Philippine Energy Crisis Threatens to Escalate Tensions With China

Demand for energy resources is steadily rising thanks to the increasing global population and economic activity. To address their increasing energy needs and enhance energy security, countries are seeking alternatives to exhausting fossil fuels. Simultaneously, they are exploring undiscovered natural gas and oil fields, both within their main continents and territorial waters. A nation may invest in alternative and renewable energy sources, such as wind or solar energy, while continuing to investigate new fossil fuel fields.
Unresolved borders of territorial waters and conflicting claims among countries intensify competition between nations for fossil fuel fields underneath the seas. For example, the melting Arctic region sparks confrontations between the United States, Russia, Canada, Norway and Denmark. Discoveries in the Eastern Mediterranean region create competition among Turkey, Cyprus, Israel, Lebanon and Egypt.
The South China Sea region is teeming with natural resources. With China emerging as a rival to the US, competition is rising between China, the Philippines, Taiwan, Malaysia and Vietnam. To further complicate matters, the Malampaya offshore gas field, which supplies almost all of the Philippines’ natural gas needs and one-fifth of its electricity, is nearly depleted. The fact that it will run dry by 2027 adds heat to the already volatile region.
At this juncture, the Philippines faces two options to mitigate rising energy costs and bolster energy security: exploring new gas fields or transitioning towards renewable energy. Pursuing new fossil fuel reserves risks increasing tensions with China. As the Philippines is a key US ally, this move could escalate conflicts involving the United States. Conversely, investing in renewable energy offers a more sustainable and less confrontational path.
The Malampaya gas field was discovered in 1992 through a partnership between Shell Philippines Exploration BV and Occidental Petroleum. It boasts proven reserves of approximately 76 billion cubic meters of natural gas, 85 million barrels of condensate and 40 million barrels of oil. The oil field is strategically positioned 820 meters deep and 80 kilometers off the coast of Palawan Island. It was inaugurated in October 2001 and commenced commercial production in June 2002.
The Malampaya field plays a pivotal role in fueling 2,700 megawatts of gas-fired power plants in the city of Batangas, Philippines. It was designed to produce 4.1 billion cubic meters of gas annually. The field is the Philippine energy sector’s crowning achievement, as it represents a milestone in the nation’s natural gas industry and energy self-sufficiency.
This project marks a pioneering venture in the country. Since its inception, the Malampaya project has contributed over $12 billion in revenue to the Philippine government, making a substantial impact on the country’s energy landscape. Notably, it has met up to 20% of electricity demands in the island of Luzon. Being the largest island in the Philippines, its energy consumption is vital. The Malampaya field now faces a catastrophe: Its remaining supply is expected to be entirely spent by the first quarter of 2027. Even with an extended service contract, the projected exhaustion of reserves signals a looming energy crisis for the Philippines.
The primary alternative to address the Philippines’ energy scarcity is twofold: The Philippines should make substantial investments in renewable energy and foster cooperation with key stakeholders, including China, to explore potential offshore gas fields. Unfortunately, this appears infeasible due to conflicting claims between the two nations. Additionally, the short-term substitution of current resources with renewable energy is deemed excessively expensive and, therefore, almost unattainable.
The anticipated depletion will impact energy prices. It will pose threats to and cause increased expenses for various sectors, including the general populace. The country’s current energy mix comprises coal (47%), natural gas (22%), renewable energy (hydroelectric, geothermal, wind and solar) (24%) and oil-based sources (6.2%). Despite the nation’s interest in clean energy, this commitment does not come at the expense of development, and there are no established incentives or penalties for utilizing different energy sources.
The Philippines’ current transition plan aims to achieve 35% renewable energy by the 2030s. However, nearly 97% of the country’s commitment is contingent on external funding. Without this support, meeting emissions targets becomes unlikely. Essentially, a complete transition to renewable energy is deemed impossible for the Philippines.
Other fossil fuel alternatives lack efficiency. The Marcos administration has expressed interest in reducing electricity prices, which hints at a continued role for coal in the energy mix. Liquefied natural gas (LNG) could serve as a transitional fuel from coal, but its introduction in the Philippines has been slow — it lacks a clear government roadmap for its incorporation as a baseload source. Despite the approval of seven LNG terminal projects, those expected to become operational this year will not significantly contribute to meeting the country’s targets. Long-term contracts for LNG terminals also remain unconfirmed.
In the near future, the Philippines’ most reliable and cost-effective energy source is likely to remain natural gas. This runs in contrast to the high cost of transitioning to renewable energy and the challenges posed by other fossil fuel sources. However, the absence of onshore reserves compels the Philippines to turn to the waters of the South China Sea, escalating conflicts with China. Energy companies are hesitant to bid on offshore blocks offered by the city of Manila — not because of concerns for their economic viability, but rather the security risks of energy exploration in waters around China’s nine-dash line.
The US expresses concern for the Philippines’ claims despite existing tensions with China in the South China Sea. This animosity has roots in the past. In 1994, China occupied the Philippine-claimed Mischief Reef in the South China Sea. In response, then-Philippine President Benigno Aquino increased military spending to defend Malampaya, seeking assistance from the US. The Permanent Court of Arbitration (PCA) ruled in favor of the Philippines in 2016, but subsequent policy changes under President Rodrigo Duterte aimed at accommodation with China rather than confrontation.
Duterte’s policy shift involved setting aside the PCA ruling, “separating” from the US and exploring joint energy exploration with China in the South China Sea. However, China’s cooperation has been limited, particularly in regard to acknowledging Philippine sovereignty and sharing resources. Furthermore, China has contributed to ongoing tensions through numerous actions. These include the nation’s militarization of islands in the Spratly archipelago, routine naval and coast guard activities within the Philippines’ territorial waters and harassment of Philippine fishing boats.
Considering the whole situation, the Philippines’ pursuit of alternative energy sources is domestically urgent and geopolitically imperative. However, the prohibitive cost of switching completely to renewable energy renders this shift unrealistic for the Philippines’ short-term policy. The Philippines evidently is seeking new offshore resources, a move that will have political consequences. Moreover, the ongoing strain between China and the US is likely to intensify due to energy disputes in the South China Sea. The complex interplay of territorial claims, international arbitration and major power rivalry heavily affects the Philippines’ energy landscape.
[Lee Thompson-Kolar edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.