Thai Reforms Stumble [NGW Magazine]

While Thailand has been working to encourage greater competition in its natural gas market for the past five years by opening up the liquefied natural gas (LNG) sector, it has so far very little to show for its efforts. This will likely remain the case until the government finally liberalises the county’s gas pipeline network.

Despite the introduction of third-party access (TPA) legislation in 2014 targeting LNG terminal capacity, state-owned PTT continues to dominate the import sector. The oil and gas major only granted state-run Electricity Generating Authority of Thailand (Egat) access this year to 1.5mn metric tons (mt)/year of capacity at the Map Ta Phut terminal, in Rayong Province.

PTT brought the terminal online in 2011 with 5mn mt/yr of capacity, which it then doubled to 10mn mt/yr. The facility’s third expansion, this time to 11.5mn mt/yr, came online in January. The company is also developing the 7.5mn mt/yr Nong Fab terminal, which lies 5 km from Map Ta Phut and is slated for completion in 2021.

The government gave Egat its LNG import licence in 2017 along with instructions to foster competition within the country’s downstream gas sector. Two years later, however, and the utility has only managed to line up two cargoes of LNG from the spot market, with plans to sign a long-term supply contract in disarray. 

Supply shadow

Egat has said it will receive its first cargo in December, with the second slated to arrive in April 2020. The fact that a player other than PTT is poised to import LNG should be big news. However, the Energy Policy Administration Committee’s (Epac) decision in May to stop Egat from signing a supply agreement with Malaysia’s state-owned Petronas for 1.5mn mt/yr of LNG for eight years has cast a shadow over events.

Policy-makers have argued that the proposed agreement was scrapped to prevent Egat from buying volumes it could not use. Energy minister Sontirat Sontijirawong explained in October that there were concerns that Egat would fall victim to a “take or pay” clause, whereby it would have to pay for agreed volumes that its power plants simply would not be able to burn.

This assessment exposes the inflexibility that exists within the Thai gas market, given that around 58% of the country’s power generation capacity – estimated at 46 GW in 2017 – is natural gas-fired. PTT’s de facto monopoly over the country’s pipeline network and LNG import capacity has made entering the downstream gas sector practically impossible, despite there being no legal restrictions prevent entry. Without access to PTT’s pipeline network, Egat is unable to compete for market share and has to sell excess LNG volumes to third-party buyers.

To put PTT’s monopoly in context, the major reserved Map Ta Phut’s full capacity of 10mn mt/yr in 2018 only to import 4.4mn mt/yr. While non-PTT controlled LNG import capacity is in the pipeline, it is still years away from being realised.

On the horizon

Egat is in the final stages of collecting international bidding documents for front-end engineering design (Feed) work on its planned floating storage and regasification (FSRU) vessel that it hopes will come online in 2024.

The National Energy Policy Council (NEPC) approved the utility’s baht 24.5bn ($811.1mn) plan for the 5mn mt/yr FSRU, which will be moored 20 km offshore in the Gulf of Thailand, in 2017. The facility will be connected to the South Bangkok Power Plant in Samut Prakan.

The Bangkok Post quoted the head of Egat’s civil and coastal engineering department, Nibong Ungkurapinan, as saying November 13 that the company had submitted an environmental impact assessment to the government. The utility expects the assessment to be approved by the first quarter of 2020, at which point it well invite shipbuilders to bid for the Feed contract. Egat hopes to submit project documents for government approval in the second quarter of next year.

Thai power company Gulf Energy Development, meanwhile, has formed a 70:30 joint venture with PTT to build a baht 47.9bn, 5mn mt/yr import terminal in Rayong. Construction will start in 2023, with operations slated to begin in 2025. The plant can be expanded to 10.8mn mt/yr during a secondary phase of development.

Even with this new capacity, however, gas importers need access to the pipeline network to compete for a share of the growing gas-fired power market. Japanese trading house Mitsui & Co said November 18 that it intended to invest in Gulf Energy’s $1.6bn, 2.5-GW gas-fired combined cycle gas turbine (CCGT) plant in Rayong. The plant, in which Mitsui will take a 30% stake, is set to come onstream in March 2023. The two companies are already building another same-sized facility in Chonburi Province that will come on line March 2021.

Mitsui said the electricity would be sold to Egat under a 25-year contract and the plant would rely on imported LNG. Although the government flagged up the need to address pipeline reform years ago, it appears to have been distracted by ambitions of turning the country into an LNG trading hub. 

Distracting ambitions

The NEPC said in November 2017 that energy reforms would focus on liberalising power production, LNG trade and the gas pipeline business. “Under the reform plan, the PTT would also be forced to separate its gas pipeline businesses and third parties would be allowed access to use the gas pipeline,” committee member Manoon Siriwan said at the time.

Following the government’s approval in January of the new Power Development Plan (PDP), which aims to add more than 30 GW of power generation capacity by 2037, Bangkok had been expected to shift its focus to drafting a similar plan for natural gas supply.

Local media quoted unnamed sources in July as saying Sontijirawong was close to approving a gas plan. However, the only official update has surrounded the government’s decision to ease LNG import and re-export regulations to help promote PTT as a regional trader.

“[PTT] is studying the feasibility of the LNG trading business, expecting to reach a conclusion in a couple of months. The business plan will be proposed to the [NERC] in December,” Sontijirawong said in October. The LNG trading plan will allow PTT to use its excess capacity to chase market share in  neighbouring countries.

While the government intends to overhaul next year the Egat Act of 1968 to allow the utility to re-export LNG, that does not seem in line with the government’s original strategy of creating greater competition within the domestic downstream gas market. Until firm reforms are introduced to separate the country’s gas pipeline network from PTT, achieving that level of competition will be a difficult task.