Research and analysis

Philippine energy policy and UK opportunities – March 2014

Published 16 April 2014

This research and analysis was withdrawn on 18 June 2014

This document is no longer current.

Energy policy needs long term investment and planning. The Government has managed a transition from a state monopoly in energy to a public-private sector model. On the plus side, the government has avoided subsidies. However, a number of factors have left the Philippines with the 2ND highest costs in Asia and a chronic shortage of supply. Around 17% of the population do not have access to electricity. Parts of Mindanao suffer rolling blackouts and the national grid is under strain while demand is growing at just under 5% per annum. The cost and relative scarcity of power has affected the Philippines’ industrial base. Employment has not risen despite headline GDP growth of around 7% in recent years.

0.1 Energy mix

The Philippines is a net energy importer (mostly of oil and coal) producing about 60% of its needs. The mix is Oil (31.1%) geothermal (22%), Coal (19.2%), Biomass (12%), Natural Gas (8.3%), Hydro (6%), and Biofuels 1% with tiny pockets of wind, solar and ethanol. Civil society is opposed to nuclear power and under this administration, will not be a part of the picture.
The only natural gas source in the country is the Malampaya Gas Field managed by Shell which provides almost 20% of the country’s power generating capacity. Shell’s investment is by far the UK’s largest investment in the Philippines. The future of Malampaya up to 2029 is secure although decisions will soon be needed as to what should happen then. The dependence on imports is one reason the Philippines is concerned about China’s posture in the South China Sea. The area around Reed Bank is judged as being a potentially rich source of hydrocarbons.

There is a debate about the role of LNG. The Embassy has recently contributed to a Department of Energy consultation on the role of natural gas and participated in a public forum where the Vice President spoke of his support for a bigger role for gas in the sector. Despite talk about renewables and more gas, the business as usual model will see coal as the big winner in the years ahead. This is being driven by the need for quick and cheap supplies. The Government will rely on pricing mechanisms to expand private sector capacity.

0.2 Climate Implications

Business as usual will see the Philippines shift from a relatively low carbon energy sector (over 40% of energy comes from renewables) to a relatively high carbon sector (only 14% from low carbon sources). With the population set to double before 2040 and energy demand growing strongly, the Philippines will become a more significant factor in global emissions. Emissions in the energy sector could quadruple before 2030 as high carbon infrastructure gets locked-in.

0.3 Opportunities for UK companies

There are some foreign players in the energy sector although the constitutional restrictions on inwards investment (maximum 40% foreign ownership) means this is still quite a small part of the sector. South Korea is active and announced further investments when President Aquino visited Seoul in October 2013. The most likely source of UK commercial interest would be in gasincluding any new LNG terminal and the infrastructure what would be needed across the country. UK consultancy and design services would be competitive in this scenario. There may also be smaller scale opportunities in hydro, wind, biofuels and energy efficiency technologies and devices. This Philippine government will conduct bidding for petroleum and coal exploration contracts. A number of UK companies have been successful in winning business on energy projects such as Shell, Arup, Parsons Brinckerhoff, Gazasia and Wind Prospect. Other UK companies are in discussion with potential partners and clients to enter the market. There is a role also for UK companies to play a role in energy efficiency and emission reduction. Transport, utilities in buildings and industrial/agricultural waste are areas of opportunity.

0.4 Comment

On the back of successive years of 7% growth and relatively low inflation, the Philippines has received some plaudits for its economic performance and relatively sound financial position. But consumer and real estate led growth will not be sufficient in the longer term Energy is a part of the long term challenges that will need to be dealt with if growth is to be sustainable and inclusive. With a need to diversify the economy, higher power prices raise input costs for other industries, particularly in manufacturing. The big strategic issue in the next decade will be the contest between gas and coal. Securing a significant role for gas in the Philippines energy mix will be essential both in moderating the transition to a high carbon economy and helping reduce structural poverty We will continue to work with British companies to encourage greater bilateral trade and investment.

0.5 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.