Economic Mid-Year 2001

Surge in gas demand
while oil use drops

Boonsong Kositchotethana

PETROLEUM

The main driver of
the rise in Thailand's petroleum consumption in the first six months was stronger demand for natural gas used in power generation while usage of refined oil products plunged

The stagnation of the Thai economy, persistently high world oil prices and the weakened baht limited the country's energy consumption in the form of petroleum in the first half of this year. The trend is expected to prevail for the second half as several fundamental factors are not anticipated to change dramatically.

The scenario became apparent in the first quarter when petroleum consumption rose year-on-year by a mere 1.3% to 918,000 barrels per day (b/d) of oil equivalent (see chart).

Projections are that oil prices will remain in the current range of between US$25 and $28 a barrel until 2003 when they would begin increasing, according to a study by the US Energy Information Administration.

World oil prices last year rebounded strongly, reaching a daily peak of $37 a barrel, rates not seen since the Persian Gulf War of 1990-91. The main cause was tightening of production by the Organisation of Petroleum Exporting Countries(Opec) and several key non-Opec countries including Russia, Mexico, Oman and Norway.

Petroleum market analysts believe Opec members will act to ensure stability of international oil markets and that should keep prices hovering within Opec's target range of $22-$28 for this year.

The main driver of the rise in Thailand's petroleum consumption was stronger demand for natural gas used in power generation while usage of refined oil products plunged.

Natural gas consumption jumped 18.7% in the period to 329,10(t b/d of oil equivalent. Natural gas usage peaked at 2,843 million cubic feet per day on April 23, the highest since the first gas utilisation in 1981.

The rise was also spurred by moves to expedite natural gas procurement from neighbouring Burma, which had fallen significantly below contractual rates. Gas imported from Burma, mostly from the Yadana field in the Gulf of Martaban, averaged 82,200 b/d in the first quarter.

Official figures showed that 91% of all natural gas consumed in the first quarter was for power generation.

Gas also represented 35% of all form of petroleum used.

Consumption of gas by powe plants of the Electricity Generatin Authority of Thailand (Egat), th country's largest producer, rose 8.59 to 84,700 b/d. Independent and small power producers boosted their gas usage by 58% to 84,700 b/d. Gas demand for industries rose 15.9% to 28,100 b/d.

Indigenous petroleum productior mostly natural gas, represented 369 of all petroleum supplies procured in the first quarter. Locally-produce Note: excluding products used in the petrochemical sector petroleum fell 2.8% year-on-year to 418,600 b/d, partly due to the substitution of natural gas supplies from Burma.

Indigenous natural gas production, mostly from the Gulf of Thailand, fell 5% to 307,000 b/d with condensate, produced in association with natural gas, down 7.4% to 50,500 b/d. However, indigenous crude oil output rose 15.1% to 61,100 b/d.

Total petroleum volume procured in the first quarter averaged 1,162,300 b/d, up 7.9%. Imports of crude and finished products rose 15% to 743,700 b/d.

The cost of imports rose by 24.15% to 72,599 million baht.

Fuelling the higher bills were imported crude and Burmese gas, while costs of imported refined oil products fell sharply. Payments for imported crude oil rose 22% to 64,585 million baht while the value of imported refined products slipped to just 769 million baht from 4,903 million a year earlier. At the same time, the cost of Burmese gas-soared to 7,245 million baht from just 466 million in first quarter last year.

PRICE INTERVENTION
Intervention in domestic oil prices by the state-run Petroleum Authority of Thailand (P) in the second quarter has once again been the subject of criticism by oil firms that have been struggling with low marketing margins, high operating costs and intense competition.

The state oil finn responded reluctantly to pressure by the government, which was reacting to growing anger about soaring pump prices inflated by a weakened baht and strong world oil prices.

Governments have traditionally used the PTT as a tool to keep the lid on prices. However, critics of the practice have attacked such intervention in the market, which is supposed to have been deregulated for almost a decade.

Private oil firms have no choice but to follow price trends set by the PTT because the state oil firm accounts for almost one-third of domestic oil sales and owns the most service stations.

Oil firms regard a marketing margin of between one and 1.20 baht per litre as the optimum for petrol, though actual margins have rarely reached those levels.

Oil executives said the PTT might not be able to defy market forces for long as the govemment directive was costing the PTT two million baht per day in lost profit.

LPG PRICE RISE

The Thaksin Shinawatra government made an unpopular decision to raise the controlled retail price of liquefied petroleum gas (LPG) by 8.45% on May 5 in a move to gradually end the heavy subsidy and to allow the domestic price to reflect real costs.

Most LPG is used for cooking and prices have always been politically sensitive.

The increase, by 0.91 baht per kilogramme to 11.61 baht, was a response to the 14.4 billion baht in debts owed by the state oil fund to LPG suppliers. The fund, which collects levies on fuel sales, has an outstanding balance of only 2.4 billion baht.

But the margin of the price rise is far from bridging the gap between real and subsidised costs. Before May 5, the subsidy accounted for bout 60% of the real cost, or about 6.50 baht/kg, according to officials. Officials estimated that the May 5 increase would save the oil fund 150 million baht a month.

The government had earlier announced its intention to increase the domestic LPG price by 10% in each quarter this year to reflect real market costs. But intentions and actions are two different things.

PIPELINE SUPPORT
In other energy developments, Prime Minister Thaksin told his Malaysian counterpart, Mahathir Mohamad, that Thailand was still committed to the Thai-Malaysia gas pipeline project and vowed to push ahead with it.

April 24, Mr Thaksin said he would try to resolve the stalled project within three months.

Malaysia wants work to start as soon as possible since costs are accumulating daily, with most of them borne by Petronas, Malaysia's state-owned energy firm.

Petronas said it has begun looking at altematives to the pipeline, which is is facing delays because of environmental concerns by villagers in Songkhla.

On the regulatory front, the cabinet agreed to reinstate Piyasvasti Amranand as the head of the National Energy Policy Office (Nepo).

Mr Piyasvasti's return to his former post stemmed from Mr Thaksin's desire to fill the vacuum in implementing key energy policy directives.

Piromsakdi Laparojkit, who succeeded Mr Piyasvasti in October last year, was heavily criticised for not performing to the standard of his predecessor.

BONGKOT MOVES AHEAD
Responding aggressively to arrest a significant production decline, the Bongkot consortium was set to to start the next development stage of Thailand's largest gas field in the second half of this year.

Initially estimated to cost $40-50 million in capital outlay, "phase 3C" will be instrumental to the ThaiEuropean group's attempt to sustain natural gas output from Bongkot, 600 km south of Bangkok, at 635 million cubic feet per day, plus 15,000-16,000 b/d of condensate. With more than 30% of the most likely reserves (3.7 trillion cubic feet) already produced and about 10% of remaining reserves being drained out each year, the field's gas production potential is falling at the rate of one million cubic feet per day.