Shell embarks on next stage of Malampaya project in the Philippines

-A +A

THE Malampaya deepwater gas-to-power project by Royal Dutch Shell plc has provided a tailwind for the Philippines’ relatively new oil and gas industry.

A private-public partnership, the Malampaya project is said to be one of the largest and most significant industrial endeavours in the archipelago, enabling the country to reduce its dependence on imported fuel by 30%.

The partnership is between the Philippines’ national oil company, PNOC Exploration Corporation, which holds a 10% stake in the project, Chevron Malampaya LLC (45%), and Shell Philippines Exploration BV (SPEX), the operator of the field (45%).

According to SPEX managing director and general manager Sebastian Cortez Quiniones Jr, the Malampaya project provides 30% to 40% of Luzon’s electricity grid requirements.

“It is an extremely reliable source of power for the Philippines. If the facility trips, the whole of Luzon will have no electricity. We are proud to announce that there has been no such case yet,” said Quiniones in Manila recently.

Luzon, which is the most populated and largest island in the Philippines, is also one of the three primary island groups in the country; the others are Mindanao and Visayas. It is the location of the country’s capital, Manila, and its economic and political centre.

Apart from supplying gas to Luzon, the Malampaya project also reduces the Philippines’ dependence on imported fuel and earns it foreign exchange from the export of condensate.

Mineral products ranked fifth among the Philippines’ top exports in the first half of 2014. The segment registered a 62.7% increase in export receipts to US$1.5 billion (RM5.18 billion) during the period. Conversely, mineral fuels, lubricants and related materials ranked second among the Philippines’ top 10 imports, with a 21.7% share, which increased by 1.6% to US$6.81 billion in the first half of this year.

To maintain a steady supply of gas to Luzon’s power grid and fulfil existing gas sales agreements, Shell is now developing the gas fields for the next stages of production.

Last year, Phase 2 of Malampaya saw two additional production wells successfully installed, for a total of seven production wells.

Phase 3 involves the design, fabrication and installation of a new depletion compression platform currently being constructed in the Philippines.

The implementation of the new phases sees Shell incorporating its experience of its previous project, the Gemusut-Kakap semi-submersible floating production platform off Sabah. The same team has been tasked with making the Malampaya project a success, says Quiniones.

Shell is exploring other possibilities in the Philippines. Quiniones says that SPEX is exploring new areas around the existing field.

“There are fields nearby, smaller ones. But to be able to extract that, obviously we need to put in more money. There is also [the need to extend the period of validity of our] licence, among other things. We are in discussion with the government,” says Quiniones, noting that the Malampaya field is already in the middle of its productive life, which is estimated to continue till 2030. Shell has a licence to operate the field until February 2024. The field has an estimated gas reserve of three trillion cubic feet of natural gas and 85 million barrels of condensate at a depth of 3,000 meters below sea level.

The Malampaya project was completed in 2001 at a cost of US$4.5 billion. The combined development cost for Phases 2 and 3 of the project was US$1 billion.

Shell vice president of exploration for Asia and Australia Graeme Smith says that the oil major is constantly looking for near-field exploration around the Malampaya field, which is located off the coast of Palawan, and also for new areas to explore in the Philippines.

“We have prospects near Malampaya, which we will drill if the production capacity in the field has space to spur the oil and gas,” says Smith.

He also notes that there is a high success rate in near-field exploration but the reserves of oil or gas found are usually small, because the main resource has already been drawn out.

Malampaya started off in 1989 as a small gas reservoir called Camago. In the early 1990s, SPEX joined the search for natural gas reserves by acquiring a 50% stake in the project. Two years later, the Malampaya gas field was discovered and found to be connected to Camago, some 80km offshore Palawan.

Since its official inauguration in 2001, the Malampaya project has supplied natural gas to three power plants in Batangas that have a combined capacity of 2,700mw.

This article first appeared in The Edge Malaysia Weekly, on December 8 - 14, 2014.