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Reasons for Thailand to smile?

Thailand's energy sector is struggling to cope with rising demand and maturing fields. Investors are not flocking to help

A military coup in Thailand in May 2014 was hardly unusual for the country. It has been ruled by military governments 12 times since the end of absolute monarchy rule in 1932, but still managed growth at an average annual rate of 7.5% during the boom years of 1960 to 1996.

Growth at that level has, however, yet to reappear under the latest military junta. Still, some are optimistic. The World Bank predicts that Thailand's GDP will grow 3.2% this year, up from 2.5% in 2016.

The rulers have announced a raft of measures designed to stimulate growth, part of a 20-year strategic plan outlined in March this year. The plan also promised general elections in 2018, though a vote has been promised repeatedly since the coup, along with other civil rights which have not yet materialised.

Also in March, the government announced it will auction petroleum concessions for the Erawan and Bongkot gasfields in December, along with an amendment to petroleum laws, the effect of which will be to give companies more exploration and production options.

They have a combined output of 2.2bn cubic feet per day, or 76% of production in the Gulf of Thailand. At present, companies must have a concession to operate in a Thai field. When Bongkot and Erawan come up for auction, they will be able to have production-sharing agreements or service contracts instead.

Yet uncertainty lingers over the details of the new law and the auctions themselves, especially how much profit private firms will be able to take out of the fields if they invest.

"It is very clear to me that the current uncertainty is impeding investment," says Jack Kneeland of AWR Lloyd, a consultancy. "There is a lot of pressure from non-governmental organisations to nationalise assets." He also points out that bidding rounds have been cancelled numerous times before.

2.2% - Growth in oil production in 2016

The country is the third largest oil and gas producer in Southeast Asia—after Indonesia and Malaysia—but an increase in energy demand alongside falling production has increased the need for imports, particularly of gas. Gas production peaked in 2014 at 41.6bn cubic metres, and fell to 39.3bn cm in 2015 before dropping further to 38.6bn cm last year. State-run PTT has said repeatedly that Thailand will increase its imports of liquefied natural gas—necessary in part thanks to reduced pipeline supply from Myanmar. But Trevor Sikorski, head of natural gas at Energy Aspects, a consultancy, says the strategy has yet to bear fruit. "The Thais have made a lot of noise about increasing LNG imports. Most people are bullish, but you have to take it with a pinch of salt," he says.

In 2015, Thailand imported 2.5m tonnes of LNG, and another 2.9m tonnes last year. So far this year, says Sikorski, the increase has again been marginal, probably adding another 300,000 to the full-year total.

The bulk is Qatari gas (2.6m tonnes last year). Researcher Geena Chatterji of Wood Mackenzie, a consultancy, says alongside two existing contracts PTT has with Qatargas and BP, plans to secure long-term LNG from Shell and Petronas are in advanced stages.

"Thailand does appear to be on track to meet LNG forecasts," says Kneeland. "The lights will stay on—but prices may go up." PTT aims to complete the expansion of the existing Map Ta Phut terminal in the second half of this year, doubling existing regasification capacity. A land-based terminal at Nong Fab with capacity for 7.5m tonnes a year is scheduled for commissioning in 2022. Kneeland says this could have a knock-on effect on the economy as Thailand's previously heavily regulated power sector did not pass the cost of gas onto the consumer, but LNG bought on the open market—as opposed to gas produced by the state-run company PTT—will pass any price fluctuations on to the consumer. "Consumers have traditionally been very price sensitive," he said.

Meanwhile, oil production in Thailand, at 479,000 barrels a day last year, was at least higher, rising 2.2% on the previous year—an outcome of government pressure on developers to make up for falling prices with higher output. But the longer-term picture is less promising, says Wood Mackenzie analyst Adrian Pooh. "It is a mature petroleum province with more than 93% of total reserves discovered already on stream or under development," he says.

Surging demand

Gas makes up 75% of total remaining reserves, but these have halved since 2005 as depletion has not been offset by new discoveries.

In the backdrop is steadily rising demand. Thailand's oil needs are forecast to grow from 1.38m barrels a day in 2016 to 1.47m b/d in 2022, with the bulk of the increase coming from LPG, gasoline and diesel/gasoil, predicts Wood Mackenzie.

Part of that growth is down to a rise in the number of gasoline-fuelled vehicles in the past few years. But car sales have weakened in the past 24 months due to sluggish consumer spending and a vehicle-excise tax introduced in early 2016.

"We expect gradual recovery of vehicle sales in the mid-term, but demand growth will be partially offset by improvements in vehicle fuel efficiency," says Serena Huang, a researcher at Wood Mackenzie.

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