Crisis in Thailand due to increasing demand for LNG - Energy

Thailand’s demand for LNG is growing significantly, due to declining production from aging domestic fields, and the country’s reliance on it as a cleaner transition fuel, despite rising global prices.

The country’s imports of liquefied gas during the first two months of this year amounted to 1.912 million cubic feet per day, an increase of 26 percent over the same period last year, data from the Office of Energy Policy and Planning showed.

February imports also rose 56 percent year-on-year, although spot prices in the two months were 2.6 times higher than a year ago, Fitch Solutions reported.

Factors increasing the demand for liquefied gas

In their latest report, Fitch analysts warned that “it appears that Thailand’s strong appetite for LNG will last longer”, with domestic production declining and domestic electricity generation continuing to rely heavily on fuel, while spot prices rose further in March and April. /April.

They stressed that the sharp rise in global oil and gas prices is a big problem for Thailand, as reported by the Energy Voice platform.

Spot LNG prices in Asia have averaged $30.9/MMBtu since the start of the year, up from $8.6/MMBtu in the same period in 2021.

“In addition, the increasing threats to pipeline gas flows from Myanmar, as well as the acceleration of the lifting of domestic coronavirus pandemic restrictions, will increase the need for LNG imports,” Fitch added.

“Supply fears unfolded towards the end of 2021 and put pressure on global natural gas markets, and are now amplified several times in the wake of the Russian military invasion of Ukraine,” she said.

It noted that PTTEB’s high exposure to spot supplies compared to larger buyers across Asia has further exposed Thailand and its consumers to negative price impacts, despite limited direct exposure to Russian oil and gas.

LNG Exports

Thailand’s gas field production declines

Exacerbating the growing demand for LNG; Due to reduced production across aging domestic fields.

Production data for each field from the Office of Energy Policy and Planning confirm long-term downward trends in production across most of Thailand’s largest gas fields, most notably the Erawan field in the Gulf of Thailand.

“Erawan is Thailand’s largest gas field, accounting for about a third of its domestic gas production, although production peaked in 2014,” Fitch notes.

State-owned Thai oil and gas company PTTEB is due to start operating the field after April 2022, after securing production and development rights for the field at an auction in 2018.

However, the process leading up to the scheduled acquisition has not been smooth sailing, particularly in the last few years due to a legal dispute between outgoing operator Chevron, and the government, over decommissioning fees.

“Erawan’s production averaged 867 million cubic feet per day in 2021, which is 27% lower than the average production in 2020, although according to industry sources, current production is believed to be much lower at around 500 million cubic feet per day,” Fitch said. “.

And she continued, “Even if additional investments are made from PTTEB, once the acquisition of the field is completed next month, it is unlikely that the field’s production will witness a significant recovery due to its mature nature. This is a major concern for Thailand, as its offshore assets are maturing and efforts are continuing. To open new exploratory spaces abroad, with limited success.”

Liquefied gas is a transitional fuel

Like many markets in Asia, Thailand has pledged ambitious decarbonization targets over the coming decades, as part of broader measures to combat climate change, Fitch said.

In addition to pledging carbon neutrality by 2065, the newly published National Energy Plan 2022 calls for the share of renewables in the total generation mix, to reach at least 50% by 2050, up from about 20% today.

“Nevertheless, the government has been insistent at the same time on the key role it expects natural gas (and therefore LNG) to play in moving forward as a cleaner transition fuel,” Fitch said.

The country is also counting on LNG to create new job opportunities for local companies including PTT, such as LNG fueling, regional LNG re-exports, carbon capture and hydrogen production.

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