Thailand is in a difficult position when it comes to procuring enough oil and gas for its growing needs. Myanmar, a country that provided much of Thailand’s gas, needs to keep more of its production for its own needs, and production from Thailand’s declining reserves is being held up by the government. Mriganka Jaipuriyar explains the country’s position in this week’s Oilgram News column, At the Wellhead.
Thailand’s military-led government, which has implemented fuel pricing reform with relative ease and determination since coming into power in May 2014, has hit a stumbling block in oil and gas exploration.
The government has had to delay closure of the 21st licensing round for the second time due to opposition over the terms of the country’s fiscal regime. Given the military’s strong hold on policy matters and Thailand’s looming energy crisis, it is surprising that the government is allowing for a raging debate on the issue — or perhaps not, if the intention is to appear democratic.
At a vote carried out in January, the National Reform Council disagreed with a proposal to support the licensing round with a vote of 130 to 79.
The NRC includes representatives from various provinces and sectors. Its responsibility is to review and vote on the government’s national reform and policy proposals. The NRC’s vote, however, is non-binding and the ultimate decision rests with the country’s military-led government.
But Credit Suisse pointed out that any decision made against the NRC’s voting result may hurt the government politically.
State-owned energy company PTT’s CEO, Pailin Chuchottaworn, has warned against politicization of the licensing round issue, saying this could jeopardize energy policy reforms and security. At a news conference in Bangkok last month, he said that even though the chances of finding new petroleum deposits are slim, the 21st round is essential to allow production continuity, the Bangkok Post reported.
Thailand’s proven oil and gas reserves are in steady decline. Gas reserves have fallen to 8.4 Tcf as of end 2013 from 12.7 Tcf back in 2000, while crude oil reserves have fallen to 257 million barrels from 272 million barrels over the same period, according to latest data available from the Department of Mineral Fuels.
According to PTT’s Pailin, if gas demand stays at current levels, Thailand will run out of gas in seven years.
The kingdom consumed an average 4.68 Bcf/d in 2014, up 2.4% year on year, data from the Energy Policy and Planning Office showed. Gas output meanwhile fell 9% year on year to 3.12 Bcf/d with the gap being filled by LNG imports and pipeline imports from neighboring Myanmar.
Thailand’s oil product demand averaged 880,413 b/d in 2014, up 0.7% year on year, EPPO’s data showed. Domestic liquids production rose 13.6% year on year to 250,660 b/d in 2014, but this still left the country reliant on oil imports to meet over 85% of its needs.
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Besides declining reserves, another energy security threat lurking in the background is Myanmar’s own rising energy demand, which may make it a reluctant supplier to Thailand going forward. Myanmar has been a steady supplier of gas to Thailand since early 2000, meeting nearly 25% of the kingdom’s gas demand.
PTT Exploration and Production, PTT’s upstream arm, got a first taste of this in 2012 when Myanmar asked for its share of gas allocation from the Zawtika project to be nearly doubled to 110,000 Mcf/d to meet growing needs of its power sector. PTTEP has an 80% operating stake in the Zawtika project located in the Gulf of Martaban. Under the original contract, Thailand was to take 240,000 Mcf/d and Myanmar 60,000 Mcf/d.
Thailand’s prevailing concession system is at the center of the ongoing debate between those in favor of the licensing round and those opposing it.
The concession regime consists of a sliding scale royalty paid to the government based on production, a petroleum income tax applied to profits, and a special-remuneratory-benefit windfall profit tax.
Opponents of the system have proposed the government move to a production sharing system which they believe will give the government control over the resources and increase its share of oil and gas profits.
According to energy consultants Wood Mackenzie, Thailand is not in a position to look for higher profits given the small size of its discoveries. WoodMac instead has advised the government to focus on spurring new investment and not on boosting profit.
According to WoodMac, although Thailand takes less than the Southeast Asian average of 74% government take, its average discovery size is the smallest in the region at only 7 million barrels of oil equivalent compared to ASEAN average discovery size of 58 million boe from 2004-2013.
Moreover, historical evidence shows Thailand’s current regulatory regime to be one of the most efficient in the region — it takes an average of only four years from discovery to bring a field onstream in Thailand, compared with eight years in Malaysia and nine years in Indonesia.
The original bid submission deadline for the 21st licensing round — offering 26 offshore and onshore block — was February 18. No new deadline has been announced. In fact, the Department of Mineral Fuels has removed the link to the licensing round details from its website, which suggests we are nowhere near closure.
— Mriganka Jaipuriyar in Singapore