The controversial Yadana pipeline transporting natural gas from fields off Myanmar to Thailand faces still more controversy despite a successful midsummer start-up.
The pipeline started gas deliveries on July 30 (OGJ, Aug. 3, 1998, Newsletter), but Thai state petroleum conglomerate Petroleum Authority of Thailand (PTT) is able to take only 5 MMcfd vs. the 65 MMcfd initial rate stipulated in the contract with a group led by France's Total.
The minimal volume being delivered stems from the failure of Thai state utility Electricity Generating Authority of Thailand (EGAT) to complete the installation of gas turbines at the Ratchaburi, Thailand, power plant that will be the sole consumer of Yadana gas in the initial stage.
After several months of study, PTT has decided to ask the Total group to ease terms on the purchase of Myanmar natural gas, now that it is apparent that the state firm cannot take gas at the contractual supply rate.
PTT will essentially seek to declare force majeure on its failure to take the gas at the agreed rate, establishing its negotiating strategy for avoiding heavy contractual penalties. PTT Gas Pres. Piti Yimprasert said his firm will soon seek Thai Cabinet approval to implement this strategy.
The prospect of heavy take-or-pay cash payments to an already controversial project-the subject of international protests largely propelled by opposition to Myanmar's ruling military junta-has spawned a fresh round of protests in Thailand, a country already reeling from economic crises.
Delays
While the pipeline started up only a month behind schedule-largely the result of delays caused by activists opposing the project ostensibly on environmental and human rights grounds-deliveries to PTT remain limited because of downstream delays.First Yadana flow was enabled with the completed installation of a small 25-MW gas turbine, which EGAT has moved from northern Kamphaeng Phet province and installed at Ratchaburi power plant as a temporary gas burner.
EGAT earlier slowed down Ratchaburi power plant construction in anticipation that the Thai section of the Yadana gas line-the 42-in. 260-km onshore pipeline stretching from the Thai western border town of Thong Pha Phum in Kanchanaburi district to the Ratchaburi power plant-would be delayed by the activist groups that protested the pipelaying across forests in Kanchanaburi.
Yadana gas flow is expected to stay at this 5-10 MMcfd rate until November or December, before increasing after the commissioning of the first two 200-MW gas turbines destined for the Ratchaburi power plant.
Take or pay contract
Under the 30-year contract entered into with the Yadana consortium, PTT was committed to gradually raise its offtake of gas from Yadana gas field in the Gulf of Martaban off Myanmar to a plateau level of 525 MMcfd, 15 months after production start-up on July 1.Because of the take-or-pay nature of the contract, PTT is subject to paying $81.57 million to the Yadana consortium if it fails to take the Myanmese natural gas supply at the specified initial volumes of 65-325 MMcfd within 5 months of the contractual start-up date of gas purchases.
PTT's negotiation strategy is twofold:
- First, PTT would ask to be allowed to "deposit" the shortfall volume of gas for future offtake. PTT would, at that time, then pay only for the shortfall volume at the agreed tariff plus 1% premium above Libor (London inter-bank offered rate). As part of this strategy, PTT will seek to amend the payment period term from a monthly basis to yearend.
- Second, PTT would agree to take Yadana gas at the full contractual volume on the condition that Unocal Corp. and Total agree to reduce their sales to PTT of natural gas produced from their Thai fields in the Gulf of Thailand.
Total has a 30% share in Bongkot gas field in the Gulf of Thailand, while Unocal operates a number of gas fields in the Gulf of Thailand.
Piti said the second negotiation strategy could have a better chance of convincing the Yadana group, because both Unocal and Total also have their own Thai gas production interests to care for and trade off.
"We hope that both Total and Unocal would understand the difficulties we are facing due to the economic turmoil," Piti said.
PTT is already considering cutting the volume of gas supplies from the Gulf of Thailand due to the slowdown in the kingdom's energy demand stemming from its economic recession. But it has not yet decided on the cutback volume. PTT is taking slightly over 1 bcfd of gas from Gulf of Thailand gas fields.
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