A Bridge Made of Coal?

Analysts | Shankar Krishnan, Jac Parsons and Patrick Rutty

Key Points

Thailand’s economy depends on natural gas. Historically, most natural gas demand has been met with domestic production, with 15%-20% coming from pipeline imports from Myanmar and the balance from LNG imports. Declining domestic production, faltering regional imports and intense competition for LNG have left Thailand facing a gas crisis that will require unacceptably expensive investments in long-term LNG contracts. Coal must move to center stage as the only economically viable “bridge fuel” and renewables must be further prioritized.

Domestic production, though declining for the last decade, still provided 3.3 Bcf/d (heavily subsidized), or 75% of Thailand’s gas demand in 2020, with the prolific Erawan group fields accounting for 40% of this production. CVX’s contentious and long-delayed relinquishment of those fields to PTTEP, the national oil company, resulted in an ill-timed 69% drop, from a 2020 average of 1.2 Bcf/d down to 376 MMcf/d as of the handover in April. PTTEP’s stated aim to double production from this nadir to 800 MMcf/d seems a stretch to us, likely more politics than practical.

Pipeline imports, mainly from three fields in Myanmar, will only go down, especially considering mounting sanctions against the country and withdrawals at Yadana field by operator TTE and partners and at Yetagun field by Petronas and partners. (Seeing a trend yet?)

Source | Enverus

The supermajors, facing antiquated concession terms, looming decommissioning liabilities and wary of increasing Chinese influence in the region, have universally shunned Thailand for the last three years – taking no new blocks, making no acquisitions and relinquishing numerous assets. None of the remaining players are planning exploration wells, and we have our doubts about how easy it will be for PTTEP to increase production.

Source | Enverus
Source | Enverus

How then will the energy shortfall be met? The obvious answer will be hard on the wallet: LNG. Thai imports of the fuel, which averaged 744 MMcf/d in 2020, could approach 1 Bcf/d in 2022. But the price of Asian LNG this year is already four times what it was in 2021, causing Thailand’s March LNG costs to skyrocket to $1 billion, eight times what it spent in March 2021. Given a state budget of $100 billion and foreign currency reserves of $229 billion in April (down 5.4% from a month earlier), sustaining this level of energy expenditure would be, ironically, enervating.

Source | Enverus
Source | Enverus

Relief seems far away unless Thailand places a bigger bet on coal — starting with an indefinite extension to the one-year delay of the Mae Moh coal-fired power plant retirement — and doubles down on its commitment to renewables.

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