Oil and gas to Thailand

Trends and opportunities

The market

Thailand’s oil and gas sector is well-established, dating back to extensive exploration in the 1970s and commercial discoveries by international companies in the 1980s. Thailand has already conducted 20 petroleum concession bidding rounds, making this sector one of the most advanced, relative to other nations in the region.

Thailand is in the process of diversifying and securing new supplies in the realisation that current usage, forecast demand and current supply challenges are unsustainable, and to an extent leaves Thailand vulnerable.

Current key challenges for the industry include a delayed 21^st domestic gas concession, uncertainty around future operations by existing operators for two major fields, Erawan and Bongkot (which account for 76 per cent of total domestic gas production in the Gulf of Thailand), and decreasing supply and interruptions from Myanmar.

Gas demand in 2016 is expected to increase slightly at 1 per cent up from 2015 with 4.8 billion cubic feet/day to five billion cubic feet/day. This growth is primarily from the industrial sector and is expected to increase on average 2 per cent per year over the next five years.

Plummeting oil and gas prices have made upstream activities quite stagnant. To overcome gas supply challenges and enhance energy security in Thailand, the government and PTT Public Company Limited (PTT) have diverted interest to building gas infrastructure.

Opportunities

Infrastructure is a growth area with key projects including a major east-west gas connection line plus LNG receiving terminals.

Investment in pipelines is gaining momentum given the effect a reduced cost in steel has made to investment expenditures which are now much lower than originally planned. A large scale west - east pipeline and other relevant connected transmission lines projects are currently under Environmental Impact Assessment study ahead of construction.

PTT is in the process of doubling its import terminal at Map Ta Phut to 10 MMtpy by 2017 and is set to increase that capacity to 11.5 million tonne by 2019. PTT also has approval to build a second five million tonne LNG terminal in Rayong province and is exploring the possibility of increasing this to 7.5 mt by 2022.

A number of potential investments in gas fields near Thailand are also being explored by PTT to supply the domestic gas consumption and for future regional LNG trading businesses.

Floating Storage and Regasification Units (FSRU) in the Gulf of Thailand, Myanmar, and southern part of Thailand are also under consideration.

Decommissioning of low performing and nonviable platforms is an emerging area of opportunity for Australian exporters, of which there is little local capacity in Thailand to deliver. For example, Chevron who is the largest upstream operator in Thailand, is expected to commence decommissioning platforms early 2017.

In an attempt to maximise potential benefits of the currently low global LNG prices and to secure gas supply, PTT plans to lock in more long-term LNG purchase agreements and is currently in negotiation with a number of suppliers.

Australian companies who are in LNG supply chains or supply innovative gas pipeline technology, or have expertise in decommissioning (either as consultancy or in establishing a presence in the market) will benefit from the current market direction in Thailand.

Competitive Environment

Oil and gas in Thailand is found at shallow water depth of 30-80 metres. The industry is focused on costs and economy of scale unless there are innovative, proven alternative technologies ready to deploy.

Upstream oil and gas activities are dominated by PTT Exploration and Production (PTTEP), a subsidiary of PTT Public Company Limited (PTT). The PTT Group, whose business areas range from supply procurement, transportation, distribution, gas processing, investment in natural gas vehicle (NGV) service stations, and investments in related businesses through the group’s subsidiaries.

Upstream gas has a well-developed competitive landscape through the bidding for concessions. Chevron and other major international players are participating in market activities. For downstream, Thailand has six major refineries mostly located along the country’s heavy industrial Eastern Seaboard and owned predominantly by PTT Group.

Tariffs, regulations and customs

The natural gas industry is subject to the Energy Industry Act (2007) along with electricity, and oil falls under the sixth and most recent version of the Petroleum Act (2007). Both Acts are administered by the Ministry of Energy.

Thailand operates on a concession system, through which companies are initially awarded a nine year exploration license. If a commercial discovery is made, companies may then apply for production rights, which are awarded for 20 to 30 years.

From a tax perspective, the oil exploration and production (E&P) business in Thailand is governed by the Petroleum Act and the Petroleum Income Tax Act, which includes special rules for E&P companies. The income tax rate for E&P companies varies between 35 and 50 per cent of net profits, depending upon what year the concession was granted. The income tax rate does not include the royalty rate of five to 15 per cent to be paid on gross petroleum production. This rate also varies according to the year the concession was granted.

The import of goods for oil and gas projects in Thailand for E&P businesses are waived by the Thai Petroleum Act. Oil and gas businesses in Thailand are familiar with the import process, however, it is advantageous that products are produced locally rather than imported as this will allow for a shorter lead time for delivery.

As petroleum activities in Thailand are dominated by local, US and European oil and gas companies, Australian suppliers also should certify to European and US standards to build credibility in the market.

Marketing your products and services

Market entry

All companies that work with oil and gas companies in Thailand must be included in their approved vendor lists. The process is transparent but requires preparation in order to get listed.

Thai national oil and gas companies prefer products manufactured locally or with high local content. Australian companies may need to consider joint ventures with Thai partners to manufacture products in Thailand.

For general products and services that are already available in the market, Australian companies must present a strong and unique selling proposition plus competitive advantage to gain market access. Building long-term relationships with customers is critical to success in this market.

The process of getting onto the global supply chain list of vendors may not be the absolute answer for some locally-based Australian engineering and oil and gas companies. Some potential customers prefer to validate the benefit of the technology application prior to encouraging suppliers to enter into the pre-qualification process.

In general, companies in Thailand prefer to deal with shortlisted suppliers they already know and have worked with previously, rather than trying to expand their list of vendors. While this may seem difficult to penetrate it should be noted that lead times are the key element of most companies final purchasing decisions.

Links and Industry Contacts

Board of Investment (BOI) Thailand
Energy Policy and Planning Office (EPPO)
Department of Mineral Fuels, Ministry of Energy (DMF)
Petroleum Institute of Thailand

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