OIL Surging oil prices dominated a difficult year for the energy sector

Problems in every energy segment

Boonsong Kositchotethana

The jump in oil prices in 1999 dominated the entire world energy industry. It had a heavy impact on Thailand, which relies on imports for 70% of its petroleum supplies, as well as on other oil-importing countries hit directly by Opec's import restrictions.

The oil price hike created brief political difficulties for the government as the public saw petrol pump prices, in baht terms, double from 1998's level.

The government did act to curb rising oil prices, but on a limited scale, reducing the excise tax on high speed diesel oil by 50 satang a litre but allowing other oil products to move with market forces.

Signalling the economic recovery, Thailand's energy consumption, in the form of petroleum, rose marginally in 1999, after two years of contraction.

Oil imports bills increased slightly, costing over 110 billion baht.

The oil industry was overshadowed by the inferno at the Thaioil refinery complex at Sri Racha in early December.

But the oil industry was overshadowed in 1999 by the inferno at the Thaioil refinery complex, sparked by an explosion which claimed seven lives and was only extinguished after raging for 35 hours.

Another big energy story was Thailand's decision to further postpone the delivery of natural gas from Burma's huge Yadana field, possibly by another eight months from December 1999.

At the same time, the Yadana developing group has agreed to accept US$50 million from the Petroleum Authority of Thailand (PTT) as settlement for the dispute over the payment of Burmese natural gas the Thai state oil firm had earlier declined to pay.

On a more positive note, the US$1.5 billion Malay-Thai gas development venture finally reached agreement stage and when completed will include a cross-country pipeline network and a world-class natural gas separation plant.

The surge in world LPG prices, tracking the path of oil, has resulted in the deferment or lifting of retail price controls on LPG from October this year to April, 2000.

By mid-year, Royal Dutch/Shell group and Exxon Corp, separately but concertedly, dropped their 40 year-old LPG businesses in Thailand and sold their interests to two Bangkok-based LPG trading companies.

But on the other hand, Bangkok-based Union International Trading Co (UIT) moved to obtain a full-scale LPG trading licence.

On the upstream side of the petroleum industry, three indigenous offshore hydrocarbons fields -- Pailin, Trat and Benchamas -- were put on stream, adding more output.

Onshore, Thai Shell Exploration raised oil production from its northern Thailand field to nearly 25,000 barrels a day.

New work to expand the Bongkot gas field's production has also commenced with a US$200 million development scheme.

World oil price soars

Opec's adoption in March, 1999 of oil export limits in a bid to lift prices from a 22-year low, has succeeded, argue analysts.

The crude oil prices have more than doubled this year. They climbed to their highest level since the Gulf War - US$27 to $29 a barrel.

Opec officials have made it clear there is no prospect the cartel will vote for an early easing of the export limit.

Opec secretary-general, Rilwanu Lukman, said it was ''quite obvious'' restrictions would remain in place.

But international oil traders suggest that the prospect of a severe winter price hike is imminent as Opec exporters prepare to turn up the screws on stringent supply restrictions and stronger seasonal demand.

In Thailand, the rising world oil prices have rocked the Chuan Leekpai Administration as coalition member Chart Pattana called for a reduction in excise tax to keep a lid on domestic oil prices. Chart Pattana's call was heeded after weeks of debate.

To ease political pressure, the cabinet on October 5, agreed to cut the excise tax on diesel oil by 50 satang per litre, from 2.305 baht a litre.

The tax reduction took effect on October 6 and will last until January 5, 2000.

The cut will cost the state about two billion baht in revenue.

For several weeks during September, Industry Minister Suwat Liptapallop instructed the Petroleum Authority of Thailand (PTT) to maintain the marketing margin at a low level.

PTT has been the largest player in the Thai oil industry with a market share of 34%, twice the size of its closest rival - Esso (Thailand) Plc -- which has a 17% share.

Oil demand grows

Thailand's energy consumption in the form of petroleum increased 2.8% in the first three quarters of 1999 to an average of 895,560 barrels per day.

The figures were compiled by the Petroleum Authority of Thailand (PTT) but exclude those used by the petrochemical industries.

However, the consumption patterns for finished oil products and indigenous natural gas were in sharp contrast in the nine-month period.

While demand for refined oil products dropped 0.2% from the same period of the previous year to 658,040 barrels a day, the usage of natural gas in lieu of fuel oil jumped 12.2% to 237,520 barrels a day, spurred by stronger demand in the power generation and industrial sectors.

The first nine months of this year saw Thailand increase its procurement of petroleum, both from imports and indigenous sources, by 7% to 1.121 million barrels a day.

Total oil imports grew 2.4% to 745,150 barrels a day.

Yadana delays

Already delayed by 17 months, commercial delivery of natural gas from Burma's huge Yadana field to Thailand is facing further postponement, possibly by another eight months.

This came about as the Electricity Generating Authority of Thailand (Egat), the main Yadana gas user, has asked the Petroleum Authority of Thailand (PTT), the gas distributor, to put off sending gas to its Ratchaburi power house until August, 2000. The state power utility suggested to the national oil firm that it would rather wait until all the six gas turbine generators, each of 200 megawatt, are installed before starting to take delivery of the Burmese gas.

Senior Egat officials argued it was not economical to use Yadana gas to run one or two gas turbines as that would result in higher generating costs.

Thailand, or more specifically PTT, had failed to take delivery of Yadana gas from the consortium, led by Total-Fina, on the contractual date of July 1998 because of the delay in the construction of the Ratchaburi power plant.

Egat recently announced that the first gas turbine at Ratchaburi would begin a trial run on September 29 and normal operations, based on Yadana gas, would commence in December, 1999.

The subsequent five gas turbines are due to come on line starting in January and August next year.

By August, Egat will be able to use up to 360 million cubic feet per day of Burmese gas, though it is still short of the 525 million cubic feet per day level PTT was committed to receive from the Total-Fina led consortium.

JDA scheme takes off

The US$1.5 billion Malay-Thai gas development venture that includes a cross-country pipeline network and a world-class natural gas separation plant appeared set to get off the ground.

The momentum was set after the parties concerned clinched a landmark accord on October 30 in a grand ceremony chaired by the prime ministers of Thailand and Malaysia.

The entire initial natural gas to be produced from the once disputed Malay-Thai continental shelves will go to Peninsula Malaysia as Thailand has deferred taking its share of gas supplies due to limited domestic demand.

The two state energy firms of Thailand and Malaysia have struck the agreement that essentially enables the development of gas fields in the A-18 block, which would otherwise be stalled by Thailand's delay in taking the gas, to proceed as planned.

According to the Petroleum Authority of Thailand (PTT), Petronas will take up all the gas supplies from block A-18, initially set at 390 million cubic feet per day, during the first five years of production that is scheduled to begin in mid-2002.

That accord was established under the ''balancing agreement'', one of the four contracts involving the launch of the Malay-Thai Joint Development Area (JDA) gas scheme.

PTT officials said Thailand's natural gas demand in the next five years would be absorbed by supplies from indigenous gas fields in the Gulf of Thailand and Burma - especially the Yadana and Yetagun fields.

The agreement allows PTT to take up its share of A-18 gas, purchased from the Malaysia-Thailand Joint Authority and its production contractors consisting of Triton Energy, Atlantic Richfield and Petronas Carigali at a later stage.

Under the gas agreement signed with the A-18 developers, PTT and Petronas will jointly purchase the gas.

PTT expects to begin receiving the A-18 gas in the year 2005 by delivering the fuel to the Thai southern region through a new transmission line or having the gas piped to connect with its Erawan offshore gas grid in the Gulf of Thailand for consumption in the upper part of the country.

However, natural demand in the lower part of the Thai southern region is likely to be limited, expected to be only 90 million cubic feet per day in the next ten years.

Therefore, it boosts the likelihood of PTT laying a pipeline from A-18 to Erawan field to connect with the offshore /onshore gas grid, a senior PTT planner pointed out.

The 18 co-venturers are expected to invest some US$700 million developing gas fields lying in the waters.

One of the first tasks involved is the implementation of the first phase of the Trans-Thailand-Malaysia (TTM) pipeline, 34 inches in diameter, to run 352 km from block A-18 to the northern Malaysian province of Kedah via the Thai southern town of Songkhla. It is slated for completion in late 2001.

The other key element of the grand project is the installation of a separation plant in Songkhla capable of processing 425 million cubic feet per day of JDA gas into LPG.

A second unit of similar capacity will be added after the first unit comes on stream in mid 2002. The second unit is planned to be operational in 2006.

PTT pays up for Yadana

The Yadana developing group has agreed to accept US$50 million from the Petroleum Authority of Thailand (PTT) as settlement for the disputes over the payment of the Burmese natural gas the Thai state oil firm earlier declined to pay.

The payment is $12 million lower than the $62 million PTT was due to pay the consortium led by Total of France under the ''take-or-pay'' contract.

The contract called for the Thai state oil firm to pay, by March this year, for the gas which it has not been able to take because of the delay in the construction of a major power plant in the kingdom.

The amount represents the cost of 65 million cubic feet per day of natural gas supply during the first contract year which started July 1, 1998 to March 1999.

PTT had claimed force majeure for not paying.

Under the basic agreement reached recently in Paris, the Yadana consortium agreed to lower the gas price from the current price of around $3/MM BTU for a period of 15 months from July 1, 1998.

In the earlier rounds of negotiation, PTT had insisted on paying only for the amount of gas it actually receives through the offshore/onshore cross-country pipeline.

PTT failed to take delivery of the Yadana gas since July 1, 1998 because of the delay in the construction of Electricity Generating Authority of Thailand's Ratchaburi combined cycle plant.

PTT was contractually bound to receive 325 million cubic feet per day of Yadana gas in the second contract year that began in March this year before rising to the plateau rate of 550 million cubic feet per day in subsequent years.

Price surge hits LPG

The surge in world LPG prices, tracking the path of oil, has prompted Thai energy planners to defer the lifting of the retail price control on LPG from October this year to April, 2000.

According to Metta Banturngsuk, deputy secretary-general of the National Energy Policy Office, decontrol of the retail LPG price would result in Thai consumers paying over 50% more in free market conditions, an unpopular move with extensive political implications.

The retail price is being subsidised to the tune of 7 baht/kg through a government-managed Oil Fund so that the retail price, for example, in Bangkok, remains at 12 baht/kg.

The amount of the subsidy is widening on the back of soaring world LPG prices, stronger winter demand and growing oil prices.

The world LPG price was at close to US$300/tonne in the third quarter against $250/tonne in the normal high demand season period, Metta said.

LPG prices are expected to climb further between now and April due to strong winter demand and then could level off in the second quarter -- considered a more appropriate time for floating the retail price in Thailand.

But the subsidy resulting from higher world LPG prices is accelerating the depletion of the Oil Fund -- a cause of grave concern to Thai energy planners.

On guard at Thaioil

The current estimate is that the outstanding balance of four billion baht in the Oil Fund will be used up by the end of this year.

To keep a lid on local retail LPG price, Thai authorities have not allowed traders to increase the marketing margin, at 2.6566 baht/kg, already among the world's lowest.

Meanwhile, authorities agreed to delay enforcement of tougher regulations on local LPG production and trade until April next year in line with the postponement of retail price deregulation.

Shell/Esso retreat

Mid-year saw Royal Dutch/Shell group and Exxon Corp, separately but concertedly, drop their LPG businesses in Thailand and sell their interests to two Bangkok-based LPG trading companies.

Shell Co of Thailand, the local fuel marketing arm of Shell, has agreed to transfer its entire LPG marketing and distribution businesses to World Gas, a Thai-Dutch owned LPG trading firm.

At the same time, Esso Thailand Plc signed an accord to sell its LPG cylinder business - the retailing of LPG and all of its 400,000 cylinders circulated locally - to Unique Gas and Petrochemicals Plc at an undisclosed price.

Unique are a Thai firm active in LPG and chemical trading in Thailand and neighbouring countries.

However, Esso Thailand will continue to sell LPG in bulk quantities to commercial and industrial users in Thailand. As well, Esso will also retain its LPG bottling facilities and terminals.

The decision by Shell and Esso to sell, practically wiped out the presence of foreign players in the expanding Thai retail LPG market.

Caltex Oil (Thailand), part of the US-based Caltex Petroleum Corp, pulled out from the Thai LPG market in February 1996.

Up and up ... pump prices have risen to near 14 baht

The entire Thai LPG market will now be dominated by five local companies which are keen to boost their market share as the Thai government has deregulated the industry, having first lifted retail price controls on April 1 this year.

World Gas, owned by SHV of the Netherlands with a 49% stake, is one of the world's largest independent LPG marketing and distributing firms.

Shell's production of LPG at Thaioil and Rayong Refinery Co refineries on the Thai eastern seaboard and the Phalang Phet LPG separation plant in northern Kamphaeng Phet province are not included in the accord.

After the integration, World Gas will, in terms of market share, move up from No 5 in the Thai LPG market to second place with combined sales exceeding 30,000 tonnes a year.

Total LPG sales in Thailand last year were 1.8 million tonnes, two thirds of which were used as cooking fuel, according to the National Energy Policy Office.

While Shell and Exxon departed the Thai LPG market, Thai officials have granted a full-scale trading licence to Bangkok-based Union International Trading Co (UIT), a move that will further change the face of the Thai LPG trade.

Granting of the permit marks full market entry by UIT which previously engaged in production and distribution of small-size ''Picnicæ'' LPG cylinders for camping and other leisure uses.

The permit was issued after the company was able to boost its LPG sales volume to over 100,000 tonnes per year, a major criteria for licensing.

New gas fields

In August and September, Unocal Thailand commenced natural gas production from two new fields -- its 12th and 13th in the Gulf of Thailand.

Pailin, believed to be Thailand's largest and most complex single gas development, started production on August 19 as part of a $375 million programme.

About one month later, the US energy firm put on line a smaller Trat field.

Pailin is producing about 165 million cubic feet of gas per day. A second phase, which would add another 165 cubic feet, is scheduled to come on-stream in mid-2002.

With the addition of Pailin and Trat, gross natural gas production from the Unocal-operated fields in the Gulf of Thailand have reached an average of slightly more than one billion cubic feet per day and 33,000 barrels a day of condensate.

The company estimates gross recoverable gas in the Pailin field at about two trillion cubic feet.

Gas from the Pailin field is sold to the Petroleum Authority of Thailand (PTT) under a 30-year gas sales agreement signed in 1996.

Discovered in 1990, the Pailin field lies 160 km of Nakhon Si Thammarat province on the southern coast.

The field is located in Concession Block B12/27, which encompasses an area of 3,118 square kilometres.

Trat, is producing about 70 million cubic feet of natural gas per day and 2,100 barrels a day of condensate from five wells including Trat A-07, the firm's first horizontal well in the Gulf.

Unocal plans to install three additional well platforms in the central Trat production area, where gross recoverable gas resources are estimated at about 240 billion cubic feet.

Trat is situated in block 11, northeast of Erawan, the country's first producing gas field and operated by Unocal Thailand.

Unocal Thailand holds a 71% working interest and is the operator of the Trat field. Co-venturers in the Trat project are Mitsui Oil Exploration Co Ltd (23.75%) and PTT Exploration and Production Plc of Thailand (5%).

Production from the Unocal-operated fields in the Gulf of Thailand account for about 60% of Thailand's indigenous natural gas production.

Chevron has doubled oil production from its oil fields in the Gulf of Thailand to reach a level of 30,000 barrels a day towards the end of this year.

The increase results from new production from the Benchamas field which was put on stream in the third quarter this year, augmenting production from its predecessor - the Tantawan field.

Jay Pryor, managing director of Chevron Thailand, said Benchamas is contributing about 75% of targeted oil production with 25% of production coming from Tantawan.

The two fields lie in block B8/32 where Chevron has estimated there are proven and possible reserves of 1 trillion cubic feet of gas and more than 350 million barrels of oil.

Natural gas production from B8/32 has grown to 140 million cubic feet per day. The increased gas production is also due to the new Benchamas output.

The gas and oil from the block, located about 125 miles offshore, is sold to the Petroleum Authority of Thailand (PTT).

Chevron holds a 51.66% interest in the Thai concession with co-venturers Thaipo having 46.34% and Bangkok-based Palang Sophon (2%).

• More Bongkot development

The Bongkot consortium has begun to invest nearly $200 million in a new development scheme that will help sustain a high production level at Thailand's largest gas field.

At the centre of the so-called Bongkot phase 3B, designed to arrest the natural decline from older gas wells, is the installation of two additional well-head platforms and drilling of up to 40 development wells, according to industry sources.

The new phase is geared towards sustaining natural gas production from the field, some 600 km south of Bangkok in the Gulf of Thailand, at its plateau rate of 550 million cubic feet per day.

This is the quantity which the consortium is obliged to deliver to the Petroleum Authority of the Thailand (PTT), until the year 2007-8.

The three Bongkot partners are PTT Exploration & Production Plc of Thailand (holding a 44.5% interest), France's Total (33.3%) and British Gas (22.2%).

According to the plan, the first of the two additional platforms, code-named WP11, would be ready for drilling in April 2001 and the second one, WP12, two months later.

The two platforms, with new generation technology, will be linked with the existing Bongkot central offshore facility.

Phase 3B will add some $1.3 billion which the Bongkot consortium has invested in the gas project.

With proven gas reserves of 4 trillion cubic feet, Bongkot is producing 635 million cubic feet per day of gas, representing 35% of Thailand's total indigenous natural gas production.

 

 

 

 

 

 

 

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