Economic Update

Published 17 May 2012

Thai consumers are beginning to feel the effects of the government’s decision to liberalise compressed natural gas (CNG) prices with the aim of bringing retail costs in line with the global market and potentially freeing up government funds for use in other sectors.

The National Energy Policy Council (NEPC) announced in December 2011 that retail CNG prices would increase by BT0.5 ($0.02) per kg per month starting January 16. As a result, the price of CNG has increased by BT2 ($0.06) per kg since the end of 2011, having risen from BT8.5 ($0.27) per kg in December to BT10.5 ($0.34) per kg in mid-April.

After a study carried out by the Energy Research Institute at Chulalongkorn University showed that the government was largely subsidising costs, the government is now aiming for the retail price of CNG to reach BT14.5 ($0.47) per kg by the end of 2012.

However, in an effort to minimise the impact of the rising cost of living on Thais, the NEPC announced in mid-May it would freeze the cost of CNG at BT10.50 ($0.34) from May 15 through August 15. After that date, the Energy Planning and Policy Office will consider changing the price in accordance with actual costs.

Due to the price cap on CNG, PTT (formerly the Petroleum Authority of Thailand), the sole provider of CNG in the country, has been suffering losses – approximately BT26bn ($839.16m) since 2008, the Bangkok Post reported. To help make up for these losses, the government has been providing PTT compensation at a rate of BT2 ($0.06) per kg. As such, the increase that took place in the first four months of 2012 has made it possible for the government to stop subsidising CNG sales.

According to Standard & Poor’s, long-awaited profits from the CNG segment will likely encourage PTT to improve its distribution system, making the process more efficient and potentially reducing the cost of the gas.

When oil prices were rising rapidly in 2004, the Thai government began promoting alternative forms of fuel, including CNG, to motorists. Since then, demand for CNG has increased significantly, with the number of CNG-fuelled vehicles predicted to exceed 250,000 at the end of 2011, up from 207,600 in 2010 and 60,850 in 2007, according to the PTT. Demand continues to increase dramatically, from 6.4bn cu feet per day in December 2011 to 7bn cu feet per day in April 2012.

Prices for liquefied petroleum gas (LPG), as well as premium and regular petrol, are also on the rise, as the government has decided to levy higher taxes on other fuels. In April, the price of LPG increased to BT11.41 ($0.37) per litre. On April 10, the National Energy Policy Committee also announced that the prices of Octane-91 and Octane-95 petrol would also increase.

Subsidies for diesel, however, remain unchanged, with retail prices steady at BT30 ($0.97) per litre, as the government has deemed diesel subsidies essential to controlling inflation.

Additionally, the price of gasohol, a blend of ethanol and petrol, has stayed the same, meaning that the difference in cost between petrol and gasohol – which is already becoming a more popular form of vehicle fuel, accounting for nearly 40% of gasoline sales by the beginning of 2010 – has increased markedly.

The difference between Octane 95 petrol and Gasohol 95 has risen to BT7.37 ($0.24) per litre, from BT6.3 ($0.2); and the difference between Octane 91 and Gasohol 91 has increased to BT3.42 ($0.11) per litre, from BT2.35 ($0.08).

The increases have had no small effect on motorists and have been met with particular protest from public transport businesses. In January, the operators of more than 200 gas-fuelled buses and trucks protested in front of the Ministry of Energy.

Since the CNG price increase was approved, taxi and bus operators have repeatedly called for the government to introduce fare price hikes to offset the higher fuel costs. According to Sornsak Saensombat, the chairman of the Central Land Transport Control Commission, fares will increase for interprovincial public bus operators. Fares for other public vehicles, including minibuses and songthaew, or shared taxis, are also set to rise. The Department of Land Transport will also submit plans for a new taxi fare to the Ministry of Transport in May, with the new rate expected to come into effect in June.

While neither motorists nor passengers are likely to be entirely pleased with the increased fuel costs, the government has long acknowledged the need to bring prices in line with global markets and reduce the weight of fuel subsidies on public coffers. Now it seems likely that the money saved on subsidies will be put to use in other sectors to fund a variety of projects that will serve to benefit the Thai population.