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Energy

Thailand throws open LNG imports to private sector

Government gives license to Gulf Energy with aim to curb energy price increase

Massive LNG storage tanks are seen in Rayong province in Thailand. State-owned energy giant PTT has been the country's dominant importer of LNG.    © Reuters

BANGKOK -- Thailand has decided to open up imports of liquefied natural gas to the private sector, prompted by high electricity bills and diminished domestic natural gas reserves.

State-owned energy giant PTT has a near-monopoly on Thailand's supply of natural gas used to generate power. The company procures most of the LNG through long-term contracts. But Bangkok-based private electricity provider Gulf Energy Development recently obtained a license to import LNG.

The new LNG shipping license "will help reduce production cost for the industrial users, leading to overall reduction in electricity tariff[s]," said Yupapin Wangviwat, chief financial officer for Gulf Energy.

The company plans to pursue independent procurement to save money and keep electricity prices down. PTT currently sells natural gas wholesale for 230 baht ($7.30) per 1 million British thermal units. But LNG is traded in Asia at spot prices of around $4. Even accounting for the expense to regasify the fuel, procuring LNG on the open market is seen as less costly.

The price of PTT's gas is all but destined to climb in the foreseeable future. Domestically produced natural gas -- which now costs $6.50 per million Btu -- accounts for 70% or so of the total gas supplies. But while energy demand continues to grow, natural gas reserves are drying up.

Thus, Thailand has no choice but to expand imports of LNG.

The biggest reason the Thai government is opening up the LNG import market is the cost of power. The country's bill for industrial-use electricity exceeds that of Tokyo, where rates are considered at the high end internationally.

The Thai government wants as much as possible to curb the rise in electricity rates caused by increased imports of LNG. With gas-burning plants accounting for 70% of the country's electricity mix, reforming the gas market is crucial for controlling power costs.

Thailand is projected to import about 27 million tons of LNG in 2037 -- more than six times the volume in 2018 -- raising its share in the nation's total natural gas supplies to 70% in 2037 from 13% in 2018. By privatizing LNG imports, Thailand will be able to bring in expertise in conducting spot transactions and inking short-term contracts, which will lend to competition and lower costs.

Japan is the largest importer of LNG in the world and is home to companies that supply the fuel at home and abroad. "We look forward to leveraging our years' worth of expertise into securing stable energy for Thailand and answering the growing demand for LNG," said a representative of Japanese trading house Mitsui & Co.

But because vested interests and national security concerns are baked into Thailand's energy policy, the LNG deregulation plan may not live up to expectations.

"There are people inside the government and PTT who resent the liberalization of LNG transactions," said an executive at a Japanese company knowledgeable about the Thai energy market.

With a market capitalization of roughly 1 trillion baht, PTT is the largest enterprise in Thailand, private or state-owned. Fuel procurement and resource development still move copious amounts of money. It is believed that various politicians and officers get a piece of the action through the energy ministry, which oversees PTT.

Therefore, it would come as no surprise if politicians move to obstruct LNG deregulation if they think it harms their interests.

Prime Minister Prayuth Chan-ocha named Supattanapong Punmeechaow, a former director at PTT Group, as his new energy minister in a recent cabinet reshuffle. The move appears designed to blunt the influence of politicians, though it may have granted PTT stronger political clout as well.

Thailand's sole LNG import terminal is owned by PTT. Gulf Energy and other private operators will have to rent parts of the terminal to bring in LNG. To maximize the benefits of deregulation, the terminal needs to be made easier for private companies to use.

By the end of this year the energy ministry is due to release rules ensuring smooth operation of the terminal for multiple importers. Whether the rules will be user-friendly will be a litmus test to see if deregulation goes the way it should.

The government could also intervene to block LNG contracts by private-sector companies. In 2019, the energy ministry killed a deal by the Electricity Generating Authority of Thailand, a state enterprise, to purchase LNG from Malaysia's Petronas. It is presumed that the decision was made out of consideration for PTT's gas-producing monopoly.

Thailand has industrialized relatively fast among Southeast Asian countries. But labor costs are climbing compared with emerging countries in the surrounding region. Should electricity costs develop into another negative factor, the country will lose its competitive edge.

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