguna, south of Manila. The CBK complex is the grid regulator in Luzon, and as such is able to transmit power to other plants on the grid in the event of breakdowns. IMPSA, in conjunction with new partner Edison Mission Energy of the United States, was able to get a performance undertaking guarantee despite Napocor's and some government officials' objections, facilitating long-delayed financing of the project.
The Philippines, due to its geography, has problems linking all of its larger islands together into one grid and ensuring availability of electric power in rural areas. The government has set a target date of 2006 for electrification of all these villages, and also is taking steps to link together the country's three major power grids (Luzon, Visayas, and Mindanao). Where it is not economical to link small islands' grids into the national grid, separate local systems are being established around small generating plants.
Renewables
The Philippines is the world's second largest producer of geothermal power, with an available capacity of 1,931 MW, according to the Philippine government. The government would like to add another 990 MW, bringing capacity to 2,921MW, and exceeding the U.S. capacity of 2,775 MW. Geothermal power currently makes up around 16% of the Philippines' installed power generation capacity, most of which has been developed by the PNOC - Energy Development Corporation (PNOC-EDC). Privatization of PNOC-EDC is planned, though as with other generation assets, the process has progressed much slower than originally planned. Kyushu Electric company is in a joint venture with PNOC-EDC to develop a 40-MW geothermal plant in Sorsogon, Albay province, and Marubeni of Japan has expressed its intent to build the 100-MW Cabalian geothermal plant in Leyte. California Energy's Philippine unit is working with PNOC to develop three new geothermal power plants in Leyte, producing a total of 540 MW of electricity. Plans are underway to develop nine new facilities in Luzon, ranging from 20 MW to 120 MW, that will eventually bring a total of 440 MW of geothermal energy to the grid. By 2005, the new 40-MW Mambucal and 40-MW Rangas power stations in Dauan, Negros Oriental are expected to come online. Financing for the projects was secured from the Development Bank of the Philippines (DBP) in June 2003.
Besides geothermal, the Philippines also is exploring the use of other renewables for electricity generation, particularly in the country's unelectrified villages. In March 2001, the Philippine and Spanish governments, in conjunction with BP, agreed to a million contract to bring solar power to 150 villages. BP and the government of Australia also have partnered with the Philippines to supply solar power to rural villages, bringing 1,145 solar-powered systems to 52 new municipalities.
The Philippines appears to have a strong potential for wind generation. The United States Department of Energy wind mapping survey estimates that wind resources in the Philippines have a power generation potential of as much as 70,000 MW, seven times the country's current power demand. The 40-MW, PNOC-EDC, Northern Luzon project in Ilocos Norte began operation in late 2002. A contract for a second, 40-MW phase of the project was signed with Aboitiz Power in March 2003.
Sources for this report include: AFX News Limited; Asia Pulse; Business Wire; Business World; Coal Week International; CIA World Factbook; Dow Jones News Wire service; Economist Intelligence Unit Ltd.; Electric Utility Week; Financial Times; Global Insight Asia Economic Outlook; Oil and Gas Journal; Manila Standard; Philippine Daily Inquirer; Platts International Coal Report; Project Finance; U.S. Energy Information Administration.
COUNTRY OVERVIEW
President: Gloria Macapagal-Arroyo (sworn in January 20, 2001 after resignation of Joseph Estrada; next election May 2004)
Independence: July 4, 1946 (from United States)
Population (2003E): 84.6 million
Location/Size: Southeast Asia/115,830 sq. mi. (slightly larger than Arizona)
Major Cities: Manila (capital), Quezon City, Cebu, Davao
Languages: Pilipino (official; based on Tagalog), English (official)
Ethnic Groups: Christian Malay (91.5%), Muslim Malay (4%), Chinese (1.5%), other (3%)
Religions: Roman Catholic (83%), Protestant (9%), Muslim (5%), Buddhist and other (3%)
Defense (8/98): Army (74,500), Navy (25,900), Air Force (17,400), Reserves (131,000)
ECONOMIC OVERVIEW
Finance Secretary: Jose Camacho
Currency: Philippine peso
Market Exchange Rate (8/18/03): $1 = 55.15 pesos
Gross Domestic Product (GDP, 2002E): .0 billion
Real GDP Growth Rate (2002E): 4.4% (2003E): 3.7%
Inflation Rate (consumer prices, 2002E): 4.9% (2002F) 4.9%
Current Account Balance (2002E): .2 billion
Major Trading Partners: United States, Japan, EU, Singapore, Hong Kong
Merchandise Exports (2002E): .2 billion
Merchandise Imports (2002E): .4 billion
Major Export Products: Electronic equipment, machinery, garments, coconut oil
Major Import Products: Machinery and equipment, fuel products, textile yarns, chemicals
Total External Debt (2002E): .7 billion
ENERGY OVERVIEW
Secretary of Energy: Vicente Perez
Proven Oil Reserves (1/1/03E): 178 million barrels (Oil and Gas Journal)
Oil Production (2002E): 23,512 bbl/d
Oil Consumption (2002E): 342,000 bbl/d
Net Oil Imports (2002E): 318,488 bbl/d
Crude Oil Refining Capacity (1/01/03E): 419,500 bbl/d
Natural Gas Reserves (1/1/03E): 3.772 trillion cubic feet
Natural Gas Production and Consumption: (2001E): 353 million cubic feet (negligible)
Recoverable Coal Reserves (2001E): 366 million short tons
Coal Production (2001E): 1.5 million short tons
Coal Consumption (2001E): 9.3 million short tons
Electric Generation Capacity (2001E): 13 gigawatts (GW)
Electricity Generation (2001E): 45.2 billion kilowatthours (bkwh) (55.4% thermal, 17.5% hydro, and 27.0% geothermal)
Electricity Consumption (2001E): 42.0 bkwh
ENVIRONMENTAL OVERVIEW
Secretary of Environment & Natural Resources: Heherson Alvarez
Total Energy Consumption (2001E): 1.25 quadrillion Btu* (0.3% of world total energy consumption)
Energy-Related Carbon Emissions (2001E): 18.6 million metric tons of carbon (0.3% of world total energy-related carbon emissions)
Per Capita Energy Consumption (2001E): 16.3 million Btu (vs. U.S. value of 341.8 million Btu)
Per Capita Carbon Emissions (2001E): 0.2 metric tons of carbon (vs. U.S. value of 5.5 metric tons of carbon)
Energy Intensity (2001E): 13,748 Btu/ (vs U.S. value of 10,736 Btu/)**
Carbon Intensity (2001E): 0.20 metric tons of carbon/thousand (vs U.S. value of 0.17 metric tons/thousand )**
Fuel Share of Energy Consumption (2001E): Oil (56.8%), Coal (16.3%), Natural Gas (0.03%)
Fuel Share of Carbon Emissions (2001E): Oil (72.6%), Coal (27.4%), Natural Gas (0.03%)
Renewable Energy Consumption (2001E): 0.25 quadrillion Btu*
Status in Climate Change Negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified August 2nd, 1994). Signatory to the Kyoto Protocol (signed April 15th, 1998).
Major Environmental Issues: Uncontrolled deforestation in watershed areas; soil erosion; air and water pollution in Manila; increasing pollution of coastal mangrove swamps which are important fish breeding grounds.
Major International Environmental Agreements: A party to Conventions on Biodiversity, Climate Change, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Tropical Timber 83, Tropical Timber 94, Wetlands and Whaling. Has signed, but not ratified, Desertification.
* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar and wind electric power. The renewable energy consumption statistic is based on EIA data and includes geothermal, solar, wind, wood and waste electric power consumption.. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP based on EIA International Energy Annual 2001
OIL AND GAS INDUSTRIES
Organization: The Philippine National Oil Company (PNOC) is the country's state-owned energy company responsible for oil and development of local energy resources. Petron, privatized in 1994, is considered to be the country's largest oil refining company, with Shell and Caltex also significant. National Power Corporation (NPC) is the state-owned electric company.
Major Foreign Energy Company Involvement: Caltex, Royal-Dutch Shell, Petroleum Authority of Thailand, TotalFinaElf
Major Natural Gas Fields: Malampaya-Camago
Major Oil Refineries (capacity - bbl/d): Petron -- Limay, Bataan (180,000 bbl/d); Pilipinas Shell -- Tabangao (153,000) bbl/d); Caltex -- Batangas (86,500 bbl/d)
LINKS
For more information from EIA on the Philippines, please see:
EIA - Country Information on the Philippines
Philippines - U.S. Energy Data Exchange Home Page
Links to other U.S. and state government sites:
CIA World Factbook - Philippines
U.S. Department of Energy's Office of Fossil Energy's International section - Philippines
U.S. State Department's Consular Information Sheet - Philippines
U.S. State Department's Country Commercial Guide - Philippines
U.S. State Department Background Notes - Philippines
Library of Congress Country Study - Philippines
State of Hawaii Country Profiles
U.S. Embassy in the Philippines
The following links are provided as a service to our customers and should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. EIA does not guarantee the content or accuracy of linked sites.
Philippine National Oil Company (PNOC)
Petron
Pilipinas Shell
Caltex (Philippines)
Pancontinental Oil & Gas
Philippines' Department of Energy
Philippines' Department of Environment and Natural Resources
Philippines' Department of Trade and Industry
Philippines' National Economic Development Authority
World Bank - Philippines
Philippine Mission to the United Nations
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