Feeding its expanding domestic industrial complex is an ongoing task for Thailand’s energy sector as domestic power demand and consumption continue to outpace supply. This is fuelling a rise in local energy production as the country tries to reduce its dependence on foreign energy supplies. From upstream production and downstream refining to developing the network of power stations, capacities are expanding across the country. The sector is doing this in a variety of ways – åby utilising enhanced recovery techniques and tapping new fields in the upstream oil and gas sector, as well as boosting processing capacities for the increasing amount of imported energy supplies and the promotion of burgeoning new alternative power sources such as renewable energy electricity plants and biofuels.
BY THE NUMBERS: Although many of its maturing oil and gas fields are seeing a decline in production, Thailand has managed to consistently boost commercial primary energy production levels for the past two decades. Production peaked in 2011 at 1.017m barrels of oil equivalent per day (boepd), up from 989,000 boepd the previous year and the 594,000 boepd recorded a decade earlier, according to the Energy Policy and Planning Office (EPPO).
Recent growth over the past few years is being driven primarily by gains in lignite and natural gas production, which have managed to offset declining crude oil production. In 2011 natural gas production amounted to more than half of all primary energy consumption at 643,510 boepd. This was followed by crude oil at 139,990 barrels per day (bpd), lignite at 122,170 boepd, condensate (76,580 boepd) and hydro power (35,220 boepd).
OVERSIGHT: The Ministry of Energy (MOEN) has been responsible for overseeing the roughly 30 ministries and institutes dealing directly with energy-related matters since its inception in 2001. As the ranking sector authority, the MOEN is also responsible for implementing the national energy policy and other regulations. The most recent national energy strategy, released in 2008, has four priority areas: energy security, alternative energy, supervision of energy prices and safety, and energy conservation and efficiency and environmental protection.
Two of the most active divisions under the MOEN are the Department of Mineral Fuels (DMF) and the EPPO. Acting as the primary governmental oversight agency for domestic upstream petroleum activities, the DMF is tasked with the promotion of petroleum exploration and exploitation, enhancing the domestic petroleum supply, and accelerating petroleum development in overlapping claimed areas. In this capacity, the DMF is also responsible for offering, awarding and, if necessary, revoking exploration and production concessions. According to the legislation governing the sector, which includes the recently amended Petroleum Act and Petroleum Income Tax Act of 1971, private companies are offered petroleum concession agreements, which contain both an exploration period and a production period. Said concessionaries are then obligated to pay government royalties, special remuneratory benefits and tax in consideration for the concession granted.
AMENDMENTS: As part of ongoing efforts to boost investment in the sector, the most recent round of amendments has created a more business-friendly environment for investors. One key change has been to royalties, which are now paid to the government on a sliding scale of between 5% and 15% of production depending on the output (as opposed to a flat 15% rate, which was imposed previously). Additionally, the petroleum tax is set at 50% of net income and there are no restrictions regarding foreign ownership imposed on the petroleum industry.
As its name suggests, the EPPO’s duties include incorporating a long-term macro look at the energy sector and translating these strategies into recommendations for the government. The primary focus areas of the agency include the integration, supervision, monitoring and reviewing of the country’s national energy policy and management plans, strategies for energy conservation and alternative energy promotion (see analysis), measures to solve and prevent oil shortages in both the short and long term, as well as the development of national energy information and communications technology.
OIL & GAS PRODUCTION: Following a long period of expansion since the 1970s, domestic hydrocarbons output is now nearing the tipping point as crude oil production has begun to tail off and the increase in natural gas output has slowed. Regarding the latter, production expanded by just 25.7bn cu feet (bcf) of gas between 2010 and 2011, reaching a high of 1.31trn cu feet (tcf), according to information from the EPPO. Between 2009 and 2011 crude oil production declined from 56.25m barrels to 55.91m barrels to 51.10m barrels. Condensate production has also remained flat for the past four years, with output registering 31.07m, 30.62m, 32.35m and 30.71m barrels, respectively, in consecutive years starting in 2008.
The DMF has reported that, as of July 2012, the country’s most productive crude fields were the onshore Sirikit field, producing 28,584 bpd from 313 active wells; the offshore Benchamas field, producing 22,568 bpd from 107 active wells; the offshore Songkhla field, producing 20,152 bpd from 10 wells; and the offshore Plamuk field, producing 19,866 bpd from 61 wells. The most productive gas fields, meanwhile, were all located offshore in the Gulf of Thailand and were led by the Bongkot field, producing 111,553 boepd, followed by the Bongkot South field, with 78,071 boepd, Platong II (65,828 boepd), Erawan (46,992 boepd), Arthit (45,381 boepd), North Pailin (34,497 boepd) and Satun (33,493 boepd).
According to the DMF, the incremental annual increases in domestic natural gas production will likely come to an end in 2013, when output is expected to settle at an average of 3600-4000m standard cu feet per day (mmscfd) until declining after 2022 unless new gas fields are discovered. There is some relief forecast in the immediate future, however, as new gas supplies from previously untapped concessions are projected to come on-line by 2013.
This additional supply is expected to boost the volume of the national natural gas pipeline system from April 2012 levels of 3502 mmscfd to 3902 mmscfd. The Ubon gas field of the US’s Chevron would provide 130 mmscfd of this, while PTT Exploration and Production’s (PTTEP) Greater South Bongkot field, which produced 81.7 mmscfd in April, has added a processing platform with a production capacity of 350 mmscfd. These new supplies come in addition to the 330 mmscfd added when Chevron’s Plathong 2 field came on-line in 2011.
THE PLAYERS: State energy company PTT is the country’s largest vertically integrated oil and gas player in the domestic sector, with substantial exploration and production interests. It is also Thailand’s largest downstream operator. The company boasts a large stable of petroleum-related subsidiaries, including Thai Oil, PTTEP and PTT Global Chemicals as well as the IRPC refining and cracking complex.
PTT’s 65.29%-held exploration and production subsidiary, PTTEP, has a stake in many of Thailand’s natural gas producing fields, including Bongkot, the largest field. In total, PTTEP holds an ownership share in 13 producing fields across the country and five more in the exploratory stage. Additionally, PTTEP is the operator and joint operator along with Petronas Carigali of projects carried out in overlapping areas with Malaysia. Other holdings include minority stakes in Myanmar’s Yadana and Yetagun fields, which supply Thailand with substantial gas supplies, as well as 100% stakes in two more Myanmar projects in the exploratory and development phases. As of 2011, the company claimed total proven reserves of 969m boe after producing 301,367 boepd in 2011 and 304,023 boepd in 2010, according to PTTEP.
Several projects are under way in an attempt to increase natural gas supplies over the next few years. The largest of these is the five blocks known collectively as the Arthit field off the coast of Songkhla, operated by PTTEP. The company announced in June 2008 that the Arthit project was producing natural gas at 370 mmscfd and condensate at roughly 19,800 bpd, significantly higher than the originally forecast rates of 330 mmscfd and 11,000 bpd, respectively.
At present, US-based oil and gas producer Chevron is the largest foreign operator in the sector and is responsible for the majority of Thailand’s oil and gas production. Having carried out operations in the country since the early 1980s, Chevron now holds interests that range from 35-80% in 13 different concession blocks as well as a 16% non-operating working interest in the Arthit field.
Chevron’s reports indicate that the company’s daily output in 2011 averaged 131,000 barrels of crude oil and condensate and 1.8 bcf of natural gas. A major milestone for the company was achieved in October 2011, when the 69.9%-owned and operated Platong II natural gas project came on-line. The $3.1bn field is expected to produce approximately 330 mmscf of natural gas and 18,000 barrels of condensate per day. Other 2011 projects included the installation of 11 wellhead platforms and the drilling of 295 developmental wells in the Pattani Basin along with three more wellhead platforms and 41 wells at Arthit. In addition, Chevron holds a number of interests ranging from 30-80% in the Thailand-Cambodia overlapping claim area. Other notable large internationals operating in the country include Mitsui Oil Exploration, Hess, Total E&P and China National Petroleum Corporation Hong Kong.
SMALLER COMPANIES: Smaller specialised companies also fill specific niches in the oil and gas sector, such as Salamander Energy, which operates the Bualuang oil field situated in the Gulf of Thailand and has a 9.5% interest in the Sinphuhorm gas field on the Khorat Plateau located in the north-east of the country. Salamander also holds two exploration concessions, L15/50 and L26/50, which were awarded in the country’s 20th licensing round.
Local independent firm Pearl Oil, a subsidiary of the Singapore-based oil and gas firm Pearl Energy, also operates 13 producing and exploratory concessions, which cover a total of 104,000 sq km throughout the country, including the Jasmine, Mamora, Nongiaw and Wamana Niramai fields. Other oil outfits that have interests in Thailand include Coastal Energy, with two offshore and four onshore concessions, Oil Optimisation (three concessions), Pan Orient (four concessions), NuCoastal, Twinza Oil, Northern Gulf Oil (two concessions), Auo Siam Marine, Sita Oil Exploration House, Carnarvon Petroleum, Adani Welspun Exploration, Mitra Energy, Tatex, JSX Energy and Shannxi Yanchang Petroleum.
BIG APPETITES: Thailand has done quite well for itself over the past decade by boosting production capacity of its already strong manufacturing sector – particularly heavy industries, including auto manufacturing, metalworking and petrochemicals factories. However, as these sectors continue to increase exports and put money into the country’s coffers, they also require substantial amounts of energy, which far exceed what the country can produce.
Domestic consumption of petroleum products in 2011 experienced an all-time high of 673,896 boepd, up 3.3% from the 652,464 boepd used the previous year, according to EPPO data. Natural gas usage grew at a similar rate, hitting 810,274 boepd in 2011, 3.3% higher than the 784,184 recorded in 2010. In simpler terms, this represents the consumption of around 42.25bn litres of petroleum products and some 46bn cu metres of natural gas.
This illustrates the trend of rapid growth in natural gas consumption over the past decade, which is up 31.82% since 2007, when consumption was 614,667 boepd, the last year in which more petroleum products were consumed domestically than natural gas. By contrast, petroleum product consumption in 2007 was similar to current rates, at 666,786 boepd, corresponding to a marginal rise of just 1.07% in the four years to 2011.
MEETING DEMAND: With about one-third of hydrocarbons demand satiated by domestic resources, Thailand has been increasingly forced to import its energy. In 2011 the country imported 760,982 boepd of crude oil (44.16bn litres) and 166,954 boepd of natural gas. According to the DMF, Thailand’s energy imports were worth BT2trn ($63.8bn), a 25% hike from BT1.6trn ($51.04bn) the previous year. “One of the priorities is to maintain the security of Thailand’s energy supplies,” Anon Sirisaengtaksin, the president & CEO of PTTEP, told OBG. “To meet significant growth in domestic demand, we will have to sustain double digit growth over the coming decade, by actively managing our portfolio and constantly looking for more opportunities abroad.” The one bright spot on the energy balance of trade is petroleum products, for which Thailand is a net exporter due to its substantial refining capacity. In 2011 Thailand exported 134,123 boepd of these products.
The greatest proportion of imports comes from Myanmar, which supplies Thailand with approximately a quarter of its natural gas consumption. The 1.1bn cu feet per day (bcfd) of gas piped to the country is sourced from the Yadana and Yetagun fields located in the Gulf of Martaban.
LNG TERMINAL: In addition to piping in gas from its neighbours, Thailand has also developed Southeast Asia’s first liquefied natural gas (LNG) receiving terminal at the Map Ta Phut industrial estate located in Rayong province. Operated by PTT subsidiary PTT LNG, the $800m terminal started operations in May 2011 and has the capacity to regasify 5m tonnes of LNG a year. It is projected that expansion plans worth $400 will double the terminal’s capacity to 10m tonnes by 2016. The facility currently boasts a 5m-tonne-per-annum (tpa) regasification (vaporiser) train along with two 160, 000-cu-metre LNG storage tanks, a jetty, a boil-off gas recondenser, a send-out station and an LNG pump.
Much of the supply for the new LNG terminal was originally intended to come from the world’s largest supplier of LNG, Qatar. After inking a memorandum of understanding (MoU) for a long-term LNG purchase contract with Qatar in 2008 for 1m tpa, international natural gas prices spiked in 2011, and reports emerged in early September 2011 that PTT had backed out of the deal in favour of purchasing its supplies elsewhere in the world on a short-term basis. Officials from the company later denied the cancellation had taken place while confirming that long-term negotiations were still ongoing.
In addition to the new LNG terminal, PTT FLNG concluded a feasibility study in 2011 for a floating natural gas production and storage facility (FLNG), and is currently in the preliminary front-end engineering and design phase. Commercial production at the facility is expected to commence by 2017.
DISTRIBUTION: Whilst energy supply issues are being addressed through imports and new domestic sources, weak points in the national distribution infrastructure were exposed during the 2011 floods as compromised road- and rail-based transportation modes disrupted supply in the capital and its surrounding industrial areas. One proposed solution is extending the country’s existing petroleum pipeline system. Established in 1991 by PTT and a number of downstream retailers – including Esso, Shell, Caltex, Thai Oil, Kuwait Petroleum, Thailand Cooperate Governance Fund (currently Thai Military Bank), British Petroleum and Mobil – the Thai Petroleum Pipeline (Thappline) now operates three main oil pipelines transporting fuel in the country.
The longest of these is the 255-km SrirachaSaraburi route, which is able to transport 26bn litres of fuel per annum from the Sriracha and Chonburi terminals (fed by supplies from Esso, Thai Oil and PTT) to Lam Luk Ka, Pathumthani province and the Saraburi terminal in addition to a separate feeder line that transports oil to a terminal at Don Muang Airport, according to Thappline. The second, 67-km pipeline transports fuel from the refining complex at Map Ta Phut to the Sriracha terminal at a maximum rate of 7.2bn litres per year, while the third route covers 38 km from the Lamlukka terminal to Suvarnabhumi Airport, and carries enough jet fuel to transport approximately 100m passengers annually. Thappline said that the 360 km of existing pipeline have a throughput of approximately 12bn litres a year, resulting in around 30% capacity utilisation.
In competition with Thappline is JP-One Assets, which also operates a pipeline, named JP1, that is specifically designed to transport aviation fuel.
IN THE PIPELINE: Thappline is exploring a substantial expansion project involving the construction of two new pipelines to serve both the northern and north-eastern regions. In total, between 500 and 800 km of new pipeline would be laid over a five-year period at the cost of around BT10bn ($319m), according to the company. In addition to opening up vast new domestic territories, the pipeline could also be extended up to neighbouring Laos or other bordering nations, enabling a faster, more efficient means of export for participating firms.
In addition to the reliability and safety benefits associated with pipeline transportation, another strong argument for the proposal is improving national energy security as prioritised in the government’s current national energy strategy.
Thailand also boasts an extensive natural gas pipeline network, linking its gas fields with a host of gas-fired thermal power plants and gas separation plants. Operated by PTT, the country’s gas transmission pipeline system covers a total distance of 3286 km (2013 km offshore and 1273 km onshore). The offshore lines connect the gas fields that operate in the Gulf of Thailand to six gas separation plants in the provinces of Rayong and Khanom, while the onshore pipelines link up a dozen natural gas-fired power plants operated by the Electricity Generating Authority of Thailand (EGAT) as well as cross-border pipelines to Myanmar and Malaysia. Furthermore, supplemental distribution pipelines extend transport capabilities by an additional 770 km, primarily to heavy industrial end-users.
FUEL PRICE INCREASES: A government decision in 2011 to liberalise the prices of retail compressed natural gas (CNG) is likely to result in the improvement of PTT’s distribution system. In January 2012 the National Energy Policy Council pushed up retail CNG prices by BT0.5 ($0.02) per kg per month. As of April 2012 the price of CNG had increased by BT2 ($0.06) per kg since the end of 2011, rising from BT8.5 ($0.27) per kg in December 2011 to BT10.5 ($0.34) per kg in mid-April. Due to the price cap on CNG, PTT had been suffering losses, and the Bangkok Post reported it had lost roughly BT26bn ($839.16m) since 2008. To help make up for these losses, the government had been providing PTT compensation at a rate of BT2 ($0.06) per kg; however, the increase that took place in the first four months of 2012 has now made it possible for the government to stop subsidising CNG sales. According to Standard and Poor’s, long-awaited profits from the CNG segment are likely to encourage PTT to make improvements to its distribution system, making the process more efficient and potentially bringing down the cost of the gas. Demand for CNG among motorists has increased significantly since 2004, when the government started promoting alternative fuels, including CNG, to deal with rapidly rising oil prices. The number of vehicles fuelled by CNG in the country was predicted to exceed 250,000 by the close of 2011, up from 207,600 in 2010 and 60,850 in 2007, according to PTT. Thailand continues to see a dramatic increase in demand, from 6.4bn cu feet per day in December 2011 to 7bn cu feet per day in April 2012.
Price increases have not just affected CNG, as the government has decided to levy higher taxes on other fuels as well. In April 2012 liquefied petroleum gas prices were raised to BT11.41 ($0.37) per litre, and the National Energy Policy Committee announced the prices of Octane-91 and Octane-95 petrol would also be increased. While these price hikes may not be well received by everyone in Thailand, particularly motorists and passengers, the latter of whom will see fares for public transport rise as a result, 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.
BEING A GOOD NEIGHBOUR: While the region is full of conflicting territorial claims – Thailand and Cambodia, Malaysia and Indonesia, China and its neighbours in the South China Sea – Malaysia and Thailand have found a mutually beneficial agreement to exploit offshore resources through the creation of the 7250-sq-km Malaysia-Thailand Joint Development Area (MTJDA).
The primary benefits of this agreement, which grew out of a border accord in 1979, is the development of gas fields within the wedge shaped area of overlapping claims situated in the Gulf of Thailand. According to the agreements laid out by the Malaysia-Thailand Joint Authority, both governments share in the expenditures and benefits derived from hydrocarbons extraction and production within the MTJDA. There are three concessions in the area: blocks A-18, B-17 and B-17-01, two of which are active and operated by companies that held rights in the area prior to the 1979 Malaysia-Thailand MoU.
Block A-18 is being developed by Hess (formerly known as Triton Oil) and PCJDA of Malaysia, which have jointly formed Carigali-Triton Operating Company (CTOC) to serve as the operator for the block. Encompassing a total area of 4250 sq km, Block number B-17/ C-19 is being jointly developed by PTTEP and Malaysian energy giant Petronas, which together have established the Carigali-PTTEPI Operating Company (CPOC) to serve as the operator. Producing gas since 2005, fields within the MTJDA are now among the most productive in Thailand.
Under the production-sharing contracts governing the operations, revenues are split equally between the two countries, including 10% royalties on gross production, and petroleum taxes of 0% for 8 years, 10% from years 9-16, and 20% thereafter, as well as equal shares in remaining profits.
DISPUTED TERRITORY: While the joint venture between Malaysia and Thailand is a good example of international cooperation resulting in a mutually beneficial arrangement for both parties, the situation is decidedly less friendly with Thailand’s neighbour, Cambodia. Although exploration concessions were awarded for much of the area over 40 years ago, talks of dispute resolution or joint development zones have sputtered and stalled for years without any tangible progress. As a result, potentially substantial offshore oil and gas deposits continue to sit unexploited. The 27,000-sq-km offshore Overlapping Claims Area is estimated to contain up to 11trn scf as well as smaller quantities of crude oil and condensate. “The disputed area has very high potential,” Pinyo Meechuma, the head of the mining and petroleum engineering department at Chulalongkorn University, said. “The existing fields around the borders of the disputed zone are already productive sites. This is the same for production in the undisputed Cambodian territorial waters bordering the zone.”
REFINED TASTES: Now, among the largest refiners in terms of volume in South-east Asia, Thailand currently boasts seven major oil refineries with a combined capacity of roughly 1.12m bpd. In 2011 the total intake of all refineries was 936,571 bpd, down slightly from 961,764 bpd in 2010, but on par with the 936,633 recorded in 2009, according to data from the EPPO. Refined petroleum product exports for 2011 amounted to 10.53bn litres, also down from the previous year’s high of 11.96bn litres. Of the 2011 total, the largest category was diesel fuel, with 4.71bn litres shipped, followed by fuel oil, at 3.48bn litres, jet fuel (1.2bn litres), gasoline (968.7m litres), and kerosene, with 143.5m litres exported.
The vast majority of refining capacity is carried out by PTT through its subsidiaries. These include the Bangchak Refinery, with a refining capacity of 120,000 bpd, the IRPC Rayong Refinery (215,000 bpd), PTT Aromatics and Refining (formerly the Rayong Refinery Company), with a capacity of 170,000 bpd, the Star Petroleum Refining (150,000 bpd) and the 275,000 bpd-capacity Thai Oil Refinery. The company’s most recent refinery addition, PTTAR, came on-line in 2008 with a capacity of 170,000 bpd.
Adding to the segment is the Sri Racha Refinery operated by ExxonMobil, with a capacity of 170,000 bpd, and the much smaller Rayong Purifier Refinery, with a capacity of 17,000 bpd. The future of the Rayong facility is in doubt, however, following the plant’s shutdown after it lost access to crucial inputs when PTT cancelled its deal to supply the refinery vital condensate residue in late 2011. If the situation cannot be resolved, it is likely that Rayong Purifier, which also operates a B100 biodiesel plant with a 300, 000-litre-per-day capacity as well as a string of 72 petrol stations, will have to close shop and sell off its assets.
OUTLOOK: As Thailand’s rate of consumption continues to grow well beyond the current growth rates of domestic resources, the government’s ability to implement its energy strategy goals will become increasingly important. Much is riding on the successful launch of the 21st petroleum bidding round – both in terms of offering up new blocks for exploration as well as generating sufficient interest from oil companies to invest in these areas. Without crucial new exploration activity in these blocks, as well as the potential currently locked up in the border dispute with Cambodia, the hydrocarbons sector will be limited in its effectiveness. With natural gas demand in Thailand projected by the DMF to rise from 2012 levels of 4600 mmscfd to 7000 mmscfd in 2022, sourcing at least some of this new demand locally rather than increasing costly imports would be a much more palatable option.
In the meantime pursing more LNG import agreements will help to meet the country’s continued shortfall, with Myanmar and its newly open regime as prime candidates for expansion of import deals.
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