Thailand And Rising LNG Imports: Stuck In Fossil Fuels Or Making Way To Energy Transition? – Analysis

Commenting the recent spike in the Israel-Palestine conflict, IEA Executive Director Fatih Birol stated that “Put these two things [Israel-Palestine and Russia-Ukraine conflicts] together, and no one can convince me that oil and gas are safe and secure energy choices for countries or consumers.” And indeed, as the situation on the global energy markets is becoming more complicated, governments of the world are seriously pondering the necessity of transitioning to cleaner – and more stable – energy alternatives. The move is concerning Southeast Asia as well, but Thaïland’s approach is quite peculiar: LNG imports in the country are rising and its investments in the LNG infrastructure are climbing up. Does it mean that the nation is stuck in the fossil fuels trap, or it’s just a part of a greater plan?  

Thailand’s energy industry is quite specific to Asia. While most of its neighbours continue to rely on coal as their main fuel, the state sources half of its energy mix from gas-fired power plants. This puts the nation a step forward on the path of transition to the clean energy, but also creates a bunch of problems.  

Being a net LNG importer, Thailand is utterly dependent on natural gas prices. It is no surprise, therefore, that the financial storm in international markets after Russia’s withdrawal has become a real threat to the local energy deliveries. Enter complicated deliveries from Myanmar, the state’s largest LNG supplier, and recent market turbulences due to the Israel-Palestine conflict, and Thailand finds itself drifting into an energy deadlock.   

The country’s government and its residents have already felt effects of the crisis during the 2023 summer heatwave. While temperatures were soaring above 40C in many Thai regions, the local energy consumption skyrocketed. So did the financial burden on local businesses and citizens, and the state had to cut electricity prices “to ease people’s plight“. Further state interventions, however, are hardly feasible: any subsidies are formally charged from the treasury, but factually become a burden for taxpayers. 

With global warming on the rise and no sign of a resolution to the energy crisis, the issue is becoming more acute. Thailand’s economic development depends on tourism earnings and export production. Moreover, the state is now keen to attract investments for mid/high-tech manufacturing, which, of course will be impossible if it fails to provide industries with stable and affordable energy. 

Now, Thailand is working hard to find a solution. To mitigate the situation, the government is introducing populist measures, like the tariff cuts, and is trying to ramp up the domestic production. The latter, however, is more a patch than a cure: Thailand’s domestic deposits are nearly depleted, and its natural gas reserves are expected to decline sharply by 2030 if no new fields are found. 

As for the natural gas available now, its extraction is complicated by the ongoing dispute over the Erawan field, the largest gas field in Thailand. Another important factor is the lack of technical capacity on the part of PTT Exploration and Production (PTT), Thailand’s national petroleum exploration and production company: Erawan’s deposits are located in small pockets, which means drilling of hundreds of wells annually to just maintain output. 

In this situation, the most appropriate alternative would be renewables: the clean sources that replenish by themselves. The Thai government seems to think just this way: the new state Power Development Plan calls for the environmentally friendly energy to make up 50% of the country’s power balance by 2036. Paradoxically, targeting this transition does not remove the problem, but brings Thailand back to the need to ensure a stable gas supply. 

Deploying renewable energy infrastructure requires an immense financial and time investment – and the organisation of a natural-gas based intermediate stage for the transition period. Unfortunately, it cannot be avoided, as even the most ardent green activists say: “The reality is that we can’t convert all fossil fuel users to renewables immediately,” says Dean Cooper, World Wildlife Fund’s Global Energy Lead.  

Analysts are predicting decades of natural gas being an integral part of the energy transition, and Thailand’s focus on developing the LNG industry seems quite reasonable. Trying hard to avoid the “coal trap”, the country is liberalising its natural gas market, and is actively cooperating with international suppliers and developers. These efforts have already brought fruits: the nation even saw higher imports from the US in 2022, at a time when most American cargoes had been diverted to Europe. In the same year, Thailand signed an agreement with Japan to share LNG in the event either of the markets faces a shortage in electricity supply, and more recently began supply negotiations with Qatar.  

All this has resulted in Thailand’s gas imports rising high, though its seems that the nation has not found a stable supplier yet: “The country plans to buy 50% of its liquefied natural gas via term contracts and the remaining 50% from the spot market,” said PTT’s Senior Vice President M. L. Peekthong Thongyai at the Gastech conference in Singapore. At that, the current volume of signed contracts is hardly sufficient, notes Kpler’s LNG analyst Ryhana Rasidi: “With PTT’s plan to increase Thailand’s import capacity from 19 Mt to 30 Mt, we may need to see more contracts being signed to secure at least 50% of supply in long-term contracts.” 

To deal with this problem, PTT is not only looking for partners but also securing its participation in LNG projects as a stakeholder. Most recently, the company has entered into negotiations to acquire a 10 per cent interest in the Ghasha offshore gas concession in the United Arab Emirates from Wintershall Dea GmbH. The production on the field hasn’t started yet, but once it’s launched, the enterprise is expected to deliver over 1.5 billion cubic feet per day, making it one of the world’s largest in its category. 

Another gas field development, the African Mozambique LNG project, in which PTT’s participation has already been confirmed, has similar characteristics. The construction is currently on pause due to regional difficulties, but 90% of its production has already been sold through long-term contracts with key LNG buyers in Asia and in Europe, including combined LNG supply of 7.8 Mt a year for Thailand. The project consists of five fields that have a combined 75 trillion cu. feet of recoverable natural gas resources, qualifies for the name of “one of the world’s largest LNG supply hubs,” and, along with over 50 PTT’s stakes across the world, promises to ensure stability in energy supply for Thai industries and consumers. 

Now, Thailand’s LNG plans and commitments to address its immediate energy needs become understandable. The country’s present is fueled with natural gas, but its future still lies in renewable energy. It is clear that domestic gas production is unlikely to provide the Asian state with a sufficient amount of fuel for further growth and development. And the energy prices outlook is far from optimistic: “The recent surge in LNG prices has caused my deepest fear for another repeat of the gas and power crisis,” said Montri Rawanchaikul, PTT’s CEO.  

It is obvious now that natural gas will continue to be the main energy source in the daily lives of the Thai people, and in the local economy, whatever the cost. What’s more, it may provide a literal avenue for going green faster: Thailand, already well ahead of its coal-consuming neighbors, can quite easily adapt existing gas pipelines to transport green hydrogen, one of the most promising fuels for the energy transition. Seeing the potential, PTT in cooperation with a hydrogen pioneer company from Saudi Arabia announced a $7 billion investment in the sector last April. Once the project is completed, it should lay the foundation for Thailand’s ambition to be carbon neutral by 2050.