Energy Crisis in the Philippines and Asia

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Energy Crisis in the Philippines and Asia

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With global LNG prices reaching unprecedented highs, several countries in Asia are now facing an energy price crisis. How is this affecting the people and how are governments responding?

11 January 2023 – by Heba Hashem

Last updated on 01 February 2023

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The energy crisis in the Philippines is real. Soaring liquefied natural gas (LNG) prices have made it impossible for many Asian countries to procure enough fuel. As of October 2022, LNG prices in Asia were up by 300% compared to the previous year. The escalating energy prices are pushing poorer countries out of the market and threatening the energy security of millions of people. Philippines is also facing a looming energy crisis.

Asia Facing Major Power Supply Challenges

Since 2021, LNG prices have consistently broken record highs on dwindling Russian gas flows and rebounding energy demand after the pandemic. Even before Russia invaded Ukraine, LNG prices were on an upward trend. Between Q4 2019 and Q4 2021, European and Asian gas prices increased almost sevenfold.

With Russia cutting off most gas supplies to Europe, the continent has been looking for new fuel sources. This has sparked a bidding war with Asian buyers.

However, Europe’s buying power is pricing out poorer Asian nations, according to the founder and executive director at the Centre for Energy, Ecology and Development (CEED) in the Philippines.

“Asia is competing with European deals in terms of the prices and the global market. This is really driving the issue of affordability as well as accessibility in a region where energy poverty and accessibility are major issues in the first place,” Gerry Arances said in a podcast interview with Energy Tracker Asia.

The intense competition over the remaining global LNG supplies has pushed prices to record highs. Furthermore, the surge of the US dollar has made LNG even more expensive for the Philippines and other Asian buyers, forcing them to cancel orders. All these factors combined have led to a huge decrease in LNG imports.

How is the Energy Crisis Affecting Power Supply in Southeast Asia?

The skyrocketing LNG prices are causing havoc across Asia because of energy shortages. Bangladesh recently suffered its worst blackouts in almost a decade, reaching 10 hours at one point. In the Philippines, almost 1.3 million households could face power outages in 2023 due to a lack of funding from the National Power Corporation.

“The issue of energy supply is really affecting, in particular, the Philippines and notwithstanding the other countries like Bangladesh, where the lines of rotating brownouts and tariff increases are just so acute there,” said Arances.

The situation has forced some countries to fall back on other hydrocarbons. Pakistan, for instance, is looking to exploit domestic coal reserves and has just launched a new coal power plant. At the same time, India plans to reopen its abandoned coal mines.

“[Domestic fossil-fuel extraction] is a very problematic proposition, but it’s enticing because of revenues and their ties to domestic corporations. It’s one of the major challenges with what’s happening in Southeast Asia, particularly the Philippines,” highlighted Arances.

New Gas Infrastructure: A Risky Way Out of the Energy Crisis

Asia is the largest gas-importing region in the world. In 2020, it accounted for 73% of global LNG imports. Due to the price surge, the continent’s LNG imports fell by 7% in the first eight months of 2022.

Southeast Asia witnessed the biggest year-on-year drops. In Bangladesh and Pakistan, LNG imports were down by 10% and 19%, respectively, in the first eight months of 2022. Asia’s largest gas user, Thailand, saw a 12% drop in imports over this period.

Despite the volatility in the LNG market, countries across Asia are investing in USD 490 billion of new gas-related infrastructure. Such investment will lock these countries into polluting electricity generation, heating and industrial activity for decades. It could also force consumers to pay inflated energy prices.

“The LNG issue is a really big one for Asia, and if you zoom in on Southeast Asia, the overall pipeline is around USD 102 billion, and it is growing,” said Arances.

“The supply issue and its implication on tariffs and high electricity prices clearly illustrate the problem with being dependent [on gas].”

The Current Energy Situation in the Philippines in 2023

High imported fuel costs translate into high power generation costs. These are being passed on to the consumer, especially in Southeast Asia.

In the Philippines, San Miguel Global Power (SMGP) asked regulators for a temporary power rate hike in mid-2022. The power supplier wanted to cover losses caused by higher fuel prices. It made the request together with the Manila Electric Company (Meralco), the buyer and distributor of its electricity.

However, the Philippines’ energy regulator rejected the petition, which led SMGP to terminate its power supply agreements with Meralco. Local reports suggest that Meralco is likely to turn to the open market. This means highest electricity costs for its consumers.

Energy Crisis in the Philippines Takes its Toll

The debate over rising fuel prices and whether to pass them on to consumers is happening across the continent, according to Arances. This especially poses a risk to South Asian countries struggling to deal with inflationary pressure and foreign debt.

Even an extra USD 4 per month on the electricity bill of a low-income worker in Asia is a huge issue. “At the end of the day, you have a social volcano, and this adds up to that,” said Arances.

“If you look at social media and the reaction of ordinary Filipinos, of course, we cannot live with that…. The implication of additional tariff increases will really be a heavy burden on Filipinos.”

He said that price hikes on electricity or basic goods are an “explosive issue” for Filipinos. They could give rise to a similar situation as what took place in Sri Lanka, where huge protests against higher taxes and inflation led to an economic collapse.

LNG Dependence in a Mounting Energy Crisis and Renewable Energy

As Asian countries search for less expensive energy supplies, the reality of the crisis is proving costly. Fuel-switching choices and the underutilisation of LNG terminals are causing serious delays and cancellations of new LNG import projects.

A few countries are changing their stance. In June 2022, Vietnam’s prime minister publicly questioned the feasibility of new LNG developments. And in August, Bangladesh cancelled one of its biggest proposed LNG power plants.

For the time being, however, Asia’s dependence on gas is putting poorer countries in a fragile position. Not only are the rising LNG prices slowing development, but they are also having real-world effects on people’s lives.

The energy price crisis should be a wake-up call for the business sector, noted Arances. For policy-makers, he said that now is the time to make the necessary policy changes to safeguard energy security.

“I hope that most of the regulatory bodies in different countries take this crisis as an opportunity to advance renewable energy,” he concluded.

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