No economic case for LNG in the Philippine energy sector
Filipinos pay among the highest power rates in Southeast Asia. Despite premium costs, electricity woes are an extremely palpable issue, with outages and red or yellow alerts now a perennial reality across the country.
Attempting to help solve power issues, legislators are pushing for a bill for the development of the Philippines’ natural gas industry. Led by six senators, the bill promotes gas as a “safe, environment-friendly, efficient, and cost-effective source of energy and an indispensable contributor to grid security,” and to “develop the Philippines as a Liquefied Natural Gas (LNG) trading and transshipment hub within the Asia-Pacific Region.”
But fossil gas and its imported liquefied form, LNG, are anything but clean, affordable or reliable. The experiences of a number of countries that built reliance on LNG show that the fossil fuel is more economic bane than boon.
The Russian-Ukraine war was a litmus test for fossil gas as an energy source. European countries who opted to end reliance on Russia had to pivot to other sources of fuel, triggering a global supply tug-of-war. In 2023, only 20 exporting countries supplied 48 importing markets. With constricted supply, LNG prices soared. Asian LNG prices were already increasing even before the war, peaking at $37.41 per Million Metric British Thermal Unit (MMBtu) in December 2021. After the invasion, prices further increased, reaching $54.15/MMBtu in August 2022.
A supply glut looms after the crunch. Taking advantage of high LNG prices, developers increased their planned gas buildout, with many facilities expected to start operating by end-2024. This will result in a 40% supply increase by the end-2028, the fastest growth in the industry’s history. However, contrary to expectations, LNG demand from key importers Europe, Japan, South Korea and Taiwan gravely decreased or fell flat as these markets sought alternative power sources and aimed to reach climate commitments. Suppliers were pushed to bring their business elsewhere.
Higher supply could indeed lead to lower prices, especially if purchases from emerging Asian economies are encouraged. But the sensitivity of these economies to the volatility of imported gas, delays in infrastructure, and rising competitiveness of renewables could easily dampen Asia’s absorption of surplus LNG.
Examples of how price volatilities can impact LNG-reliant developing nations abound. Bangladesh suspended its spot purchases of LNG in July 2022 due to high costs, resulting in 130 million people experiencing blackouts. Nearly 220 million people in Pakistan suffered outages in 2023 from lasting ramifications of the war on gas prices. Without electricity, industries suffered — Bangladesh’s production was reduced by at least 50%, pressuring the country’s balance of payments and Pakistan’s textile industry incurred $70 million in losses.
More than 70% of Bangladesh’s electricity generation is from gas. About 22% of this is LNG, a figure that shot upward since the country began importing in 2019 due to dwindling domestic gas reserves. Of the 50% share of gas in Pakistan’s power mix, 30% is also LNG.
The Philippines faces a similar situation. With Malampaya’s reserves dwindling, the government opened its arms wide for foreign gas. But Bangladesh and Pakistan offer cautionary tales: LNG, clearly, is not the savior it is claimed to be. A law allowing LNG expansion will hand off Filipinos’ basic right to reliable, least-cost electricity at the mercy of foreign markets.
Last year, LNG spot prices ranged from $10.46/MMBtu to $22.375/MMBtu in the JKM Index, the benchmark pricing of LNG in East and Southeast Asia. Meanwhile, 2025 forward prices range from $13.690 to $15.510/MMBtu. An increase of 15% was also observed in Meralco’s average generation cost from gas-fired plants since introducing imported LNG. Meralco’s generation rates for July 2024 are an illustration of such impacts, registering an increase of P430 for a household consuming 200 kWh from the previous month’s rates. On top of higher generation costs, consumers would also bear the capital recovery costs of LNG terminals used to bring foreign gas to our shores.
Needless to say, expensive electricity is a burden for business. One study found that costly power is causing the industrial sector in the country to decline, with power-intensive manufacturers turning to Southeast Asian neighbors with relatively lower-priced electricity.
Costly gas will further burden Filipinos who are already having a hard time bringing food to their tables. Saddled by rising costs of living and laggard wage increases, we simultaneously bear the brunt of worsening climate change. In July, inflation was recorded at 4.4%—the highest for 2024, driven by increasing power rates. In the same month, Super Typhoon Carina caused massive flooding and damage in cities and agricultural areas.
Aside from the economic costs, fossil gas promises long-lasting harms from worse climate and environmental degradation. Proponents tout LNG as a “cleaner” alternative to coal, yet emissions from gas are estimated to be 33 times more potent than coal over a 20-year period.
While legislators teeter between domestic and foreign gas, cheaper and reliable renewable energy waits to be developed. Generation cost of electricity Meralco sourced from solar is cheaper than either indigenous and imported gas. Before Meralco introduced LNG, the gas generation cost ranged from P4 to P6/kWh. With LNG, this hovered between P5/kWh to P9/kWh. Costs from solar, meanwhile, ranged around P3 to P5/kWh. Solar power is now about 29% cheaper than fossil fuels. A study by Climate Analytics found that the Philippines has enough cost-effective renewable sources to displace existing coal and gas power, still meet future energy demand, while aligning to the 1.5 °C global climate goal.
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Legislators seem to take it as fact that we would return to the dark ages of the 90s without a gas buildout. But we must account for the long-term cost and impacts of fossil fuel reliance and its inability to actually address power woes. Filipinos would benefit more if our development directions and policies are drawn not to gas and LNG, but to our abundant indigenous renewable energy sources.
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Cielo Magno is an academic at the University of the Philippines School of Economics. She served as undersecretary of the Department of Finance. She was also an undersecretary for the Fiscal Policy and Monitoring Group from August 2022 to September 4, 2023.
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