Thailand sets its sights on larger LNG share

Thai government looks to increase imports as gas reserves continue to slide

Thailand’s newly elected coalition government, heading by former junta leader General Prayut Cham-o-cha, will look to significantly lift the proportion of natural gas in the country’s energy mix, following the cabinet’s approval of the amended Power Development Plan (PDP) at the end of April.

Under the new PDP, the government aims to derive 53pc of the country’s power from gas by 2037, an increase of 13 percentage points over the previous plan, 35pc from non-fossil fuels and 12pc from coal — reduced from 25pc in the previous plan. Efforts from the Thai authorities to build coal-fired power plants in southern Thailand have faced constant delays and domestic opposition.

Greater LNG imports will almost certainly be Thailand’s main focus. “By 2025, we expect that LNG will account for close to 40pc of gas supply to the power sector, rising to 80-90pc by the end of the PDP period in 2037,” says Chris Starling, principal at consultancy Lantau Group. Last year, the Gulf of Thailand, including the Malaysia-Thailand Joint Development Area (MTJDA), produced 71pc of the country’s available gas, with the remaining imported via pipeline from Myanmar (17pc) and through LNG (11pc).

Since 2014, domestic production has dropped by 13.4pc from just over 115mn m³/d to less than 100mnn m³/d in 2018, before rebounding slightly in Q1 2019 to 100.9mn m³/d, according to data from Thailand’s ministry of energy. Over the same period, LNG imports rose from the equivalent of 5.2mn m³/d to 18mn m³/d.

Gulf of Thailand reserves have plummeted since they peaked in 2006, halving to around 186.8bn m³ in the latest BP Statistical Review 2019. “By the end of 2017, the reserves to production ratio (r/p) was 5.2 years,” says Dieter Billen, principal at consultancy Roland Berger. By comparison, “Malaysia had a r/p ratio of 34.9 years, Vietnam 68.3 years and Indonesia 42.9 years”.

Similarly, imports from neighbouring Myanmar are expected to slow. Since 2014, production from the Yetagun field has dropped from 9.6mn m³/d to just 4mn m³/d in 2018, and averaged just 3.25mn m³/d over Q1 2019.

Declining reserves from the Yadana, Zawtika and Yetagun offshore fields, and the need to prioritise domestic consumption, could lead to Myanmar exports ending entirely by 2035, says a study by the Economic Research Institute for ASEAN and East Asia (ERIA). Likewise, the MTJDA’s resources are expected to be exhausted by 2027.

Domestic incentives

New domestic exploration is also making little progress, despite the fall in proven gas reserves and production. “LNG is set to dominate the future gas mix, but exploration potential is probably not being fully developed,” says Neil Semple, fuels expert at consultancy Poyry. “There would appear to be some political resistance to using international prices as an incentive and there has been no licensing round since 2008”.

Previously, the energy minister had suggested the 21st bid round could go ahead this year, but no time scale has yet been given. “The new bidding round would address the issue of the general lack of exploration acreage and would also allow the authorities to revisit pricing mechanisms for new domestic gas,” adds Semple.

In December, state oil and gas firm PTT successfully won the concession bidding process for the country’s main producing natural gas fields, Erawan and Bongkot, beginning from 2022 and 2023. PTT has committed to maintaining production from Erawan at 22.6mn m³/d and Bongkot at 19.8mn m³/d, below current levels, says Billen.

Chevron had been operator of Erawan since 1981 but was unsuccessful in retaining the latest concession — the company will maintain its Thailand presence though through its 35pc stake holder in the unexploited Ubon Project in Block 12/27.

Demand boost

While Gulf of Thailand reserves and production continues to fall, domestic demand has continued to be robust at around the 132mn m³/d mark, and averaged 132.5mn m³/d over Q1 2019, according to data from the ministry of energy.

Electricity consumption is by far the largest consumer of natural gas. In 2018, electricity generation accounted for 75.9mn m³/d on average, or over 57pc of overall demand. Other significant offtakers include industry with 21.6mn m³/d (16.3pc), gas separation plants with 28.7mn m³/d (21.7pc) and natural gas vehicles with 6.2mn m³/d (4.7pc).

Thailand’s preference for imported LNG over domestic natural gas could potentially impact electricity prices, through exposing the country to international LNG markets’ greater volatility. “A higher proportion of imports feeding into the national grid will result in an overall higher price to the consumers,” says Kannika Siamwalla, head of regional oil and gas at Malaysian bank RHB. In February, the price differential had widened to $6.30/mn Btu for domestic gas versus $12.10/mn Btu for LNG.

Pushing ahead

Thailand aims to capitalise on the current oversupply of LNG and low global prices, despite potential fiscal risk and import dependence — to date the country sources most of its LNG from Qatar via its 20-year agreement with PTT for 2mn t/yr. Australia and Malaysia also supply the country with much smaller volumes.

The Southeast Asian country is in the process of installing greater capacity, with more planned over the near term. “PTT already completed the 10mn t/yr LNG terminal [Map Ta Phut], plus 1.5mn t/yr reserved for the Electricity Generating Authority of Thailand [EGAT],” says Chaipat Thanawattano, an investment analyst with SCB Securities, a securities trading firm. “The second LNG terminal project [Nong Fab], with capacity of 7.5mn t/yr, is under construction ahead of commencing operations in 2022.”

Next on the agenda, EGAT plans to construct a 5mn t/yr FSRU by 2023 and the government has designs on a third LNG terminal. Last month, though, the energy policy administration committee (Epac) suspended EGAT’s efforts to import 800-1mn t/yr of LNG due to concerns oversupply could leave the kingdom oversupplied. Malaysia’s Petronas had initially won the supply contract.