Malampaya: A Link in Any Future TransAsean Grid

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Malampaya A Link in Any Future Trans-Asean Grid
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Pacific Basin LNG Trade Routes
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Existing Regulatory Framework

• Upstream
• PD 87 (1972) which enables the DOE to enter into
  Service (production sharing) contracts
• DOE Charter (RA7638) which directs the DOE/ERDB
  to formulate and implement financial and fiscal
  policies relative to Service Contract operations
• Midstream Downstream
• - DOE Circular which provides for
  non-discriminatory access by all industry
  participants to gas industry facilities
• - Inherent powers of Congress to grant
  concessions or
• franchises
• - DOE Charter directing the DOE/EIAB to regulate
  non-price- related activities of entities
  involved in the supply of energy resurces
  including natural gas distributing companies
• - EO 172 which created and gave ERB authority to
  regulate energy prices including gas prices and
  transport tariffs

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Existing Regulatory Framework

• Midstream Downstream
• - DOE Circular which provides for
  non-discriminatory access by all industry
  participants to gas industry facilities
• - Inherent powers of Congress to grant
  concessions or
• franchises
• - DOE Charter directing the DOE/EIAB to regulate
  non-price- related activities of entities
  involved in the supply of energy resources
  including natural gas distributing companies
• - EO 172 which created and gave ERB authority to
  regulate energy prices including gas prices and
  transport tariffs

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Regulatory Gaps and Issues

• Lack of comprehensive regulation across the
  entire gas chain with multiple government
  entities involved
• Regulatory gaps and uncertainty led to complex
  arrangements and multiple contracts to secure
  risks in the Malampaya gas project
• Difficulty of passing legislation favors tendency
  to have DOE issue rules and regulations
• Constitutional provision on non-impairment of
  contracts may preclude applying new rules to the
  Malampaya facilities

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Specific Issues to be Addressed

• Regulatory objectives and authority
• Security of supply vs. market competition
• Need to combine regulatory functions under a
  single authority
• Lack of institutional capability- may need to
  hire consultants to evaluate applications
  initially
• Pipeline Access
• Negotiated vs. mandatory access
• SC grants authority to build pipelines outside
  contract area
• How to access and recover cost of excess capacity
  in Malampaya project pipelines
• Ruling on monopoly/vertical integration
• Potential cross-ownership across gas industry
  segments and between gas and other energy markets
• Lack of competition policy/anti-trust laws to
  rule against monopoly and anti-competitive
  practices

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Specific Issues to be Addressed

• Gas Pricing
• How to make gas price competitive with other
  fuels- royalties and taxes account for about half
  of gas price
• Price distortions in competing fuels
• Potential transfer pricing issues between
  affiliate companies
• Ruling on monopoly/vertical integration
• Potential cross-ownership across gas and energy
  industry segments
• Lack of competition policy/anti-trust laws to
  rule against monopoly and anti-competitive
  practices
• Government Involvement in Operations
• Govt access to lower cost financing can reduce
  overall gas costs
• Govt presence seen as an advantage in dealing
  with political and local issues e.g., ROW

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Conclusions

• Additional gas supply and demand prospects beyond
  Malampaya positive
• Gas substitution viable at Malampaya price levels
  with current crude oil prices but price
  distortions need to be addressed to sustain gas
  viability
• Government needs to provide clearer and more
  stable regulatory framework to encourage
  investments and efficient expansion of gas market

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End of Presentation
THANK YOU
DEPARTMENT OF ENERGY