Is Philippines the new hotspot for oil and gas exploration and production?

by?Nico Rivera?| May 11, 2023

The Philippines may not immediately come to mind as a hub for oil and gas production, especially compared to traditional exploration hotspots like the Middle East and the Americas. However, the country has been exploring oil since the 1890s, with the Toledo-1 drilling site in Cebu Province being one of the earliest examples. Exploration activities increased during the 1950s to 1970s and were governed by the "Petroleum Act of 1949" (also known as Republic Act No. 387), which introduced the concession system and ushered in a new era of petroleum exploration in the country.

From 1993 to 2023, the Philippines has averaged a crude oil production of 14.59 BBL/D/1K. The country's all-time high production of 38.00 BBL/D/1K occurred in January 2014, while the record low of 0.90 BBL/D/1K was recorded in September 2021. According to the Department of Energy (DoE), the Philippines produces a total of 37,000 barrels per day (b/d) of petroleum and other liquids. However, this amount is significantly lower than the country's daily consumption of 474,000 b/d.

Malampaya Gas Field

Malampaya Gas Field is the largest commercial deepwater gas field in the Philippines. The natural gas industry in the Philippines was born with the launch of the Deep Water Gas-to-Power project. Situated 50 kilometers off the Northwest Palawan coast, the Malampaya project started commercial operations in January 2002. It has since generated more than USD$12 billion in revenue for the Philippine government and supplies up to 20% of Luzon's (Philippines biggest and most populated island) electricity needs.

Discovered in 1992 by Shell Philippines Exploration B.V. and Occidental Petroleum (Oxy), the Malampaya gas field has been producing natural gas since 2002. The government's initial projections indicated that the field would be depleted by 2027. However, Udenna Corporation, which took over the project in 2019, is optimistic about the field's potential for an extended life beyond this timeline.

With the impending exhaustion of Malampaya reserves, the Philippines could be facing a major energy crisis in the coming years unless the government can find new sources of energy. A natural course would be to turn to importation which will greatly increase the prices of fuel and electricity.

Into the Future

The energy department of the Philippines has declared that the country is virtually "sitting on a mountain of gold" due to its untapped hydrocarbon deposits. These deposits are estimated to be valued at around $26.3 trillion in 2023 dollars. The bulk of these reserves are located in the disputed Spratly chain of islands, where China and several ASEAN countries have competing claims of sovereignty.

Alegria, Cebu

The Department of Energy has announced that Alegria, a fourth-income class town located 120 kilometers south of Cebu City and home to about 25,000 people, is hosting commercial quantities of natural gas and oil resources. China International Mining Petroleum Co. Ltd. (CIMP), the service contractor, discovered an estimated 27.93 million barrels of in-land oil in 2018, with an estimated 3.35 million barrels (12% of the total) being recoverable. Additionally, they found an estimated 9.42 billion cubic feet of natural gas reserves, with up to 6.6 billion cubic feet (70% of the total estimated gas reserves) being recoverable.

Liguasan Marsh

Located in Mindanao, the Philippines' second-largest island, the Liguasan Marsh in the Cotabato Basin is a promising location for oil and gas exploration. Spanning around 220,000 hectares, the wetland is estimated to hold at least 4.8 billion barrels of crude oil and 9.3 trillion cubic meters of natural gas, according to the Department of Energy.

This area is inhabited by indigenous communities, and the Philippine National Oil Company (PNOC) has indicated its interest in exploring it for potential reserves. Nevertheless, this initiative has encountered opposition from environmental groups and local communities, who fear the potential ecological repercussions and the impact on their livelihoods.

As of March 2022, a contract to explore was awarded to SKLOGC (SK Liguasan Oil and Gas Corporation).

Spratly Islands / Kalayaan Islands

The Spratly Islands are a vast collection of reefs, shoals, atolls, and small islets located in the South China Sea/West Philippine Sea, situated between Vietnam and the Philippines and to the north of insular Malaysia. Several countries in the region claim either all or a portion of the islands. In the Philippines, this island chain is known as "Kalayaan," which means freedom, and the country currently exercises control over eight islands and three reefs.

The US Geological Survey (USGS) in 1994 estimated that the total reserves of oil and gas to be 28 billion barrels. If tapped, it is sufficient to upgrade the Philippine economy to an upper income status and uplift massive amounts of people out of poverty. So why is the Philippine government not starting the explorations? The simple answer is geopolitics. As the area is highly contested by a number of countries, it is extremely difficult to start operations without risking a war or a conflict.

Sulu Sea, Celebes Sea, Philippine Sea

In addition to the West Philippine Sea, other promising areas for exploration include the Sulu Sea, Celebes Sea, and the Philippine Sea, where the Philippine Rise (formerly Benham Rise) is located. Although the official estimate of oil and gas reserves in these areas is not yet determined, they show promising potential and could contribute to the country's existing roster of oil exploration areas.

What now?

The discovery of proven oil reserves in the Philippines is a significant opportunity for the country's economy. Despite annual contracts being awarded for exploration, operations, and plant constructions, progress has been slow. Several factors have hindered the pace of development, including:

1. Geopolitics: The majority of the areas available for exploration are located in disputed territories, which has slowed down progress in the sector.
2. Limited experience: Despite exploring oil since the 1900s, the Philippines still lacks experience in oil exploration and management.
3. Lack of attention from previous administrations: Previous governments have attempted to revolutionize the oil and gas industry, but their actions and policies have been slow to materialize. The current administration, as well as future ones, need to act quickly to implement reforms and achieve progress in the oil and gas sector.

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