US $2 Billion Camago-Malampaya Project Will Transform the Philippines

Contents
Participating interests
Exploration, Appraisal, Estimated Reserves
Development Scheme
Gas utilization

Twelve years have passed since Occidental was awarded a geophysical contract over a deepwater area (water depth 800 to 900 meters) some 70 km northwest of Palawan Island in the Philippine's South China Sea aquatory. A development has been launched with first sales of gas and condensates due to take place at the end of 2001. It will be a technological achievement in view of the many challenges to be overcome: a potentially seismically active region, deep water with low temperature at the seabed entailing the formation of gas hydrates which could plug risers and flowlines, a complex distribution of gas, condensates, and oil in a reservoir constituted by two distinct but linked carbonate reef build-ups separated by a tighter zone, minor CO² (5%) but highly corrosive H₂S. Average thermal value is 1,040 btu/scf.

Participating interests. (back to top)
Through these twelve years, the participating interests in the area have changed, the focus of the exploration works has switched from oil to gas, and several development options have been envisaged.

Shell acquired a 50% interest and took over operatorship in July 1990. In July 1998, Shell and Occidental announced a realignment of their upstream assets in a number of countries, and Shell became the sole participant in SC38, the Contract Area containing Camago-Malampaya. In November1999, Texaco acquired a 45% interest in the project, Shell remaining the operator. In addition, the Philippine National Oil Co. (PNOC) has repeatedly expressed its wish to acquire an interest in the upstream part of the project as well, and is reported to be close to an agreement to obtain a 10% to 15% stake from Shell. Currently, it is believed that Texaco joined into the project to broaden its gas reserves and to develop business opportunities in the Philippines where privatization is the order of the day in the energy sector.

Exploration, Appraisal, Estimated Reserves (back to top)
Only five wells have been drilled on the complex, Camago-1, the discovery well in 1989, and four Malampaya wells, between December 1991 and August 1994.

These wells and detailed seismic data have resulted in reserves estimates of approximately 3 Tcf of gas (proven and probable), 120 million bbl of condensates, and 30 million bbl of oil. Almost all of the petroleum, crude and products, used in the Philippines is imported. The gas sales from Malampaya will reduce this dependence (one may recall that during the negotiation of a gas sales agreement, the government had "threatened" to import LNG and to defer the development of Malampaya).

Development Scheme (back to top)
At an early stage, a first phase of development for the liquids only had been envisaged. However, it was found that fluid distribution and reservoir geometry do not allow for such an option. The oil leg will not be produced.

Drilling of nine wells is planned, two on Camago, seven on Malampaya. All will be subsea completions connected to a ten-slot manifold installed on the seabed at Malampaya.

Production will be sent by two 16-inch sealines to a riser/processing platform located in shallow water some 30 km to the southeast of Malampaya. The platform will comprise a concrete gravity base with storage capacity for 380,000 bbl of condensates. Condensates will be sent via a 24-inch line to a CALM buoy for transfer into shuttle tankers. Gas will be sent to the region of Batangas in the southern part of Luzon Island through a 24-inch, 504-km pipeline with a capacity of 650 million cf/d.

Production is expected to reach a plateau of 400 million cf/d with condensates production increasing from 15,000-25,000 b/d, then decreasing. With the installed compression facilities at Malampaya, there will be excess capacity in the pipeline. That part of the project up to delivery at Batangas is valued at some US$ 2 billion.

Gas utilization (back to top)
From the landing point and after removal of the H₂S, the dry gas will be sent via onshore pipelines to three power generation plants. Shell, the government of the Philippines, and power producers have signed gas sales and purchase agreements for a total generating capacity of 2,700 MW. Napocor (National Power Corp.) will receive gas to feed its 1,200 MW plant at Ilijan, Batangas. First Gas Holdings (FGH) will take gas to feed its 1,000MW plant at Santa Rita, Batangas. Construction has begun on these two plants. FGH has also committed to buy gas for its 500MW San Lorenzo plant near Santa Rita. FGH is a joint venture group of First Philippines Gas Holding Corp. 51%, British Gas 40%, and Meralco, a local company, 9%.

The initial period for supplies is 22 years. A fourth project to generate 300MW is up for bid and gas sales agreements have not been signed yet.

As often in the region, there is some uncertainty regarding the growth rate in power demand in the years to come. On the one hand, it appears that some oil-fired power plants may have to be shut down for the gas resources to be fully utilized. On the other hand, it has been noted above that the pipeline from Malampaya will not be used at full capacity.

Provisions have already been made in the development scheme of Camago-Malampaya to tie-up the reserves from the San Martin discovery (50 km northeast of Malampaya, reserves estimated at 300 bcf), in the future, if need be. However, exploration offshore Palawan has been otherwise rather disappointing. In the "high case" scenario of growth demand there are further plans for gas imports. LNG imports have been mentioned previously as the possibility was envisaged, at least when setting a price mechanism for the gas from Malampaya. Another ambitious project would be to transport by pipeline, gas from offshore Sabah, Malaysia, where stranded reserves are abundant, 600 km to the southwest of Malampaya.

This option does not appear to be viable today, but it would add a significant link to the much-talked about Southeast Asian gas pipeline grid which has the support of the interested governments.