Year 2010

 July

PTT seeks to pool on LNG purchases
Joint order provides bargaining power

By Busrin Treerapongpichit and Nareerat Wiriyapong

As Thailand prepares to begin importing liquefied natural gas, the national energy flagship PTT is attempting to secure good deals in a volatile global energy market.

PTT has talked with Tokyo Gas, a leading Japanese LNG importer, about co-purchasing gas supplies from LNG producers and traders. Tokyo Gas imports more than 17 million tonnes of LNG yearly.

"We are very small compared to other players in the world. Next year, we will import only 1 million tonnes of LNG. So [to increase our bargaining power] we asked Tokyo Gas about placing joint orders," said Prasert Bunsumpun, president and CEO of PTT.

Mr Prasert said master purchasing contracts would be preferred, as the two countries have peak demand at different times. "During winter Tokyo consumes more power, and during the summer our air-conditioning demand peaks."

A formal joint venture seems unlikely because both sides would not gain from such a move, he added.

Thailand's first LNG terminal in Map Ta Phut starts operation in 2011.

"Because there is a surplus of LNG on the market, prices dipped to US$7 per BTU (British Thermal Unit) from a peak of over $10, and it makes more sense to do a long-term buying contract for 2014, by which time the price will have picked up again," said Mr Prasert.

Tokyo Gas operates three LNG terminals in Japan with a total capacity of 17.13 million tonnes, including the world's largest, the 10.38-million-tonne Sodegaura terminal, to accommodate its 10.26 million customers in Tokyo.

Sodegaura receives gas from various countries and has three berths, 20 storage areas and creates 1,000 megawatts of electricity through its venture with Tokyo Electric Power Co, along with two MW of wind power.

Thailand's LNG terminal at Map Ta Phut will have 5 million tonnes of capacity in its first phase and another 5 million in the second phase. But its initial operation will only be at 1 million.

Mr Prasert said LNG was not really viable commercially but its use would be inevitable in order to secure Thailand's power supply.

Discussing the impact of prolonged subsidies, he said that in the long run, the distortion of market forces would discourage investors while domestic demand would keep growing, making Thailand's energy market more insecure.

PTT is the sole natural gas seller and producer, and subsidies fix the price of natural gas for vehicles (NGV) at 8.50 baht, lower than its production cost. It is required by the government to import liquefied petroleum gas (LPG), which costs around $600 a tonne on the global market, but subsidies fix the price in Thailand at $330.

Mr Prasert estimated LPG demand would grow by 10% or 400,000 tonnes a year from this year's 1.2 million tonnes, encouraged by the continuing subsidy.

"If the subsidy continues, Thailand will need a new gas separation plant every two years," he added.

The cabinet decided on Tuesday to extend subsidies on LPG and NGV for another six months from their scheduled end in August.

PTT shoulders 12-15 billion baht a year for LPG imports, with the amount later paid by the Oil Fund, though the company is still owed 6-7 billion baht at present.

In Thailand, the LPG price will never reflect the actual cost, said Mr Prasert. Despite the huge burden, Mr Prasert said the group in 2010 will report higher revenue than last year due to improving upstream petroleum operations while refinery and petrochemical businesses have performed well.

PTT is looking at the possibility of issuing 20 billion baht in bonds in the second half of this year to refinance existing debts and raise fund for new investments, he added.

By Bangkok Post

July 2, 2010

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