[NGW Magazine] Thailand Boosts LNG Buying

In good news for LNG producers battling an unprecedented supply glut, Thailand is planning to increase its LNG procurement by as much as seven times over the next few decades.

The acting director for LNG imports at Thailand’s energy ministry Porrasak Ngamsompark, said in late October that the country’s imports of LNG would rise seven-fold over the next few decades. He projected that Thailand’s LNG imports from long-term contracts could increase to 35mn mt/yr by 2036 from 5.2 mn mt/yr, while also doubling the annual regasification capacity to 20mn mt/yr from the current 10mn mt/yr in the next 10 years.

He said around 70% of this new supply will be delivered under long-term contract, while the balance will be spot market purchases. “In the near future, we will (target) Thailand to be the LNG hub for the Association of Southeast Asian Nations (Asean), which means we will need infrastructure,” he added.

Ngamsompark’s remarks come as Thailand grapples with a sustained drop in natural gas production amid depleting reserves at its 22 Gulf of Thailand gas fields. Until recently, Thailand derived as much as 70% of its gas supply from the Gulf of Thailand. The country also supplements these resources with piped gas from Myanmar, although it is competing for China and Myanmar itself for that gas. 

Platong II Project in Gulf of Thailand (Source: Chevron)

Thailand’s marketed natural gas production rose substantially for several years, but peaked in 2014 at close to 1.5 trillion ft³ (4.1bn ft³/d). It has now declined over the past two years, reaching less than 1.4 trillion ft³ in 2016, Thai government data shows. The CEO of state-owned energy firm PTT, Tevin Vongvanich, said last year that the country is in its last stages of gas production as its domestic resources decline. 

As of December 2016, Thailand held 7.3 trillion ft³ of proved natural gas reserves, according to the US Energy Information Administration’s most recent analysis of the country’s energy sector.

Adding to Thailand’s energy quandary, its gas supply from Myanmar is now less secure as that country uses more of its own gas reserves for domestic consumption amid economic growth. 

Seeking gas

To offset domestic gas production declines, Thailand has been busy looking for new long-term LNG supply deals, including a potential deal with Mozambique’s Rovuma Area 1 offshore project, Ngamsompark said. A deal with the Rovuma project and its proposed Mozambique LNG export terminal, operated by US-based Anadarko Petroleum Corp., would be a good fit for both Thailand and Mozambique. 

In Mozambique, Anadarko and its partners in the Golfinho/Atum offshore discovery reached agreement on the LNG project’s first long-term sale and purchase agreement, for 2.6mn mt/year, with PTT. The SPA has been approved by PTT’s board of directors and is awaiting Thai government approval.

Since global LNG markets will be oversupplied until around 2020-2021, possibly stretching to the middle of the next decade, Mozambique’s LNG projects could have problems securing long-term off take agreements. A long-term supply deal with PTT, which already holds an 8.5% stake in the proposed Mozambique LNG project, could help the project secure the all-important final investment decision that a project needs to move forward. 

For its part, Thailand should be able to lock in favourable contractual terms for new supply deals with Mozambique and other producers given the ongoing LNG supply glut and the trend to make contracts more flexible for buyers.

PTT is due to receive at least 4mn metric tons/yr of LNG from 2017 onwards from existing long-term contracts. UK major BP is delivering 1mn mt/yr from 2017, as part of a 20-year supply contract signed last December. Malaysian state owned energy giant Petronas will deliver the same amount in 2017 and 2018; and 1.2mn mt/yr from 2019 onwards under a 15-year contract. 

In August 2015, Thailand’s National Energy Policy Committee gave PTT approval for the purchase of 1mn mt/yr from Shell Eastern Trading over 15-20 years, but the contract has no’t been signed yet. 

PTT is receiving 2mn mt/yr of LNG from Qatargas as part of a 20-year contract. Last year, 31 out of 32 of Thailand’s LNG cargoes were imported from Qatargas.

The extra capacity will also involve some floating storage and regasification units. An energy markets analyst at the Asia Pacific Energy Research Centre in Tokyo, Ruengsak Thitiratsakul, says that the country will need at least another three LNG regasification terminals of 5mn mt/year each during the period of 2015-2036, in addition to the Map Ta Phut expansion. 

An FSRU would be part of the solution in the mid-term and part of a growing trend worldwide to use quick-to-install FSRUs instead of larger capital-intensive land based projects.

 Infrastructure needed 

Before Thailand can become a gas hub or even fully offset its natural gas production declines, it – like many other southeast Asian nations such as Indonesia, the Philippines and even Vietnam – needs infrastructure to import gas and transport it to its power sector, which accounts for around 70% of Thailand’s gas demand.

Thailand, southeast Asia’s largest economy after Indonesia, has just one LNG import facility which is at Map Ta Phut in Rayong Province. Operational since 2011, PTT recently doubled the terminal’s capacity from 5mn mt/yr to 10mn mt/yr and will add another 1.5mn mt/yr by 2019, for a total of 11.5mn mt/yr at the facility.

PTT has also plans to build a second terminal that can process 5mn mt/yr to 7.5mn mt/yr of LNG. Vongvanich said earlier this year that the second terminal, already approved by the government, should be operational by 2023.

PTT has also bought more spot LNG, taking advantage of low spot prices for the past two years. In 2016, it purchased more than 900,000 mt outside its contractual obligations. The company is also considering setting up a floating storage and regasification unit (FSRU) in Myanmar and a third LNG onshore terminal. 

However, going forward, at least in the short-term, PTT will face pressure for its spot buying as LNG spot prices continue to trend higher amid increased demand for the fuel from China, where LNG is routinely trucked from the terminal to the consumer, bypassing the regasification process until almost the very point of consumption.

Reuters reported on November 3 that China is pushing up global spot LNG prices above oil-linked LNG cargoes as the country’s energy providers scramble to avoid a looming winter gas supply crunch as millions of additional households move from coal to gas for heating.

Spot LNG prices in Asia have increased more than than two-thirds since May to just over $9/mn Btu, and are now above oil-linked prices of around $8/mn Btu. 

Meanwhile, spot LNG prices in Asia have exceeded Brent oil price parity on a $/mn Btu basis, which could cause some industrial users to turn to oil for cost savings.

Tim Daiss