IN the past few weeks, there have been a steadily increasing number of alarming reports of energy price and supply problems in other parts of the world, in particular Europe, China, India, South America and the US. As it is the tendency of the Philippines — the government, the media and the public alike — to ignore a global crisis until it walks up and pokes them in the eye (see coronavirus pandemic), the spreading calamity has barely entered anyone’s awareness, let alone made any kind of impression. There is not much anyone here can do to forestall the coming disaster, but we can perhaps at least avoid being blindsided by it and take a few mitigating steps.
What is happening?
The energy crisis is the result of a confluence of factors, some of which are consequences of bad policy decisions and some the result of a hostile environment. The most detailed reports about the crisis are unfortunately all from Western media, and so attention has been focused on the situation in Europe; in reality, however, the circumstances are just as bad, if not worse, across large parts of Asia and South America.
There are three basic reasons for the current dilemma. First, the past winter was unusually cold in most of the Northern Hemisphere, followed by extreme heat waves in China, Europe, North America and other parts of the world. This volatile climate pattern drove up demand for fuel for heating and then cooling; natural gas supplies dwindled, and prices skyrocketed, with coal more recently following the same pattern. Natural gas in particular was severely affected by the unusual spring deep-freeze in Texas, which knocked production offline for a time and temporarily halted exports to Asia. Europe’s crisis was also further aggravated by Russia’s inability or unwillingness to boost gas supplies, which reason it is still being hotly debated.
Second, extreme climate effects have also badly affected alternative sources of energy. Europe is heavily reliant on wind power, but the weather has been unfavorable for most of the past year, reducing output. As European countries have been eliminating coal and nuclear plants at a rapid pace, perhaps too rapidly in hindsight, they have found themselves caught without generation capacity to fall back on. In the US and South America, the summer heat waves proved a tipping point for a severe drought, which has been going on in some regions for 20 years, and sharply reduced hydroelectric power.
Third, the economic recovery from the coronavirus pandemic has been faster than policymakers and energy industry players anticipated in some parts of the world, particularly in Asia’s two biggest economies, China and India. Both countries are heavily reliant on coal for energy and allowed coal reserves to dwindle during the downturn as demand dropped. That was not unreasonable at the time, but neither anticipated the sharp increase in demand, which happened at the worst possible time, just when demand for both coal and natural gas was also rapidly increasing elsewhere. This has left both countries with severe power shortages and skyrocketing electricity prices. It was reported on Tuesday that entire states in India are preparing to implement four to six hours rolling blackouts due to electricity shortages, and the power crunch has caused a sharp drop in industrial activity in China. Worse still, it has sent both countries, particularly China, scrambling for import supplies; China is now reportedly sourcing coal from South America and Africa, putting heavy supply and price pressure on the rest of the world.
How does this affect PH?
The first effect people here have probably noticed is the recent significant increase in gas prices. These are of course driven by oil prices, but those have climbed above $80 a barrel in response to ballooning gas and coal prices. The increase in oil prices directly affects power costs, as about 16 percent of the Philippines’ energy mix comes from oil-based (diesel and bunker oil) generation plants, according to the Department of Energy’s 2020 power statistics.
All of that, however, is likely to be the least of the Philippines’ worries. The country is insulated somewhat from the problems of natural gas supply and prices elsewhere in the world thanks to the Malampaya field, but that is quickly running out. As of now, the field is expected to last until 2025, but several gas industry and commodities market experts I spoke to pointed out that estimates of the viability of gas or oil fields are almost always too optimistic by a year or two.
The problem, one engineer explained, is that when a gas field nears depletion, the natural pressure in the underground reservoir drops too low for the gas to flow on its own. Some of the remaining gas can be forced out by pumping pressure into the reservoir (the so-called fracking, or hydraulic fracturing, is a form of this), but this is a difficult and costly undertaking, especially for an ocean-based well, and something that would not be considered economically viable. That moves the end of the Malampaya supply up to 2023 or 2024, at which point the country will be at the mercy of the world market for natural gas — which provides 17.7 percent of the electricity supply — it will have to import.
The bigger and more immediate problem is the 41.7 percent of the Philippines’ electricity that is generated by coal-fired plants, which already source most of their fuel from imports. World coal prices have increased by about 253 percent over the past six months, and by about 40 percent in the last month (as of October 11). While Philippine generators have some stockpiles, it is not certain how long these will last, and in any case, it is not best practice to not replace on-hand supplies as they are used.
That means generation costs are going to start increasing significantly immediately as generators are forced to replenish their fuel supply with increasingly higher-priced coal, and it is highly probable, given the global supply crunch, that coal stocks will become hard to obtain at any price within the next few weeks or months. Several months ago, the Department of Energy assured the public that there would be no issues with electricity supply during the all-important national elections in May. As things stand now, however, that looks to be just about the time a power supply crisis similar to what China and India are experiencing now is going to finally wash ashore here; if that prediction is wrong, it will only be because the crisis happens even sooner than that.