Japanese Investment in the PH's LNG Sector: Ecology and Tensions in the West Philippine Sea

In January 2025, Japanese Foreign Minister Takeshi Iwaya's visit to the Philippines underscored the deepening strategic partnership between the two nations, set against a backdrop of rising regional tensions. Building on the momentum from 2024, when both countries intensified discussions on energy and economic cooperation, this visit marked a significant step forward in their bilateral relations. Japan's broader engagement with Southeast Asia has been evolving steadily, as highlighted by the 26th ASEAN-Japan Summit in September 2023. During this summit, Japan announced a substantial financial commitment of USD 3.34 billion to bolster ASEAN economies, which is part of the country's broader strategy to enhance cooperation across various sectors, including infrastructure and regional security, while establishing a Comprehensive Strategic Partnership with ASEAN. 

However, Japanese investment in LNG in the Philippines has been a sleeper topic among energy experts, garnering significant attention from environmental groups due to concerns about the ecological impact of such projects. These concerns fall under the shadow of an increasingly intertwined relationship with regional security dynamics and broader geopolitical complexities. This evolving landscape presents a notable opportunity for scholarly exploration, particularly given its scarcity of literature. 

The Philippines' Natural Gas Industry Development Act (Republic Act 12120) was signed into law by President Ferdinand Marcos Jr. on January 8, 2025. It aims to establish a comprehensive framework for the development of the natural gas industry and position in the PH as a transshipment hub for LNG in the Asia-Pacific region.  It mandates the government to promote natural gas as a safe, efficient, and cost-effective energy source, establishing the Philippine Downstream Natural Gas Industry (PDNGI) - the development plan of which will be prepared by the Department of Energy (DOE). 

Perhaps the most contentious with environmental and consumer groups is how the new gas law explicitly identifies natural gas as a transition fuel towards renewable energy. Critics caution that relying too heavily on LNG could lock the Philippines into long-term fossil fuel dependency. Neighboring countries like Malaysia and Vietnam also explicitly tout LNG as a transition fuel. Japan also identifies it as a transitional energy source but a marked drop in domestic demand has led to an oversupply situation where utilities are over-contracted for LNG, prompting them to explore international markets for reselling surplus supplies. 

When discussing LNG and Japanese investment in the Philippines, regasification plants in Batangas are often top of mind. One notable project is the FGEN Batangas LNG Terminal, a collaboration between First Gen LNG and Tokyo Gas. This initiative aims to bolster the Philippines' energy security as domestic gas supplies from the Malampaya gas field continues to decline.

The Japan Bank for International Cooperation (JBIC) has been directly involved in the financing of the Batangas-Manila Natural Gas Pipeline, also known as BatMan1. This undertaking involves constructing a 100-kilometer pipeline to establish a reliable supply chain for natural gas from Batangas to Metro Manila. The Japan International Cooperation Agency (JICA) has been involved in preparatory surveys and feasibility studies for the pipeline, mainly aiming to connect the LNG import terminals to power plants and consumption.

Both JICA and JBIC are government entities. JICA is a governmental agency responsible for implementing Japan's Official Development Assistance (ODA), focusing on economic and social growth in developing countries through technical cooperation, grant aid, and concessional loans.

Similarly, JBIC is a policy-based financial institution wholly owned by the Japanese government, established in 2012. Its primary role is to promote Japan's economic interests abroad by providing financial support for projects that secure essential resources and enhance the international competitiveness of Japanese industries. While both organizations operate under the auspices of the Japanese government, JICA emphasizes development assistance and capacity building, whereas JBIC focuses on financial operations and resource security.

Think tanks and environmental groups have urged JICA and JBIC to reconsider their approach in response to criticism over ecological issues in the Verde Island Passage (VIP), a region celebrated for its rich marine biodiversity. Concerns center around their investments in a proposed LNG terminal in Ilijan, Batangas, which local fisherfolk fear could lead to ecological harm reminiscent of previous oil spills. Numerous stakeholders have raised red flags about potential breaches of environmental guidelines, including land conversion and tree cutting, which could destabilize the VIP's fragile marine ecosystem. An investigation into JBIC's compliance with its own environmental standards is currently underway, reflecting growing pressure from community coalitions like Protect VIP.  

President Ferdinand "Bongbong" Marcos welcomed these projects as well as other LNG endeavors in the pipeline as a facet of Filipino-Japanese ties, contributing to the PH energy mix. LNG is often touted as a transition fuel - supposedly the closest a fossil fuel can get to “clean,” and that might be true to a certain extent but unfortunately, stranded assets in the Philippines are just as commonplace as the beautiful coastlines LNG may threaten. 

The Natural Gas Development Plan (NGDP) was released in 2022. This plan was developed by the DOE in collaboration with the Gas Policy Development Project, funded by the U.S. Department of State. Heavily focused on infrastructure development, the plan emphasizes the construction of multiple LNG import terminals, with six projects estimated at around PHP 69.227 billion, expected to be operational between 2022 and 2025. 

The Philippine Energy Plan (PEP) 2020 - 2040 aims to ensure a continuous LNG supply, expecting it to account for 26% of the energy mix by 2040, up from less than the current 5%. It also outlines legislative support, referencing House Bill No. 8456 which seeks to include incentives such as zero percent VAT on natural gas sales and local purchases related to LNG infrastructure. 

The Philippines has also been engaging with Japan under the Asia Zero Emission Community (AZEC) framework, which promotes decarbonization while also incorporating LNG as a transition fuel. In welcoming Japanese investment, President Marcos, who made wind energy a major image in his electoral campaigns, stated that parties “are examining the possibility… of course, take more traditional wind and solar power, geothermal,” and that it was a matter of time. Marcos, like many Asia-Pacific heads of state, has previously acknowledged that while the country is moving towards a clean energy transition, interim solutions like LNG are required to meet current power demands until traditional renewables can fully cover them.

Globally,  LNG is not considered a renewable energy source. It is classified as a fossil fuel, which means it has a finite supply but is often viewed as a cleaner alternative compared to coal and oil—producing approximately 40% less carbon dioxide. Even Japan’s Strategic Energy Plan considers LNG a transition fuel rather than a renewable resource. 

The Batangas province, home to the aforementioned Japanese LNG projects, is located along the Calumpang Peninsula, facing the West Philippine Sea (WPS). It features the second-largest international seaport in the country and serves as a critical hub for trade and energy imports. The WPS is one of the world’s busiest maritime routes. With more than half of the global merchant fleet tonnage passing through its waters. Recent tensions have escalated due to China's aggressive territorial claims and actions in the region, particularly its insistence on the "nine-dash line," which overlaps with the Philippines' exclusive economic zone (EEZ). These developments have led to confrontations between Chinese and Philippine vessels, heightening geopolitical tensions and drawing international attention to the ongoing disputes in this vital maritime area. 

Rich in natural gas resources, the WPS contains estimates of over 12.1 billion cubic feet of natural gas within the Philippines’ exclusive economic zone. The Recto Bank, also known as Reed Bank, is highlighted as a major prospect, with estimates suggesting it could yield up to 55 trillion cubic feet of gas and 5 billion barrels of oil. Within the greater South China Sea area, China drills two-thirds of its offshore natural gas and one-third of its petroleum. 

Beijing’s claims, which are inconsistent with the UN Convention on the Law of the Sea (UNCLOS), include almost the entire sea. An arbitral tribunal ruling in July 2016 determined that China's claims, particularly those based on the "nine-dash line," exceed the geographic limits established by UNCLOS and are thus without legal effect. The tribunal concluded that China’s assertions of historic rights within this area are incompatible with the EEZ and continental shelf rights granted to coastal states under UNCLOS, specifically affirming that the Philippines has exclusive rights to resources within its EEZ. 

With the escalating tensions with China, Japan and the Philippines conducted joint maritime exercises in the contested waters. The signing of the Reciprocal Access Agreement (RAA) in July 2024 established a legal framework for troops from both countries to enter each other’s territory for joint military exercises and other cooperative activities. Japan’s investment in LNG projects facing the WPS strategically aligns with its government’s intentions to maintain stability and security in the region amid Beijing’s protests and assertive claims. 

This complex web of geopolitical tensions and gas investment raises significant concerns about long-term energy independence. As tensions with China persist, energy and military contracts between Japan and the Philippines are likely to continue receiving approval. Japan’s declining domestic demand for LNG drives its efforts to offload surplus gas to the Philippines, which risks entrenching reliance on imports. This dependence could undermine the Philippines' renewable energy goals and expose consumers to volatile global prices, potentially increasing electricity costs. Furthermore, the urgency to secure energy supplies may lead to the bypassing of critical environmental safeguards. Policymakers must navigate these challenges carefully to balance immediate energy security with sustainable development.