VZCZCXRO3561
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHML #2238/01 2730548
ZNR UUUUU ZZH
P 290548Z SEP 08
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC PRIORITY 1930
INFO RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNASE/ASEAN MEMBER COLLECTIVE
RHHMUNA/USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 MANILA 002238 
 
SENSITIVE BUT UNCLASSIFIED 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EB/ESC, AND EAP/PMBS 
DOE FOR TOM CUTLER 
USDOC FOR 4430 ITA/MAC/DBISMEE/KBOYD 
BANGKOK FOR REO JAMES WALLER 
STATE PASS DEPT OF INTERIOR FOR USGS 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: EMIN SENV ECON EINV PBTS PG RP
SUBJECT: PHILIPPINE GAS RESOURCES 
 
REF: Manila 1838 
 
¶1.  (SBU) Summary:  The Philippine Department of Energy has set 
ambitious goals for increasing energy self-sufficiency to 60%, but 
the country is unlikely to meet these goals.  Potential significant 
hydrocarbon reserves in the South China Sea could make an important 
contribution to the Philippine energy situation, but regulatory 
obstacles and conflicting territorial claims stand in the way of 
aggressive exploration and development.  Although the country has a 
mix of other energy sources, none appear likely to make a major dent 
in the current Philippine dependence on oil imports.  End summary. 
 
¶2.  (U) High food and fuel prices recently thrust energy security 
into prominence in the Philippines.  Government officials have 
called for less dependence on foreign energy, which currently supply 
some 60% of the needs of the country.  The Philippine Department of 
Energy has recently announced its intention to increase the output 
of domestic sources from the current 40% to 60% of total domestic 
energy demand by 2014.  To meet this ambitious goal, the Philippines 
must increase oil and gas production by over 20%.  Rapid expansion 
of the offshore Camago-Malampaya oil and natural gas project would 
be key to reaching this goal. 
 
¶3.  (U) The Camago-Malampaya project is the largest proven natural 
gas deposit in the Philippines.  It currently supplies about 95% of 
the country's natural gas.  Natural gas accounts for about 7% of 
total Philippine energy consumption.  Natural gas from the offshore 
fields is refined and sent through a 312-mile pipeline to three 
onshore power plants, directly into the grid that supplies Manila. 
These three power plants represent 20% of the country's total 
generating capacity.  The Philippines does not import nor export 
natural gas. 
 
¶4.  (U) The Camago-Malampaya fields contain an estimated reserve of 
between 2.3 and 4.4 trillion cubic feet of natural gas.  At the low 
end, the fields are smaller than the proven reserves of Cuba, the 
world's 60th largest reserve.  At the high end, the fields are 
bigger than the proven reserves of Mozambique, the world's 49th 
largest reserve. 
 
¶5.  (U) Dutch-owned Shell discovered the Camago-Malampaya fields in 
1990 and remains one of three partners in the joint venture that 
operates the gas fields (the others are U.S. company Chevron 
Malampaya LLC and the Philippine National Oil Company Exploration 
Corporation-PNOC).  The project began production in 2002 and is 
expected to supply the domestic power industry with natural gas 
until 2022. 
 
¶6.  (U) About 150 million barrels of oil may lie beneath the natural 
gas deposits at the Camago-Malampaya fields.  This is a sizable 
reserve compared to Philippine production and trade figures.  The 
Philippines consumes 340,000 barrels per day, more than 10 times 
what it produces.  As a result, the country is a net importer of 
318,800 barrels per day. 
 
¶7.  (U) Exploitation of offshore co-located gas and oil resources 
requires sophisticated technology.  As more natural gas is 
extracted, it becomes harder to remove the oil beneath it. 
Geopolitical issues also impede development of reserves in the South 
China Sea.  The Camago-Malampaya fields are located about 80 
kilometers off the northwest coast of Palawan, the westernmost 
island in the Philippine archipelago, within the South China Sea 
area claimed by China (see reftel).  At present, China does not 
object to its development, and there is an amicable relation between 
the Philippine National Oil Company and the China National Offshore 
Oil Company.  China, the Philippines, and Vietnam have shared data 
from the recently completed second phase of the Joint Marine Seismic 
Undertaking. 
 
¶8.  (U) Accord to local petroleum industry executives, relatively 
little test drilling has been done in the waters adjacent to the 
Philippines in the South China Sea, even though experts believe 
there are indications the area could contain large reserves.  The 
Philippines has restrictions on cost recovery in its petroleum 
service contracts and other regulatory issues that make it a less 
appealing place to explore for hydrocarbons than other countries in 
the region. Consequently, the Philippines drilled far fewer offshore 
well than have neighboring countries. 
 
¶9.  (SBU) The president of the Petroleum Association of the 
 
MANILA 00002238  002 OF 002 
 
 
Philippines recently explained to us several reasons for more robust 
drilling in other ASEAN countries.  He said the Philippine 
government is slow to grant drilling concessions, and drilling 
permits frequently require many months for approval.  Further, he 
added, most other ASEAN states allow companies to average expenses 
between successful finds and dry holes.  He also suspected that 
cronyism has thrown the last several exploration permits to an 
inexperienced, unqualified company. 
 
¶10.  (U) As reported reftel, under the UN Convention on the Law of 
the Sea, the Philippines has until May 2009 to delineate its 
archipelagic borders and establish its Exclusive Economic Zone. 
According to some politicians, failure to meet this deadline could 
jeopardize Philippine claims to these resources. 
 
¶11. (SBU) Comment: To achieve its energy goals, the Philippines 
needs to encourage more exploratory drilling in adjacent waters by 
technically competent companies.  The increased emphasis that 
regional economies now place on controlling proximate strategic 
resources could lead to increased regional cooperation in exploiting 
these resources.  End Comment.