Thailand's economic crisis affecting gas strategy, projects

Dec. 29, 1997
One view of various aspects of PTT's expanded gas separation facilities at its Rayong plant in central Thialand. Another view - Three units with throughput capacity of 350MMcfd and one of 250MMcfd of gas are in operation. Atlas Copco Group of Co's, Wayne, N.J., installed a turboexpander in the newest unit last year. Photos courtesy of Atlas Copco. Thai peak power demand [50,832 bytes] Malay/Thai joint development area recent wells [64,915 bytes] Unocal's Gulf of Thiland gas
This year, Unocal Thailand has installed fully-automated, proprietary tripod platforms in Pladang and Funan fields in the Gulf of Thailand, each with capacity to produce 50 MMcfd of gas and 3,000-5,000 b/d of condensate and water. Unocal's Thai development program will not be affected by the country's current financial crisis. Photo courtesy of Unocal.
Thailand's government has ambitious plans for privatization of state oil and gas and electric power companies but remains mired in economic crisis.

State oil and gas concern Petroleum Authority of Thailand (PTT) is set for privatization by fourth quarter 1998 but is also under pressure to revise gas procurement and transmission plans because of the recession.

The government aims to loosen PTT's powerful grip on petroleum-related industries and particularly its long-standing monopoly on the domestic natural gas supply business.

Bangkok sees the introduction of competition and third-party access to the energy sector, especially in the natural gas supply industry, as offering benefits for the economy and people of Thailand.

Former Deputy Prime Minister and Industry Minister Korn Dabbaransi was behind the privatization drive. He envisioned industry and utilities buying gas directly from producers rather than going through PTT.

But Korn stepped down as the troubled Chavalit Yongchaiyudh administration collapsed. Chavalit resigned on Nov. 6 after leading Thailand into its worst economic crisis in modern times.

Korn said private entities would be encouraged to join PTT in expanded gas supply and distribution systems, "a necessary initial step to moving toward an open gas market in Thailand as well as toward commercialization of PTT's gas businesses."

Now ministers accept that achieving full and open competition in the energy sector may take some time and are looking to develop short and long-term strategies to deal with a bumpy transition phase.

Meanwhile, a slowdown in natural gas demand has prompted PTT to delay purchase of liquefied natural gas from Oman and natural gas from Indonesia's Natuna field by "several years" beyond the planned delivery start-ups of 2003 and 2005, respectively.

A scheme to lay a third gas trunk line in the Gulf of Thailand, from Erawan gas field operated by Unocal Thailand Ltd. to Ratchaburi, west of Bangkok, is also likely to be postponed.

This third trunk line is mainly intended for exporting gas from new fields, particularly those in the Malaysia/Thailand Joint Development Area (JDA), to Thailand.

Also under threat is a proposal to lay an onshore gas pipeline from Ratchaburi to Wang Noi, which was scheduled earlier to come on line in 1999.

Government pressure

The Thai government is pressing PTT to reduce its investment budget for 1998 by 20% compared with 1997.

PTT is working with other state energy agencies to come up with more definite figures on the country's gas demand forecast over the next several years.

PTT planners expect the growth rate for domestic natural gas demand to fall below the 10-14% increase anticipated this year. Natural gas consumption in lieu of fuel oil in the first 8 months of this year was 203,000 b/d of crude oil equivalent, according to PTT.

Some PTT planners, who earlier questioned the economic viability of buying Omani LNG, suggested that the purchase of Omani LNG should be delayed by 10 years.

This claim was disputed by Thai LNG Power Corp. (TLPC), the firm partly owned by PTT and set up to build and operate an LNG receiving facility at Rayong. TLPC thought the delay should be only a few years beyond the planned schedule of 2003.

The schedule for start-up of Omani LNG imports depends on projections for electricity demand, which have recently been reduced, because much of Thailand's natural gas is used for power generation.

PTT is certain to delay deliveries of Omani LNG supply, as the recession has pegged back forecast gas demand over the next 10 years by 20%, equivalent to 300 MMcfd, a TLPC official said.

Oman vs. Natuna

Before he resigned, Korn told reporters that Thailand had decided to delay the plan to start buying Omani LNG to 2007 from 2003.

The planned purchase of natural gas from Indonesia's Natuna field is also to be delayed to 2007 from 2003, according to PTT officials.

Korn wanted to decide whether Thailand still needs to buy the Omani LNG or could get by with Natuna field gas.

His doubts rested on whether the net price of Omani LNG is really more expensive than Natuna gas, which would be sent to Thailand via a 1,612-km subsea pipeline, beginning at a rate of 500 MMcfd in 2005.

PTT signed a memorandum of understanding with Oman LNG a year ago for LNG supplies at the rate of 1 million metric tons/year in 2001, rising to 1.7 million tons/year in 2003 and 2.2 million tons/year in 2004.

The initial base price agreed to was $3.10/MMBTU for cargoes delivered to Mab Ta Phut, Rayong, about 220 km southeast of Bangkok.

To make way for the LNG, Thailand needs to spend at least $600 million to build an LNG receiving terminal at Rayong. Analysts pointed out that massive budget cuts, a sharp downturn in the economy, uncertainties over the prospect of a quick recovery, domestic political uncertainties, and a sinking baht mean the project is not economically viable.

In early November, Barahudin, senior vice executive of Indonesian state oil firm Pertamina, told reporters that Thailand's economic difficulties necessitate PTT postponing Natuna gas purchase to 2007 from 2003.

Thailand originally intended to start buying gas from giant Natuna gas field in 2003 at the initial rate of 500 MMcfd, with deliveries doubling to 1 bcfd in 2007.

PTT Gas Pres. Piti Yimprasert confirmed that Indonesia agreed to maintain various proposed terms offered to PTT in the negotiation process, including the gas sale volume and the right of PTT Exploration & Production plc (Pttep), an exploration affiliate of PTT, to hold a minimum 11% stake in the Natuna gas development scheme.

The Pertamina executive, who was in Bangkok negotiating with PTT, said PTT's delay in gas purchase is not expected to affect the Natuna development project.

The Natuna developing group, including Exxon Corp. and Mobil Corp., will look for buyers in Indonesia and overseas to purchase Natuna gas.

Given the size of Natuna's gas reserves-estimated at 46 tcf-the field has spare capacity to meet Thailand's future needs, according to Barahudin.

In October, PTT resumed negotiations with Exxon and partners planning to develop giant Natuna field. On the agenda were gas price, the possibility of delaying start-up, and acquisition by PTT of up to 15% in the project.

PTT Gov. Pala Sookawesh said the state firm intends to wrap up a deal with the Natuna group sometime around the first of the new year.

Korn said negotiations between PTT and the consortium were still going within the framework established under the memorandum of understanding signed earlier this year.

Qatar's Ras Laffan LNG Co. (Rasgas) said on Dec. 2 that PTT had not informed it of any cancellation of plans to buy Qatari gas, despite the collapse of the Omani LNG deal.

PTT signed a contract with Rasgas in 1995 to buy 2 million metric tons/ year of Qatari LNG for 25 years beginning in 2001. Rasgas Managing Director Neil Kelly said he had not heard from Thailand: "We hope the deal is still on."

Power plans

Electricity Generating Authority of Thailand (EGAT) has significantly reduced its gas procurement expectations, having slashed its electricity demand forecast (see table).

As a result, EGAT has decided to:

  • Delay commissioning of third and fourth thermal units, each 300 MW capacity, at the Ratchaburi power complex by 3 years to 2004 and 2005, respectively.
  • Postpone start-up of a second thermal unit of 300 MW capacity at Krabi power plant in southern Thailand by 4 years until 2005, or even scrap the project in favor of increased capacity at Surat Thani power station.
  • Trim power purchases from small power producers (SPPs) from an average 3,200 MW planned in 1997-2003 to 2,000 MW.
  • Postpone further solicitation for power supply by independent power producers (IPPs) by 1 year to 1999, while reducing purchase requirements to 2,300 MW from 4,000 MW.
  • Delay power purchases from three Laotian projects-from 2002 to 2004 for the 608 MW lignite-fired Hongsa scheme; and from 2003 to 2005 for the 992.5 MW Nam Ngum 1&2 hydroelectric schemes.
Other power projects will be deferred, with the aim of maintaining a minimum 25% power generating capacity reserve for the country.

New EGAT Gov. Viravat Chlayon said the slowdown in power demand could reduce EGAT's investment in new power generation capacity by 55-60 billion baht ($1.3-1.5 billion) for the 5 years to 2001.

Meanwhile, six SPPs that have signed contracts to sell a total 271 MW of electric power told EGAT they wish to terminate the deals because of difficulties in funding their projects.

About 45 SPPs have signed contracts with EGAT to sell a total 1,809.66 MW to EGAT. Twenty have started to supply a total 346.97 MW to the EGAT grid.

Viravat said the weaker baht has substantially increased the costs of many SPP projects, and EGAT has already allowed those with financial problems to delay or cancel their projects.

However, two Laotian hydropower projects from which EGAT has committed to buy electricity-126 MW Houay Ho and 210 MW Thuen Hinboun-are not affected by cutbacks.

Pipelines

Thai and Malay state oil firms have reached a joint venture agreement to build a pipeline to transport natural gas from the JDA for distribution in the two countries.

PTT Gov. Pala Sookawesh announced the pipeline accord as Korn confirmed PTT and Petronas's agreement to buy the JDA gas at an initial base price of $2.30/MMBTU.

The JDA heads of agreement calls for PTT and Petronas to buy gas at an initial rate of 600 MMcfd starting by yearend 2000.

The Trans-Thailand-Malaysia Gas Pipeline system will deliver gas from JDA gas fields to a terminal in Thailand's Songkhla province, from where some will be delivered to the northern Malaysian state of Perlis.

The line is expected to be about 300 km and planned to be in place in 2000. The JDA agreement is also expected to lead to a jointly owned gas separation plant, power station, and industrial gas distribution system under consideration by PTT and Petronas.

JDA partners Petronas Carigali, Pttep, and Triton Corp. claim estimated reserves of more than 10 tcf of gas in several fields in the three blocks of the 7,250 sq-km JDA.

Meanwhile, PTT has won government approval to lay its Yadana natural gas pipeline through the Sai Yok forest near the Thailand-Myanmar border. Work on non-controversial sections of the pipeline began early this year.

Now opponents to laying of the 42-in. 260-km pipeline through the reserve fear damage to the national park and are also protesting against the project's implied support for the military junta in Yangon (Rangoon).

Unocal gas E&P

Despite slowing natural gas demand, Unocal Thailand Ltd., the country's largest gas producer, shows no sign of scaling down or delaying projects.

Brian Marcotte, president of Unocal Thailand, told a recent conference that continuation of investment is based on the conviction that Thai energy demand will continue to grow, but less spectacularly than in recent boom years.

"Energy demand growth should still be at least moderate and will likely be the basis for economic recovery," said Marcotte.

However, industry analysts said Unocal's activities are largely geared to meeting four existing long-term gas supply contracts it made with PTT, its sole gas buyer.

Unocal is working to raise gas production soon from 1.05 bcfd to 1.1 bcfd. It plans to raise output to 1.3 bcfd by late 1998 and to 1.5 bcfd by late 1999.

Up to the end of last year, Unocal and license partners had spent $4.6 billion on Thai gas developments. On Aug. 24, their cumulative production passed 3 tcf.

Unocal produces from nine fields (see map. p. 21), which account for about 25% of requirements for Thai power generation. Marcotte said Unocal will have drilled 145 wells this year in its concession areas and expects next year to drill more than 170. To date, Unocal has drilled 1,040 wells in Thailand.

Late this year, Unocal will inaugurate a new gas field, Plamuk, to be followed in March by Pladaeng gas field. Marcotte said Pailin field is on schedule for first production in the fourth quarter next year.

Pailin is expected to produce more than 165 MMcfd initially, with a further 165 MMcfd to be added in 1999 following Phase 2 development.

In 1998, the company plans to install at least 11 new platforms to keep up with the high production requirements. The total number of platforms installed on its Gulf of Thailand concession stands at 74.

In the Andaman Sea, Unocal began drilling wildcats on its new W8/38 and W9/38 concessions in mid-October. Marcotte said the company is optimistic about prospects following recent seismic surveys.

Meanwhile, cash-strapped Thai Petrochemical Industry (TPI) has asked Unocal to participate in a $160 million gas-fired cogeneration power project at Rayong.

TPI hopes to persuade Unocal to take a 50% share in the 260-MW power plant, which TPI is unable to develop alone, as its cash reserves evaporated with the collapse of the baht.

Rutherford-Moran group

In November, a gas concession group led by Rutherford-Moran Oil Corp. (RMOC), Houston, signed an agreement to deliver gas from two Gulf of Thailand fields to PTT.

Delivery from Benchamas and Pakakrong fields will bring RMOC's total gas delivery to PTT, currently 100 MMcfd from Tantawan field, to 300 MMcfd at yearend 1999.

The three fields are located on Block B8/32. Benchamas and Pakakrong lie about 60 km from PTT's offshore gas pipeline. Gas will be sent to PTT via an 18-in., 55-km pipeline to Tantawan field, which connects to PTT's trunk line.

The new gas spur line is estimated to cost $22 million. Pipelaying is slated for completion in third quarter 1999. Gas reserves of Benchamas and Pakakrong are estimated to amount to 470 bcf.

Development of Benchamas and Pakakrong is expected to cost $400 million. RMOC let contracts to Nippon Steel for fabrication, transportation, and installation of four platforms at Benchamas: three wellhead platforms and a central processing platform.

Benchamas crude oil will be produced with a floating storage and off- loading system, for which the partners are currently evaluating bids.

Thailand's Department of Mineral Resources has also awarded the RMOC-led group a production license for Maliwan field in the Gulf of Thailand.

Maliwan is located between Tantawan and Benchamas fields. RMOC Pres. and CEO Patrick Rutherford said, "We will continue with our drilling program in the Maliwan area during 1998, following the successful completion of four exploratory wells during 1997.

"While this year's drilling results were encouraging, additional exploration work still needs to occur before a development decision is made.''

Thai/Malay JDA

Exploration in the Thai-Malay JDA area of the Gulf of Thailand continues, with a number of recent gas finds being disclosed (see map. p. 20).

Malaysia-Thailand Joint Authority (MTJA) confirmed the discovery of an eighth gas field on Block A-18. Wira 1 discovery flowed 9.1 MMcfd of gas and 137 b/d of condensate on test. Earlier, MTJA announced the Samudra discovery.

Samudra 1 well tested at a combined stabilized rate of 49 MMcfd of gas plus 858 b/d of condensate. Other fields on Block A-18 are Bumi, Cakerawala, Bulan, Suriya, and Senia.

MTJA confirmed the southern extension of Block B-17 Jengka discovery, one of five gas finds on the block, with Jengka-2 well spudded on Oct. 18.

Jengka 2 flowed at a maximum rate of 14.5 MMcfd of gas and 116 b/d of light oil, according to Carigali-Pttep Operating Co. Sdn. Bhd. (CPOC), the production sharing contractor for B-17.

CPOC, a 50-50 joint venture of Pttep and Petronas, has made nine gas discoveries on Block B-17.

CPOC disclosed test results of Mali 1 new field wildcat on Block B-17. The well flowed 10 MMcfd of gas and 688 b/d of condensate on test. On the same block, Amarit 1 new pool wildcat tested 8 MMcfd of gas and 326 b/d of condensate.

Enron's entry

Although Thailand's economic problems are curbing gas market plans, foreign firms are nevertheless lining up new projects and developments.

The latest recruit to the Thai gas business is Enron Corp., Houston, which signed a partnership accord with a local firm to pursue infrastructure projects in Thailand.

Under a 3-year agreement, Enron and Thai engineering and construction group EMC plc will look to invest on a 50-50 basis in projects to supply electricity, gas, and water.

Enron will provide technical and financial support for ventures. The alliance aims to invest in developing as much as 500 MW power generation capacity in Thailand over 3 years, said EMC President Samai Leesakul.

The consortium will pursue a 150-MW power station project at Mab Ta Phut industrial estate. Here, EMC, in collaboration with Alpha Power Co. and Bangkok Metropolitan Bank, recently won concession rights from the Industrial Estate Authority of Thailand (IEAT).

However, because of the recession, EMC's partners are considering withdrawing from the 4 billion baht ($100 million) venture. EMC and Enron are working to restructure shareholding of the project by yearend.

The new joint venture also aims to take over SPP licenses from developers that want to cancel their projects or need additional funding.

Local SPP partners are facing cash flow problems and higher costs because of a recent 40% depreciation of the baht.

Enron-EMC also plans to participate in the next bidding rounds for IPP and SPP licenses in Thailand. Samai envisioned initially investing more than 10 billion baht ($250 million) in power generation through the joint venture.

The alliance is keen to bid for construction of natural gas pipelines, including one from the JDA gas fields on the Malay-Thai continental shelf to the Thai and Malaysian shores.

The accord marks the first entry of Enron into Thailand. The move surprised many in the industry, especially as economic difficulties in Thailand have forced many industrial ventures to be curtailed, delayed, or terminated.

Anthony Way, senior vice president of Enron International, said regardless of pessimistic views of Thailand by others, the company views the kingdom as an attractive place for investment with good long-term prospects.

Texaco

Texaco Inc. recently began a $25 million drilling program to confirm gas reserves in the Gulf of Thailand.

The company hopes to take part in natural gas transmission and distribution projects in Thailand and recently secured a 40% stake in the Tri Energy consortium's development of a 700-MW gas-fired IPP scheme.

Dwight Johnson, managing director of Texaco Exploration (Thailand) II Ltd., said "We want to become an integrated energy company in Thailand." Johnson foresees the economic difficulties gripping Thailand passing in the next few years. Texaco last month began a four-well exploration program on two of its three concessions in the Gulf of Thailand.

Drilling of Chang Daeng 1 wildcat on Block 11/38 is currently under way by the Sedco 601 semisubmersible. This will be followed by drilling three more exploration wells on adjacent Block 12/32.

The three Block 12/32 wells will be drilled near Busabong 2X discovery well, drilled by Texaco earlier this year to a vertical depth of 8,570 ft. It flowed 21 MMcfd of gas and 115 b/d of condensate on test.

Texaco is upbeat about the prospects of Busabong, which it expects to develop for first production in 2001. The company's preliminary estimate put Busabong's gas reserves at 1.1 tcf.

Nova

Nova Corp., Calgary, aims to be involved in the planned third natural gas trunk line in the Gulf of Thailand and the proposed gas transmission system in the northeastern corner of the country, according to Nova's country manager, Richard Kendon.

Nova is negotiating with Thai companies to form an alliance to pursue those gas projects in conjunction with PTT and other partners.

Since 1982, Nova has provided engineering consultancy services for 15 projects, including the laying of the second gas trunk line in the Gulf-from Erawan field to Rayong-and more recently for the Thai section of the Yadana gas pipeline.

Kendon said the Thai mission forms part of Nova's drive to establish a foothold in Southeast Asia: "It may take a few years for the Thai economy to recover, and it also takes a few years for these projects to complete."

Foreign pull-outs

The traffic flow of foreign firms in Thailand is not one-way: some companies have decided to invest their money elsewhere.

Esso Exploration & Production Khorat Inc. sold its 100% interest in Block EU-1, in Udon Thani province, and its 80% stake in Block E-5 in Khon Kaen, adjoining Nam Phong field, to Amerada Hess Corp. for an undisclosed sum.

Norwegian state firm Statoil announced in November it will pull out of Thailand, where it has a share in giant Bongkot gas field, through an asset swap.

Erik Syrstad, managing director of Statoil (Thailand) Ltd. said: "The decision has to do with utilizing our capital and personnel in the most efficient way."

Statoil entered Thailand in 1987 by buying a 10% stake in Bongkot, Thailand's single largest gas field, which currently produces 350 MMcfd of gas and is expected to produce 550 MMcfd as of mid-1998.

Syrstad said Statoil's Thai interest could be more valuable to companies that already have, or aim to establish, a significant presence in Thailand. Statoil expects strong interest in a deal.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.