Thai-Malay supply agreement to spur gas infrastructure development in region

May 25, 1998
A jack up drills the Senja 2 appraisal well, the first of two planned this year on Block A-18 in the Joint Development Authority area of the Gulf of Thailand by Triton Energy Ltd. and Petronas Carigali. Photo courtesy of Triton.(14,682 bytes) JDA Development Project ( 121,941 bytes) The recent, historic conclusion of the Thailand-Malaysia natural gas supply accord has flashed a green light for one of Asia's largest natural gas projects.
Artist's rendering depicts the Cakerawala field development in the Joint Development Authority area owned by Malaysia and Thailand. Shown are three wellhead platforms, an accommodation platform, a gas production and processing complex, and a floating storage and offloading vessel. Gas will be shipped via pipeline, and condensate will be stored in the FSO and offloaded to shuttle tankers.
The recent, historic conclusion of the Thailand-Malaysia natural gas supply accord has flashed a green light for one of Asia's largest natural gas projects.

It also sets the stage for major expansions of Thailand's and Malaysia's domestic gas grids, expanding market opportunities for future natural gas import deals and regional field developments.

The supply agreement, signed late last month, calls for the delivery of natural gas to Thailand and Malaysia from the Joint Development Area (JDA) owned by both countries in the Gulf of Thailand.

It would entail an initial investment of $2.42 billion for several gas field developments, a two-country gas transmission pipline system, and a world-scale gas processing complex. One of the partners in the project recently described the project as the starting point for what could become a $20 billion oil and gas development campaign in the JDA area (OGJ, Apr. 27, 1998, p. 28).

Economic boon

The prime ministers of Thailand and Malaysia, who witnessed the signing of a heads of agreement for the sale of gas from the JDA, quickly hailed the accord as a catalyst to turn around their crisis-hit economies.

Thailand Prime Minister Chuan Leekpai said it could restore stability and economic prosperity, while Malaysian counterpart Mahathir Mohamad said the development would "revitalize" both countries.

The heads of agreement establishes essential terms for the gas sale contracts, which are expected to be finalized over the next few months by the buyers and sellers.

The buyers are the Petroleum Authority of Thailand (PTT) and Petroliam Nasional Bhd. (Petronas) of Malaysia. The sellers are the Malaysia-Thailand Joint Authority (MTJA), a statutory body vested with the right to exploit petroleum resources in the Malaysia-Thailand JDA, and its production-sharing contractors, Triton Energy Ltd., Dallas, and state-owned petroleum companies PTT Exploration & Production plc (Pttep) of Thailand and Petronas Carigali of Malaysia.

JDA development

The JDA gas will come from three tracts (A-18, B-17, and C-19) covering 7,250 sq km on the formerly disputed Thai-Malay continental shelves, where gas reserves of 10 tcf were confirmed.

Specifically, it involves 390 MMcfd of gas from Cakerawala gas field (Block A-18) for a 20-year period starting in first quarter 2001 and 250 MMcfd from Muda and Jengka fields on Blocks B-17 and C-19 for a guaranteed delivery period of 16 years commencing in third quarter 2002.

At the signing ceremony held in the southern Thai province of Songkhla, Thai and Malaysian officials said that development of the first three gas fields could easily cost MTJA's production contractors a total of $1.6 billion. That will be in addition to capital outlays for exploring the tracts, which have so far totaled about $300 million.

Plans call for installation of three wellhead platforms, an accommodation platform, a processing platform, gas production facilities, a riser compression platform, a floating storage and offloading vessel, and 35 development wells. The block's condensate production will be sold separately, and plans to develop oil reserves on the block will be determined later.

Pipeline, gas plant

PTT and Petronas will jointly invest, on a 50-50 basis, $825 million for the 400-km Trans-Thailand-Malaysia (TTM) gas pipeline and a two-unit gas processing complex.

The two-phase TTM project is expected to account for $565 million of that total investment.

The first phase involves an offshore pipeline, 50 km and 20 in., from A-18 to B-17. The second phase calls for: a 255-km, 30-in. offshore line that extends west from A-18 to Thailand's coast at Songkhla; an 86-km, 30-in. onshore line from Songkhla to the Thai-Malay border at Sadao; and a 9-km inland spur to the northern Malaysian state of Perlis.

The proposed gas processing complex, near the pipeline landfall at Songkhla, is expected to cost $260 million. It will comprise two units, each with natural gas processing capacity of 375-425 MMcfd.

Construction of the first train of the gas processing plant is scheduled to be completed in 2001 and the second sometime in 2004-05. Its main output will be LPG, which would be distributed in the five southernmost pro- vinces of Thailand and the northern part of peninsular Malaysia.

Gas customers

Chuan and Mahathir said the JDA project and related infrastructure would support extensive economic development under the Indonesia-Malaysia-Thailand Growth Triangle cooperation agreement.

A host of downstream industries based on JDA gas could be developed by several parties in the five southernmost provinces of Thailand, said Savit Bhotiwihok, minister of the Thai Prime Minister's Office.

Most of the first JDA gas supplies to be developed is expected to go to Malaysia due to the small gas demand in southern Thailand, according to PTT Gov. Pala Sookawesh. The key JDA gas consumer in Malaysia will be a large combined-cycle power plant at Perlis.

However, the gas volume that PTT and Petronas will take from JDA will be shared equally, with any imbalance over a specified period to be offset at a later stage between the two parties.

A senior MTJA official said it is only the agreement of Petronas to absorb the majority of JDA gas in the initial stage that allowed the JDA gas supply accord to be approved.

Gas sales, prices

Triton, a production-sharing contractor for Block A-18, disclosed that gas deliveries under the first phase of A-18 development are expected to generate about $5.5 billion in gross revenues.

The company said the base wellhead price of JDA gas is $2.30/ MMBTU. The actual sales price, which will be calculated and payable in U.S. dollars, will be adjusted annually by a formula that includes U.S. dollar-denominated inflation and fuel oil price indices. This price, if calculated today, would work out to $2.56/MMBTU.

The sellers have granted the buyers a 5% price discount after the delivery of 500 bcf, which should take place during the fourth year of production. The price discount will be increased to 10% after a cumulative delivery of 1.3 tcf. The discounts are intended to give the buyers incentives to boost their purchases, Triton added.

The heads of agreement includes a take-or-pay provision that specifies the buyers must take a minimum of 90% of the daily contract quantity, and the sellers must be able to deliver a maximum of 110% of the daily contract quantity.

Triton and its partner Petronas Carigali have begun field development work on Block A-18 with the award of a conceptual design and engineering study that is expected to be completed by mid-1998.

Latest drilling success

In another JDA news development, the latest attempt to delineate the extent of Tapi gas field has proven successful.

The Tapi-2 well, which was spudded on Feb. 6 and drilled to 2,715 m TD, encountered several gas-bearing sands with a total net pay of 62 m. It flowed 5.4 MMcfd of gas on a drill stem test conducted over an interval at 2,111-2,573 m.

Tapi-2 is about 6.5 km south-southeast of the Tapi-1 discovery well, or about 245 km east of Songkhla and 149 km northeast of Kota Bharu, Malaysia.

The well was drilled to appraise Tapi, one of the five gas structures discovered so far on Block B-17, which is operated by Carigali-Pttep Operating Co. (CPOC).

CPOC is a consortium of Pttep and Petronas Carigali. CPOC operates under a production-sharing contract with MTJA.

Tapi-2 represents the 11th gas discovery well drilled and tested on B-17. That follows the Muda-5 discovery well on B-17.

CPOC said the drilling rig Marine 500 is moving to drill another appraisal well, Jengka West-1, to test the Jengka prospect on B-17.

CPOC postulates the B-17 block could contain a potential recoverable resource of 1.218 tcf of natural gas, or 182.7 million boe.

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