High power bills? Filipinos can have cheaper energy if Manila can drill in Recto Bank despite China row

By Leilani Chavez

Philippine Center for Investigative Journalism

Recto Bank, an underwater reef in the West Philippine Sea, remains an enigma.

Little is publicly disclosed about it beyond its geology, oil and gas potential, and the decades-long struggle between the Philippines and China for control of its surface waters and the rich hydrocarbon deposits in its depths.

One thing is clear, industry experts and geopolitical watchers say: if Manila can drill and harness its hydrocarbon reserves despite the sea dispute, Recto Bank could significantly boost the Philippines’ domestic natural gas production.

Even renewable energy advocates who oppose fossil fuels recognize that domestically sourced natural gas is cheaper and has a lower carbon footprint than imported liquefied natural gas (LNG).

“I’d say I am pro-indigenous energy more than anything else. I like that we have natural gas in Malampaya,” said Alberto Dalusung, energy transition advisor at the Institute for Climate and Sustainable Cities (ICSC).

Recto Bank (international name: Reed Bank) is not very far from the Malampaya gas field, the country’s sole operating natural gas facility, which went online in 2001. Malampaya supplied up to 40% of Luzon’s power demand at its peak but its output has since declined.

This decline has made the Philippines increasingly reliant on imported LNG— a more expensive option with a higher carbon footprint. In 2024, combined natural gas and liquefied natural gas provided only about 17% of Luzon’s power in 2024.

With Malampaya projected to be depleted by 2027, a looming energy shortfall makes exploration at Recto Bank all the more urgent.

Yet extracting Recto Bank’s gas reserves—which could provide cheaper electricity than imported LNG—remains stuck in a geopolitical stalemate because China has repeatedly blocked Philippine exploration efforts through diplomatic protests and naval harassment, despite a 2016 international tribunal ruling that placed the area within the Philippines’ exclusive economic zone.

In addition, multiple administrations have failed to break the impasse: Joint exploration ventures under Arroyo and Duterte have fizzled while the current government is unable to secure adequate military protection for survey vessels.

Meanwhile, the lack of clear political will, concerns about corruption in infrastructure projects, and uncertainty over the country’s China policy beyond 2028 have left potential investors hesitant.

Forum Energy, which currently holds the exploration rights, says it’s ready to drill but only with guaranteed navy protection—a commitment the government has yet to provide.

“Of course, one of the biggest impacts of depending on energy imports is inflation,” Dean de la Paz, energy expert and retired investment banker for an American firm, told the Philippine Center for Investigative Journalism (PCIJ).

“There are inflationary items that will bring prices up… from rice, the food we eat… transportation, and most importantly, electricity. If it increases here, price increases all over the trade value chain,” he said.

Rich in natural gas

On a map, Service Contract 72,which gives the rights to explore Recto Bank, stands out as a jagged cross in a bed of blue, flanked by mosaic lines that delineate areas for oil and gas exploration in the country’s western seaboard.

It covers 8,800 square kilometers, encompassing the Sampaguita gas field, where gas was first discovered in the 1970s.

A series of 2D and 3D seismic, gravity, and magnetic analyses over the field and subsequent analyses from 2011 to 2015 also estimate Sampaguita Gas Field’s “prospective resources” at 3.1 trillion cubic feet, more substantial than the 2.8 trillion cubic feet first estimated at the Malampaya field in the 1990s. The studies were commissioned by Forum Energy, a predominantly Filipino-owned company.

In the 1990s, the contractors of Malampaya — Shell Exploration B.V. and Occidental Philippines (Oxy) — said the volume of gas reserves at Malampaya were commercially viable and they were willing to invest in billions of pesos worth of infrastructure, including two offshore gas rigs and an underwater pipeline that circumvents the treacherous, deep waters of the Camago-Malampaya trench.

In 2002, a year after Malampaya went online, Service Contract 72 was awarded to UK-based oil and gas exploration company Sterling Energy Ltd.

In February 2010, the Department of Energy reissued the rights to SC 72 to the company that took over Sterling Energy’s exploration obligations. (The area is identified in the 2016 arbitral ruling as Geophysical Survey and Exploration Contract 101, the initial exploration license before the formal service contract was awarded.)

Recto Bank lies about 250 kilometers west of Malampaya, close enough to tie into the existing pipeline system. “If it’s a resource as big as what they say it is, then it is commercially viable to extend the pipeline to Recto Bank,” said Dalusung.

Dalusung said the subsea pipes that carry natural gas from Malampaya to processing plants in Batangas – stretching out for another 500 kilometers – cannot be idle when the field runs out.

A replacement field should go online before corrosion or inactivity renders the expensive infrastructure unsafe or uneconomical.

“Ano ang mangyayari sa 500 kilometer undersea pipeline? I think that is a national treasure, said Dalusung. (What will happen to the 500 kilometer undersea pipeline? I think that is a national treasure.)

Cheaper than LNG

For the last two decades, natural gas has contributed 22,364kwh (kilowatt per hour) or more than 20% of power to the Luzon grid. But by early 2023, data from the Department of Energy indicated that natural gas’s share shrank to 14%. As early as 2022, the country’s energy self-sufficiency dropped to 49%, the lowest in 10 years.

It was no surprise that the decrease in the country’s natural gas reserves coincided with the spike in electricity rates. Like coal, another imported fossil fuel that the Philippines depends on for its energy supply, LNG is vulnerable to global market price fluctuations. When gas prices surge—whether because of geopolitical tensions, rising demand in Asia and Europe, or supply disruptions—the higher costs are passed on to Filipino consumers through increased generation charges.

De la Paz said electricity bills began to increase when the government allowed LNG imports to augment Malampaya’s thinning reserves.

Before 2023, electricity prices in the Philippines were already among Asia’s highest. With LNG in the mix, the country had grown more dependent on imported fossil fuels, causing electricity prices to spike.

In January last year, President Ferdinand Marcos Jr. signed Republic Act 12120 or the Philippine Natural Gas Industry Development Act, which prioritizes indigenous natural gas and provides a blueprint for its development.

Like Malampaya, lawmakers are banking on more indigenous natural gas facilities to enter the grid, which is expected to bring down electricity prices. Indigenous gas prices remain steady, they say, while imported fuels continue to peak.

The government also extended Malampaya’s exploration contract and billionaire Enrique Razon Jr.’s Prime Energy had been drilling for new wells in the Malampaya fields since July. There had been no news of any discovery yet.

“We will continue [exploring Malampaya’s new wells],” energy secretary Sharon Garin told reporters in a June briefing in Malacañang. She added that if new reserves are found in a year’s time, the reserves can contribute to the grid in three years.

“Ayokong isipin na wala—we have one year to explore the area. We will need to recalibrate our target this year kung medyo konti lang siya,” Garin explained. (I don’t want to think we’ll find nothing—we have one year to explore the area. We will need to recalibrate our target this year if the resources are small.)

While the government banks on Malampaya’s new wells, what happened to SC72?

The service contract was under revolving moratoriums to “placate China,” de la Paz said. A moratorium was placed first in 2014, lifted in 2020, and reimposed in 2022.

It was “unofficially” lifted in 2023 to allow Forum Energy to “enter into a contract to get the ship, the people (to do the surveys),” retired Supreme Court Associate Justice Antonio Carpio told PCIJ.

“But nothing happened,” Carpio said. “It looks like nagdalawang isip ang gobyerno. They are not interested anymore,” he said. (It seems the government changed its mind. They are not interested anymore.)

Philippine presidents

Every Philippine president since the Malampaya project went online had a plan to harness the gas reserves at Reed Bank.

When China lodged diplomatic protests against Service Contract 72 in 2002, claiming the area lies within its nine-dash-line territory, then President Gloria Macapagal-Arroyo shifted strategies.

In 2004, Arroyo approved a bilateral agreement with China which became a trilateral agreement to include Vietnam when the three-year exploration agreement rolled out in 2005.

The Philippine National Oil Company signed a tripartite Joint Marine Seismic Undertaking with China National Offshore Oil Corporation and Vietnam Oil and Gas Corporation.

The agreement would be controversial, however, because 80% of the explored area was inside the Philippines’ Exclusive Economic Zone. It expired in 2008 and was not renewed.

The Supreme Court later declared the agreement “unconstitutional and void” and said, “the exploration, development, and utilization of natural resources shall be under the full control and supervision of the State.”

In 2010, the election of a new president signaled a new approach. Forum Energy, which had acquired Sterling Energy’s interests, saw its exploration agreement for Recto (Reed) Bank renewed that year.

A year later, in 2011, one of the first major confrontations between Philippine and Chinese vessels occurred at Recto Bank, foreshadowing the Scarborough Shoal standoff that would erupt the following year.

In 2013, President Aquino filed a case against China in The Hague—and won. The arbitral award, a landmark in international law, is being studied in universities across the world and serves as the anchor of Philippine claims over the Sampaguita gas fields.

The ruling made it clear that China’s nine-dash-line claim, an imaginary line that covers almost 80% of the South China Sea, is “not valid” under international law; therefore there is no legal basis for China’s claims.

The succeeding government under President Rodrigo, amid its open-arms policy on China, came closest to sealing a deal with the regional power. The Duterte administration attempted to make China a service contractor through a joint exploration deal in 2018.

Those deals, Carpio said at the time, “expressly recognize that the area falls within Philippine sovereignty or sovereign rights.”

China backed out on the deal, though.

Strategies

As the Malampaya gas field nears depletion, attention has increasingly turned to Recto Bank as it was “identified as an alternative source,” according to Rommel Jude Ong, retired Philippine Navy Rear Admiral and professor of praxis at the Ateneo de Manila University.

In direct contrast to Duterte who forged closer ties with Beijing, Marcos Jr.’s strategy tends to be more focused on Washington, a long-time security treaty ally.

The Department of Energy did not respond to PCIJ’s request for comments, but Carpio said the Marcos administration has been “seeking” round-the-clock assistance from the U.S. to support Philippine-commissioned survey vessels.

Ong told PCIJ that this was likely based on Malaysia’s experience in 2020.

Back then, tension flared up between Kuala Lumpur and Beijing after Malaysia’s state-owned Petronas sent out the West Capella drillship to explore the Arapaima-1 and Lala-1 blocks off the coast of Sarawak and it was harassed by Chinese vessels.

Malaysia sent its Navy and the situation escalated into a standoff in April. The tension prompted the U.S. and Australia to send out warships. While the US Navy’s presence there was meant to keep watch should tensions escalate, experts consider it a show of U.S. support for Malaysia.

“That (US supporting the Philippine survey ships) was already mentioned several times. That was implied because they did it for the Malaysians, they did it for the Indonesians… of course, we are treaty partners. We have a mutual defense treaty,” Carpio said.

But attempts to engage Washington’s support while Filipino-commissioned survey ships explore Sampaguita gas fields have not materialized as the government wants “full protection” from the U.S. Navy, which is not possible, Carpio said.

“Hindi naman pwedeng the U.S. Navy is there 365 days a year,” he reiterated. “They can accompany us, but the American ships cannot be there the whole time,” Carpio added. (The U.S. Navy cannot be there 365 days a year.)

Indonesia, on the other hand, has opted to engage with American firms to explore oil blocks in Natuna.

Carpio said the government could look at Malaysia and Indonesia’s examples to harness the long-contested gas in Recto Bank since efforts by the government to engage with Beijing had failed numerous times in the past.

Since the revival of Philippine-U.S. military relations under Marcos Jr., the country signed security agreements with Australia and Japan, and conducted hundreds of annual joint exercises, joint sails and flights, and activities with the U.S. and allies—all of these could provide cover for Philippine resource exploration operations, experts say.

“There are many strategies,” Ong said. “It would be good for the country if Reed Bank can start supplying energy,” he reiterated.

Stalemate at sea

In the same Palace briefing, Garin said the government has offered the oil and gas blocks in the West Philippines Sea but “nobody wants them” because of the geopolitical conflict.

Carpio says the opposite: Many are interested but the government needs to support exploration activities. Filipino tycoon Manny Pangilinan, who heads Forum Energy, indicated they are willing to continue explorations “provided the Philippine Navy will be there,” Carpio said.

“Forum Energy is there (in Recto Bank). They are ready, but they have a condition—and that they will be protected. They spent a lot already. They are willing to explore the service contract area provided they have protection, but there’s no political will (from the government) at all,” Carpio lamented.

Foreign policy experts told PCIJ the problem is the Philippines continues to have no clear “China policy,” since Marcos Jr. rose to the presidency in 2022.

Carpio said the government’s response to China remains “ad hoc” – meaning actions or declarations depend on situational issues or scenarios rather than long-term, careful planning.

Ongoing domestic issues also contribute to apprehension over the government’s capability in overseeing big-ticket offshore exploration projects like Reed Bank, de la Paz said.

Lawmakers are mired in graft and corruption allegations linked to an ongoing probe into faulty and ghost infrastructure projects—and gas drills are infrastructure projects, he pointed out.

And a potential power shift in the 2028 elections leaves some investors on the fence.

“If you are a foreign investor, you will look for a long-term investment. What’s long-term? It should be around 15 years. But can you see beyond 2028? What’s the political leaning? China,” de la Paz said while shaking his head. “It doesn’t look promising. Things must change, improve.”

The larger problem, Carpio said, is the lack of political will.

Recto Bank is the Marcos Jr. administration’s “litmus test” – the evidence of his determination to explore the isolated marine site and finish the project initiated by his father and namesake, strongman Ferdinand Marcos.

While there are no indicators of outright attempts to drill Recto Bank, China has sent out survey ships—whether accidental or not—into the contested area. In 2024 alone, at least three cases of Chinese survey ships reportedly crossed or came close to Recto Bank.

As early as 2023, the Philippine military warned about the “alarming” increase in Chinese fishing vessels at Iroquis Reef south of Recto Bank. And last year, the fisheries bureau reported the presence of Chinese militia vessels in the area.

Experts agree and warn that China could take over Recto Bank if the Philippines blinks.

“The bottomline is who can get the natural resources in the EEZ,” Carpio said. END.