BROADER GAS NETWORK KEY TO FAST GROWING THAILAND'S AMBITIOUS ENERGY STRATEGY

Thailand plans an ambitious array of upstream and downstream petroleum projects to help meet its soaring energy demand.

The Southeast Asian nation is one of the fastest growing in a region that is outpacing the rest of the world in economic growth and especially in demand for oil and gas.

That expected demand growth has spurred a comprehensive Thai program of developing oil and gas, accelerating gas use, and building supply ties to neighboring nations with substantial gas potential.

The cornerstone of Thailand's energy policy will be increased use of domestic and imported natural gas.

That includes several options for expanding Thailand's national gas grid and creating a transnational gas grid linking it with Southeast Asian neighbors.

At the same time, Thailand is trying to beef up its downstream infrastructure in terms of capacity and sophistication.

The government also is trying to ease the nation into a market economy by phasing in deregulation of petroleum prices in the first half of this decade. In addition, it is taking steps to reduce the environmental effects of hydrocarbon fuels use.

With this aggressive push on all petroleum fronts, Thailand continues to take steps to attract more foreign investment and participation by multinational companies across the breadth of its petroleum industry.

ECONOMIC GROWTH

Thailand's economy is expected to grow 9%/year in the first half of the 1990s.

Even that sizzling pace is down from the country's double digit economic growth of much of the 1980s.

The country's energy demand is expected to continue to soar, according to government projections for the seventh national economic and social development plan covering 1992-1996.

Energy demand growth will slow from recent double digit levels. However, demand growth will still remain impressive throughout the 1990s.

Those projections were made about the time Iraq invaded Kuwait and sparked the continuing Persian Gulf crisis.

Although the estimates may be revised as a result of higher oil prices, the country's overall development strategy is likely to proceed as planned.

If anything, higher world oil prices may give the development plan a greater sense of urgency.

H.E. Korn Dabbaransi, minister to the office of the Thai prime minister, outlined the plan at the Asia-Pacific Petroleum Conference in Singapore last month.

Korn estimated Thai economic growth at 12.3% in 1989 and 10% in 1990.

Total Thai energy consumption increased by 17.7% in 1989 and is expected to rise by about 16% this year, he said.

He further expects Thai energy demand to grow 10%/year in the first half of the 1990s and 7%/year in the rest of the decade.

Oil currently has about 66% of the Thai energy mix, natural gas about 18%. More than 60% of Thai energy supply is imported, mostly in the form of oil.

Total Thai energy consumption will be almost 1 million b/d of oil equivalent in 1995, rising to 1.4 million b/d by 2000.

Petroleum will account for two thirds of that.

DEREGULATION

Korn said the Thai government plans to deregulate oil prices in phases possibly within the first half of the decade.

"Oil prices will be determined only by market forces," he said.

The first steps in the process have been taken. As of last August, domestic oil prices are being set by senior civil servants using a new formula to partially deregulate oil prices, adjusting prices "in line with world market movement."

Trade barriers also will be relaxed or lifted, allowing international marketers increased access. Foreign investors will play an increasingly important role in Thai oil and gas development because of eased contract terms under amendments to the Petroleum Act and Petroleum Income Act.

Most domestic petroleum operations in Thailand are under the auspices of state owned Petroleum Authority of Thailand (PTT). Last July the Ministry of Industry invited oil companies to apply for concession rights in 104 exploration blocks.

The invitation will close at the end of this month.

CUTTING OIL IMPORTS

Because much of Thailand's hydrocarbon potential is gas prone, natural gas will be a key to reducing Thai dependence on imported oil in the years ahead.

Thailand produces about 600 MMcfd of gas but only 25,000 b/d of oil.

Korn expects gas flow to reach 1.1 bcfd by the end of the 1990s as new fields are developed (OGJ, Apr. 2, p. 22).

Tongchat Hongladaromp, former PTT governor and now senior PTT adviser, projects Thai demand for natural gas to climb 9.1%/year, reaching 350,000 b/d of oil equivalent by 2000. That level is about triple current gas production.

Much of the increased gas demand will be met with imports from Malaysia, Indonesia, or Myanmar.

PTT has not set a priority as to which of the three countries it would buy gas supplies from first, Tongchat said. That depends on terms and conditions of supply arrangements.

With limited indigenous energy resources and rising energy demand, Thailand will continue to rely heavily on imported petroleum the next few decades, Tongchat said.

And with depleting oil supplies in the Far East, notably from Malaysia and Indonesia, Thailand will have to rely even more on crude and product supplies from the Middle East.

Further, Tongchat said, the time is not right to introduce nuclear energy into Thailand, given environmental concerns over nuclear plant safety, but in the longer term Thailand cannot ignore nuclear power.

GAS GRID EXPANSIONS

An ambitious expansion of gas gathering and distribution networks in and outside the country is the key to efforts to increase Thai gas use.

Thailand is studying plans to develop an extensive transnational gas grid linking its expanding national network with three neighboring countries to boost imports of gas.

A study by PTT, which also holds the domestic gas distribution monopoly, envisages a massive investment in laying natural gas pipelines from Malaysia, Indonesia, and Myanmar.

The three countries are seen as the most likely sources of gas supply capable of responding to Thailand's fast growing gas demand.

Thailand's gas productive capacity, currently 620 MMcfd, is likely to continue to lag far behind expected growth in gas demand, especially from power generation and industrial sectors.

Tongchat suggests the entire regional grid could be developed during the next 3 decades in stages, likely to start with importing gas from Malaysia via pipeline.

PTT and Malaysia's national oil firm Petronas recently agreed to begin a joint study on a transnational grid.

The first Thai-Malaysian line would run from Kota Baharu, Malaysia, north via Songkhla to Khanom on the southern Thai peninsula. The peninsular trunkline would tie into systems bringing Gulf of Thailand gas ashore either at Songkhla or Khanom. A 161 km subsea line planned from Erawan field in the gulf to landfall at Khanom is scheduled for completion in 1994, along with a 170 km subsea line from the B structure field to Erawan.

Another Thai-Malay gas grid option would involve a line from Bekok area fields off Terengganu, off eastern peninsular Malaysia to the joint development area (JDA) in the South China Sea claimed by Thailand and Malaysia.

The Thai-Malaysian offshore network would be completed by another line from JDA to the B structure, partly owned by PTT's exploration arm PTT Exploration & Production (Pttep).

Yet another option is a route from the B structure to Songkhla, a center for economic development on the southern peninsula.

In addition, Thailand is considering two other possible transnational pipelines in the 1990s.

One line would run 500 km from gas fields in Myanmar's Martaban Bay southeast to the western Thai province of Kanchanaburi and possibly to Bangkok.

The next 2 decades could also see installation of a subsea line from Indonesia's giant Arun gas field in northern Sumatra across the Strait of Malacca to the southwestern Thai province of Krabi. From Krabi it would extend farther across the Thai southern peninsula to Khanom.

PTT also plans to lay another trunkline to ship gas from the south to the Thai central plains in the 1990s (OGJ, July 30, p. 30).

There are two optional routes to the central plains being studied by Fluor Daniel and PTT.

The first route would parallel the existing 425 km subsea Erawan-Mab Ta Phud line coming ashore on the Thai eastern seaboard. The other calls for a an onshore line from Khanom north to Bangkok, assuming offshore gas is landed at Khanom.

Tongchat, also president of Pttep, said determining the priority for these various pipeline projects will hinge on purchase agreement terms PTT can get from producers.

THAI-MALAY LINK

The Thai-Malay study covering a mutual gas pipeline link resulted from an agreement between PTT and Petronas in Kuala Lumpur last month.

The onshore line would run about 200 km from Khanom in Nakhon Si Thamar Province south to the Thai-Malay border via Songkhla Province's Sabayoi district, where a large, gas fired power plant is planned.

At the border, this line could tie into the Malaysian peninsular trunk system planned along both coasts of the Malaysian peninsula under the third stage of Petronas' Peninsular Gas Utilization (PGU) project. One of the possible connecting points is at Kota Baharu at the northeast tip of peninsular Malaysia.

With this approach, the offshore part of the Thai-Malay gas system would extend about 100 km from the JDA northwest to the B structure field

According to PTT Deputy Gov. Pala Sookawesh, the proposed onshore Thai-Malay line would transport gas from Malaysia's fields off Terengganu to fuel the 900,000 kw, gas fired, combined cycle power plant at Sabayoi and other industries in the Songhkla region. Preliminary estimate of regional demand is as much as 150 MMcfd. Offshore Terengganu area gas reserves are pegged at 27.1 tcf.

The offshore portion of the Thai-Malay grid also is intended to bring gas developed by both countries in the JDA to Thailand. Preliminary estimate of JDA reserves is 3.6 tcf, but Pala said the area's delivery capacity has yet to be established.

The Thai-Malay gas grid would go on stream the next 6-7 years, when Thai gas demand is expected to exceed 1.5 bcfd, or about 500 MMcfd more than domestic productive capacity is forecast for that time.

The feasibility study is expected to begin within the next 2 months and be complete in about 1 year. Thereafter, the joint development partnership would hire a contractor to conduct an engineering design study of the project.

Cost of the two pipelines likely will be absorbed separately by PTT and Petronas, according to where the lines are laid.

In addition, the feasibility hinges on successful conclusion of a gas price/sales agreement between PTT and Petronas. Formal negotiations have not begun, although officials from both sides have begun exploratory talks on the matter.

JOINT DEVELOPMENT

Legislation drafted last spring (OGJ, Apr. 30, p. 42) allowing the start of joint development of hydrocarbons in the Thai-Malay disputed territorial claims is now in effect.

Bills ratified by Malaysian and Thai parliaments in May and July, respectively, were signed by the countries' heads of state last month.

The action caps an 11 year effort to resolve the disputed territorial claims and subsequent exploitation rights.

The 7,300 sq km JDA area is thought to contain potential gas resources estimated at at least 7.5 tcf, or about equal to half Thailand's proved reserves, said Visith Noiphan, director general of the Thai Department of Mineral Resources.

One of the bills calls for establishment of a two nation joint authority (JA) responsible for administering development of hydrocarbons to be shared equally by the two countries.

Meanwhile, Visith said terms governing benefits sharing, royalties, and tax structure also have been completed and will be included in a production sharing contract (PSC).

JA will grant the PSC to Triton Energy Corp. and PTT-both of which had owned disputed Thai concessions in the JDA-and to Petronas Carigali, the exploration arm of Petronas.

An official said Triton hopes to start formal negotiations with Petronas Carigali later this year about who will serve as operator of the PSC.

JDA LNG?

Another prospect for JDA development involves an ambitious liquefied natural gas export project.

Thai LNG International (TLI), a Thai-Japanese joint venture, is eyeing the JDA as a potential source of gas supply that will help its $9 billion LNG export project in Thailand get off the ground.

Estimated gas reserves in the JDA are more than enough to meet the LNG project's requirement of 3 tcf to produce as much as 3 million metric tons/year of LNG for export.

Currently, all Thai gas is designated strictly for domestic use, particularly for power generation, petrochemical feedstocks, and industrial boiler fuel.

Korn Tapparangsee, minister of petroleum affairs to the prime minister, said Thai natural gas production potential vs. projected demand probably rules out the prospect of exporting Thai gas.

He estimated Thai gas demand at 1.7 bcfd and domestic productive capacity at 1.1 bcfd by 1995.

Based on that projection, there would be no gas supply left for the LNG project, originally scheduled to start up in the mid-1990s with raw gas input of 450-600 MMcfd.

PTT contends priority will be given to supplying indigenous natural gas to the domestic market.

However, PTT will not rule out the possibility of setting aside excess volumes of gas for the LNG project in the event of additional gas discoveries in the country, especially in the Gulf of Thailand, said a senior PTT official.

TLI still must tackle a number of crucial questions to establish the project's economic viability. A recent TLI study reaffirmed an earlier view that spending on the project could be justified only if oil prices stabilized at about $30/bbl or more.

TLI also noted improving market opportunities for Thai LNG, notably in Japan and South Korea. It estimated Japan's LNG demand may increase to 50 million metric tons/year by 2000 from about 10 million tons/year at present.

Upon completion of a detailed feasibility study of the project next year, TLI will be in a better position to decide the project's fate.

TLI is owned 60% by Thai LNG, a government sponsored Thai public/private firm, and 40% by Nippon Thailand, a joint venture of Mitsui and Mitsubishi 35% each and Sumitomo and Marubeni 15% each.

MYANMAR VENTURE?

Thailand is seeking a joint venture to develop potential gas resources in the Gulf of Martaban off Myanmar as another source of Thai gas supply.

Pttep's Tongchat recently discussed the proposal in Yangon with Myanmar officials about the possibility of jointly developing Martaban prospective resources estimated at 6.6 tcf.

The Pttep chief said his company may join foreign operators currently seeking concessions off Myanmar or Myanmar's state oil agency to implement the project.

Pttep estimates the Martaban basin could provide as much as 500 MMcfd of gas to Thailand via a 500 km pipeline to be laid from the Gulf of Martaban to the western Thai province of Kanchanaburi.

Tongchat said Martaban gas would be used mainly for power generation in Thailand. To accommodate this plan, the Electricity Generating Authority of Thailand (EGAT) would have to install a gas fired power plant in Kanchanaburi.

While terms of the proposed joint development have yet to be worked out with Myanmar's government, Pttep hopes to have the Martaban gas come on stream in 1995.

It would become Pttep's second petroleum venture in Myanmar. Earlier this year, the company acquired a 10% interest in Block F, a 6,200 sq km, high oil potential tract operated by Unocal in Central Myanmar (OGJ, Oct. 15, p. 38).

PIPELINE GREEN LIGHT

PTT's board recently gave a green light to the $360 million, 331 km offshore system to bring more Gulf of Thailand gas to landfall on the southern peninsula.

The project entails first laying a 32 in., 170 km line from the B structure gas field, under development by a Pttep led group, to Unocal's Erawan gas field.

A second, 27 in. line will extend west from Erawan field to landfall at Khanom, Nakhon Si Thammarat Province, where two 300,000 kw, gas fired, combined cycle plants are planned.

PTT said the 700 MMcfd design capacity B structure-Erawan line is to be ready by yearend 1993 to coincide with production start-up of B structure field at an initial rate of 150 MMcfd.

Completion of the Erawan-Khanom pipeline is expected about mid-1994, timed to coincide with start-up of the first stage of EGAT's power plants, which are expected to take 100-150 MMcfd.

Depending on B structure productivity, construction of the two lines will boost Gulf of Thailand gas deliverability to as much as 1 bcfd from the current 620 MMcfd.

Much of the gas will fuel eastern seaboard power generation, petrochemical production, and industrial process needs.

But the Thai government also has ensured some of the increased offshore volumes will support an ambitious industrial development on the southern peninsula. The so-called Southern Seaboard Development (SSD) will involve an international transhipping center, oil refinery and marine terminal, and an industrial/trade center in 2000 and later.

In addition, PTT said it plans to build the country's fourth gas processing plant at Khanom.

PTT and Fluor Daniel are studying the layout and optimum size of the plant, likely to process 150-200 MMcfd of gas. The study will be complete soon, with construction expected to be complete by about 1994, a PTT official said.

EGAT SEEKS MALAY GAS

Meantime, EGAT has agreed to purchase gas from Malaysia to fuel a major power plant it plans to build in southern Thailand.

EGAT Gen. Manager Paopat Javanalikikorn said natural gas from peninsular Malaysia offers strong potential as an alternative source of fuel for the planned Sabayoi plant if attempts to secure other fuel sources fail.

The 900,000 kw power plant originally was intended to burn Thai lignite mined in Songkhla Province's Sabayoi district, where preliminary exploration showed substantial lignite reserves.

But opposition from environmentalists prompted EGAT to turn to other sources of fuel, particularly gas, to meet the scheduled 1998 start-up.

EGAT also is considering the possibility of getting more gas from the Gulf of Thailand, but it sees that option as doubtful because of projections of domestic gas productive capacity lagging demand in the 1990s.

Paopat said he discussed the possible purchase of Malaysian gas with Malaysian power authorities, who responded positively.

EGAT said the Malaysian gas may be more attractively priced than Thai gas under PTT's gas pricing scheme. A senior EGAT official said Petronas now sells gas to Singapore at $2/MMBTU, compared with the $2.80/MMBTU PTT charges EGAT.

The EGAT official said start-up schedule of the Sabayoi plant might move up a few years if there is a surge in electrical power demand in the south, particularly as a result of the SSD push.

Copyright 1990 Oil & Gas Journal. All Rights Reserved.