Thailand sending mixed signals on status of Omani LNG deal

There are fresh signs that Thailand may scrap its tentative agreement to purchase liquefied natural gas supplies from Oman, despite recent indications to the contrary.

Concerns over price apparently mirror those that led Thailand to drop negotiations with Qatar over an LNG supply deal with that nation earlier this year.

The prospect of a better price lured Thailand to break off talks with Qatar and sign an initial agreement with Oman in March as negotiations continued (see related story, p. 34).

However, the executive committee of state petroleum firm Petroleum Authority of Thailand (PTT) last month reportedly recommended PTT scrap the Oman deal, questioning the delivered price when compared with that expected for gas supplies soon to become available from Myanmar and Indonesia.

The Thai attorney general is reviewing legal aspects of the deal, which was originally expected to be finalized in April.

Breakthrough?

When Thailand signed the interim agreement with Oman covering LNG supplies, it was viewed as a breakthrough in negotiations.

It called for supply of 2.2 million metric tons/year of LNG to help meet the kingdom's rapidly growing gas demand in the next century.

The 25-year agreement was signed by PTT and Oman LNG, a group led by Royal Dutch/Shell Group. PTT's board approved commercial terms of the deal shortly after PTT Chairman Sivavong Changkasiri signed the initial accord in Muscat last June.

The Omani LNG accord came as PTT decided to halt negotiations with Qatar for the LNG supplies because the Qatari price was "10-20%" higher than what PTT agreed to pay for the Omani LNG-about $3/MMBTU cif at the Rayong receiving point on the Thai eastem seaboard.

That followed PTT's earlier cancellation of talks with Malaysia for LNG supplies whose prices were "as expensive" as the Qatar LNG.

Omani advantage?

Sources in Thailand said Oman is able to offer an attractive price to PTT largely because it wanted to secure a second buyer for the second train of its LNG production, in addition to the first supply deal struck earlier with South Korea.

Furthermore, the construction cost of Oman LNG's liquefaction plant fell below expectations, as contractors' bids became especially competitive.

The deal calls for Oman LNG to start delivering 1 million tons/year of LNG to PTT in the year 2001, rising to 1.7 million tons/year in 2003 and 2.2 million tons/year in 2004. That is in line with the memorandum of understanding PTT and Oman LNG signed in mid-1996.

Other supply prospects

At least for the near future, PTT will restrict its imported LNG procurement plan to the volume agreed upon with Oman LNG, as the Thai state enterprise wants to see how its negotiations are progressing for the purchase of natural gas from Indonesia's huge Natuna gas fields and gas fields in Malaysia-Thailand's Joint Development Area (JDA) in the South China Sea.

PTT is negotiating a 30-year accord to buy an initial 1 bcfd of Natuna gas, starting in 2002-03. The gas will be transported via pipeline to Thailand.

Talks are also under way for PTT to purchase an initial 300 MMcfd of gas from JDA gas fields, beginning with Cakerawala field in 1999.

Facilities

As a result, Thailand will limit the size of its LNG receiving facilities in Mab Ta Phud industrial estate, Rayong, about 220 km southeast of Bangkok, to just accommodate the Omani LNG delivery.

That would reduce the estimated initial capital investment for the Rayong terminal to about $600-700 million from $1 billion calculated earlier based on the larger capacity originally planned-as much as 5 million tons/year.

Thai LNG Power Co. (TLPC), a PTT-led group charged with building the Rayong LNG receiving terminal, expects to announce bidding for construction of the facilities next year, and the contract award is expected to occur in 1999. Construction time is about 3.5 years.

TLPC recently issued a letter of intent for a contractor to reclaim an area on Mab Ta Phud coast as the site of the LNG terminal.

Meanwhile, TLPC is exploring the viability of setting up a gas separation plant as part of its LNG terminal to extract gaseous components from the Omani LNG gas stream for various applications, including petrochemical feedstocks.