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has said his government is willing to ignore the Permanent Court of Arbitration’s (PAC) ruling in 2016 that dismissed much of China’s claim to the South China Sea, a ruling Beijing has refused to recognise.
China lays claim to around 95% of the South China Sea, bringing it into conflict with the Philippines, Vietnam, China, Brunei, Taiwan, Malaysia and Indonesia.
Cusi said this week that despite Manila proceeding with its bid round, the two coun- tries would continue to discuss a possible legal framework for “joint exploration activities” in the contested waters. While it remains to be seen whether Beijing will be able to force the issue in the coming weeks, Manila’s apparent determina- tion to press ahead highlights the extent of the government’s energy security concerns.
Energy security
Cusi said at the start of year that the PCECP would help the country “attain energy security and independence”. Commenting on the award of five exploration applications in January, the official said: “We need to increase exploration and development activities in the Philippines so that [we] can become energy self-sufficient.”
Underscoring continued investor interest in the programme, the DOE said on May 18 that nine local and foreign players had submitted nomination service areas for approval under the PCECP.
However, the oil price collapse and COV- ID-19’s destruction of global energy demand has inevitably had an impact on the country’s upstream prospects. Cusi said on May 18 that the twin pressures had seen a number of project deferrals this year.
“Locally, we’re also seeing the sector will be affected because the exploration companies will be rethinking how we will address it,” The Phil- ippine Star quoted him as saying.
Even before the precipitous fall in oil prices this year, the PCECP’s ability to affect the coun- try’s upstream outlook in the short to mid-term was already in doubt.
Assistant Energy Secretary Leonido Pullido said in August 2019 that it would take roughly 5-10 years for a successful development to deliver first oil and gas, too far off to help offset anticipated declines at the Malampaya gas field. The field, which produced 150.5bn cubic feet (4.26bn cubic metres) in 2019 compared with 150.8 bcf (4.27 bcm) in 2018, is projected to enter a steep decline from 2022.
“This is the reason why the department is also working [to] develop the Philippine downstream natural gas rules, to encourage investors to come in and create infrastructure, build infrastruc- ture for the importation of liquefied natural gas [LNG],” Pulido added.
The official has even said the county’s blocks
are not that attractive owing to their “frontier pros- pects”, the territorial dispute with China and the lack of finalised upstream investment reforms.
What next
The global oil and gas sector has taken a beat- ing, with international oil companies (IOCs), national oil companies (NOCs) and juniors alike slashing upstream budgets until energy prices recover.
It is against that backdrop that the Philip- pines wants to convince oil and gas investors that frontier acreage is the best bet. This appears to be something of a big ask, especially given the twin pressures of an extended lockdown and the Chinese military’s growing belligerence in the South China Sea. The US military said on May 19 that there had been at least nine “unsafe” encounters involving the Chinese military in the South China Sea since mid-March.
There are easier and “safer” plays for major upstream investors to chase and even the prom- ise of distressed upstream asset deals may be more enticing than an uncertain investment cli- mate dogged by geopolitical tensions and ques- tions of prospectivity.™
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