Back to Bangkok Post
Back to index page

Go to top

Go to business news updates
Back to Economic Review index page

 

Thailand's demand for petroleum and refined oil products was curtailed in 2000 as consumers tightened their belts to soften the impact of spiralling crude prices

 

PETROLEUM

Oil price rises hit consumption

BOONSONG KOSITCHOTETHANA

High oil prices have significantly curtailed growth in demand for petroleum in Thailand to just over 1% in 2000. Demand for refined oil products has actually fallen but the drop was curtailed by the demand for cheaper natural gas.

The pattern in demand, based on official statistics, has shown that the country's overall demand for petroleum, including natural gas used in lieu of fuel oil but excluding those used as petrochemical feed stock, grew by only 1.2% in the first nine months of 2000 to record an average of 904,200 barrels per day (b/d).

Consumption of refined oil products slipped 3.6% in the period to 613,400 b/d as most people began to tighten their usage to soften the impact brought about by the crude price hike.

Crude oil prices have been hovering above US$30 a barrel for much of the second half of the year, compared to just $10 a barrel two years ago, and are undermining the countryûs economic recovery.

On the other hand, the country's natural gas consumption jumped 13.3% in the first nine months of this year to reach 290,700 b/d of oil equivalent, largely fuelled by stronger demand for power generation.

Clearly reflecting the publicûs reaction to the high oil prices were consumption of auto fuel - gasoline and diesel - which dipped at the same pace at 3.3% in the Jan-Sept 2000 period to 117,500 b/d and 261,600 b/d.

There was a dramatic rise in domestic demand for liquefied petroleum gas (LPG), leaping 11.9% to 56,800 b/d.

Much of the growth was driven by dramatic additional demand created by taxis which moved to take advantage of a heavy state subsidy rendered to prices of LPG meant for use as cooking fuel. Fuel oil demand also fell markedly by 16.8% to 117,300 b/d as power plants and industries substituted LPG with natural gas.

International airline traffic through Thailand has contributed much to the 5.4% growth in aviation fuel consumption, to 59,500 b/d.

Natural gas usage by domestic power plants rose to 264,700 b/d in the period, representing 91% of total national natural gas consumption, underlining the expanding role of natural gas in the Thai energy sector.

Consumption by state-owned power plants operated by the Electricity Generating Authority of Thailand (Egat) rose 6.4% in the period to 202,900 b/d.

Independent power producers (IPPs) and small power producers (SPPs) boosted their gas consumption by 38% to 61,800 b/d. Gas usage by industries also leapt 22.2% to 26,000 b/d.

The country's oil import volume totalled 696,300 b/d, down 6.7% from the previous period, 29,500 b/d of which were refined products (down 16.2%) and 648,200 b/d of crude (down 8.8%), but oil import bills in the Jan-Sept period soared 62.18% to reach 200.03 billion baht, comprising 191.01 billion baht of crude (up 63.1%) and 9.02 billion baht of refined products (up 44.6%).

Based on that trend, the country's oil import bills for the whole of 2000 are likely to exceed 260 billion baht, energy analysts said.

On a positive note, the country's indigenous petroleum production has been on the rise as new fields, especially in the Gulf of Thailand, are developed and new discoveries made.

Combined domestic hydrocarbon production rose 13.4% in the first nine months of 2000 to 434,200 b/d. Natural gas output grew 7% to 325,800 b/d, indigenous crude production was 55,700 b/d (up 81.8%) and condensate 52,700 b/d (up 10.6%).

Pump price intervention

Although the controversial recent decision to release US strategic oil reserves has pulled oil prices back from their recent highs, energy analysts said prices were likely to continue to be volatile, albeit on the high side.

The consensus amongst industry analysts was that this would be achievable at $22-$26 per barrel.

This is a range that would encourage exploration and production while preserving sustainable economic growth in Thailand.

In the longer term, prices must return to economically sustainable levels, they added. On several occasions, the Petroleum Authority of Thailand (PTT) was ordered by the Chuan government to maintain marketing margins at a low level.

This was in order to keep a lid on local pump prices which otherwise would have responded more actively to the world price hike. Consumers welcomed the minister's ''policy'' of keeping a lid on the market margin which the state oil firm and its dealers are allowed to charge, but oil executives said the move directly forces other players to comply with sometimes meagre margins because of PTT's dominant role in the market.

PTT has been the largest player in the Thai oil industry with a market share of 34%, twice the size of the first runner-up, Esso (Thailand) Plc, which has about 16%.

Executives of major oil companies said the intervention in pump prices through the limitation of marketing margins in Thailand, already among the lowest in the world, coupled with cut-throat competition, are forcing their balance sheets into the red this year.

Meanwhile, oil companies have undergone extensive rationalisation, closing down non-performing service stations and adding very few new ones.

Retreat on LPG subsidy

Fearing the loss of political popularity, the Chuan government in August retracted its decision, made barely one week earlier, to remove subsidies on LPG used as automotive and industrial fuel while continuing to subsidise LPG use for household cooking.

Savit Bhodivihok, the Prime Minister's Office minister in charge of energy, made the retraction.

He said that the energy authorities and the local industry warned that the two-tier price system would lead to serious abuses with industrial and automotive users exploiting the much cheaper subsidised LPG intended for domestic cooking fuel.

His new stance came as taxi companies also strongly protested against the governmentûs decision to stop the subsidy of auto gas. They also threatened to hold a rally in Bangkok to oppose the move.

LPG trading firms forecast rampant siphoning of subsidised gas for household cooking into the industrial and automotive sectors beginning on September 1 2000 when the two-tier price system was supposed to come into effect. On September 1, a kilogramme of LPG used for the automotive and industry sectors increased by about 7.50 baht/kg from the current levels which are in the range of 10.57-10.70 baht/kg.

The increase represents the amount being drawn from the state-managed oil fund to sustain the retail LPG price, but the retail price of LPG used for household cooking will remain unchanged as the government has resolved to maintain the subsidy.

In other words, the cooking gas contained in cylinders, will continue to be retailed at 10.70 baht/kg, while the LPG used for other purposes and that which comes in bulk form will be about 17 baht/kg.

Most LPG traders have expressed grave concerns about the adverse consequences of the directive governing the LPG subsidy which was engineered by the Chuan Administration primarily for political reasons.

Industry analysts argue the huge price gap between the gas that is used for cooking and other purposes will not only result in the illegal transfer of the subsidised gas but also create extensive safety problems from their transfer.

The aborted move to end the LPG subsidy was aimed at curbing the heavy outflow from the Oil Fund to subsidise LPG.

The Thai government owes some two billion baht to the countryûs six oil refineries for selling LPG to the public at about 40% of its actual cost.

The stateûs failure to settle the payment promptly has added to serious financial problems faced by oil refineries which are already beset by high costs, huge debts, and the governmentûs intervention in what they can charge for refining petroleum products.

The government has controlled LPG prices at an artificially low level of about $125 a tonne, although the actual reference price in the world market has soared to $300 a tonne, resulting in oil refineries having to sell LPG to traders at $175 a tonne below cost.

The heavy outflow from the Oil Fund amounted to nearly 1 billion baht a month.

The Oil Fund, whose prime application is to subsidise local LPG prices, is sourced from levies imposed as part of the official pricing structure of oil products, especially petrol.

Back to Economic Review index page
Go to top of this page
Go to business news updates
Back to Bangkok Post front page