Dollar-Denominated LNG Costs Squeeze Philippines' Meralco as JKM Holds Near Three-Year Highs
Meralco's 60% reliance on dollar LNG, combined with JKM near three-year highs, has pushed Manila consumers to ASEAN's most expensive electricity.
JKM Asian LNG was at $25.72 per MMBtu on Thursday (2026-09-24), near the three-year highs for key forward LNG prices in Asia that LSEG data had identified in late August. Meralco, the utility supplying more than half of electricity demand across the Philippines and serving over 8.2 million customers in Metro Manila, draws roughly 60% of its supply from natural gas, almost all of it sourced through US dollar-denominated LNG contracts, according to Ember.5,3
By June 2026 (2026-06), those costs had pushed the Philippines to the highest average residential electricity rate among ASEAN countries, according to the Philippine Star. Supply constraints in the Visayas and the increased use of expensive peaking plants during the summer months drove the increase, the publication reported.4
The disruption to Strait of Hormuz freight traffic, now in its seventh month following the US and Israeli military operation against Iran, is the main force behind elevated Asian LNG benchmarks. Kpler data showed Qatar LNG flows cut by more than 60% year-on-year, removing one of the market's largest and cheapest supply sources.5,7
US producers filled part of the gap. American firms shipped just over 73 million metric tons of LNG between January and July 2026 (2026-01-01 to 2026-07-31), up 23% from the same months of 2025, according to Kpler. But those volumes arrive at prevailing market prices, offering no relief for buyers already paying elevated JKM-linked rates.5
Meralco raised its residential tariff by PHP0.53 per kWh to PHP14.35 per kWh in a rate adjustment reported in July 2026 (2026-07-08) by Asian Power, which attributed the increase to costly imported fuel and grid transmission costs.3
The country's generation mix provides little domestic buffer. DOE data showed coal covered 57.2% of Philippine electricity production in 2025, with gas-fired capacity handling most of the remainder. Neither fuel is produced at scale domestically, exposing the grid to international commodity prices from two directions.3
Hydropower shortfalls compounded the strain in mid-year. S&P Global reported that combined output across Japan, South Korea, India, Bangladesh, Vietnam, the Philippines, and Malaysia fell around 13 average gigawatts year-on-year in June 2026 (2026-06), with El Niño conditions reducing reservoir inflows; India and Vietnam accounted for more than 80% of the regional shortfall. Less hydro forced more load onto gas and coal plants, increasing LNG demand during a period of elevated prices.2
Demand growth will sustain the pressure over the medium term. Wood Mackenzie projects Southeast Asia's data centre capacity will more than triple, from 2.8 gigawatts to 9.4 gigawatts, by 2035. Md Fadhlullah Omarali, a principal analyst at the consultancy, noted that data centre operators represent a more bankable counterparty for long-term LNG supply contracts than sovereign utilities, given their creditworthiness — a profile that, if it accelerates contracting, could tighten available spot supply further.6
Meralco's generation arm, MGEN, reaffirmed in May 2026 (2026-05-22) its commitment to expanding solar, battery storage, and thermal capacity. Diversification reduces long-term LNG dependence, but the build-out leaves consumers exposed through several more billing cycles at current price levels.1
One potential relief for Asian buyers would come from weakening European demand. Kpler data showed European LNG imports at 6.2 million metric tons in July 2026 — the lowest July total since 2021 — as continental buyers pulled back from spot markets. If European demand stays subdued, more Atlantic cargoes would redirect toward Asia and cap JKM. Without that shift, or without a resolution to the Hormuz disruption, Meralco's customers will continue paying for power priced in a currency most of them do not earn.5