Global gas market battered by glut gets eager buyer in Thailand

BANGKOK (Bloomberg) -- Thailand has a message for embattled global LNG sellers: It’s going on a shopping spree.

Southeast Asia’s second-largest economy is signing new contracts for liquefied natural gas purchases and expanding terminals to boost imports to replace flagging domestic production. Thailand will boost LNG imports by more than 70% this year, according to Wuttikorn Stithit, executive V.P. for natural gas supply and trading at the state-controlled energy giant PTT Pcl.

Producers of the fuel are expected to expand output by about 23 million tons this year even as spot prices for LNG in Asia have fallen more than 60 percent the past three years and demand from traditional buyers in Japan and South Korea stagnates. PTT, which will boost imports to 5 million tons this year from 2.9 million in 2016, is also considering investing in upstream projects as a way to maintain the country’s security of supply.

“This is a good time to buy more LNG,” Wuttikorn said in a March 16 interview at the company’s headquarters in Bangkok. “Many experts say the market will be in surplus until 2023. We still have a lot of demand to absorb supplies. Thailand is one of the countries that can bring in more LNG.”

Spot prices for LNG cargoes in Northeast Asia fell 5.1% this week to $5.55/MMbtu, according to industry publication World Gas Intelligence. That compares with $15.80 during the same period three years ago.

For years, Thailand’s growing economy was fueled by rising natural gas production from wells in the southern Gulf of Thailand. Now output from fields like Bongkot and Erawan is dropping. Production in January was 12% below peak output in November 2012, according to the Ministry of Energy.

To bridge the gap, PTT buys pipeline gas imports from Myanmar and in 2011 opened its first LNG import terminal near Rayong southeast of Bangkok. A project to double its size to be able to handle 10 million tons a year will be complete before this summer, Wuttikorn said. Another planned expansion will take the capacity to 11.5 million by 2019, and PTT plans to open a second terminal near Rayong to add another 7.5 million to import capacity by 2022. PTT’s shares on the Stock Exchange of Thailand were up 1 percent at 406 baht at 12:27 p.m. Bangkok time.

'Bright spot'

PTT, the only company with a license to import LNG to Thailand, signed a contract in 2012 to import 2 million tons a year from Qatar, the largest exporter in the world. It signed three other contracts in the past year with BP Plc, Royal Dutch Shell Plc and Petroliam Nasional Bhd of Malaysia, adding another 3.2 million tons a year of supply. PTT also buys cargoes on the spot market and is interested in signing medium-term deals, Wuttikorn said.

“We think Thailand is one of the bright spots in terms of LNG imports,” Kittithat Promthaveepong, a gas analyst with industry consultant FGE in Singapore, said in a phone interview. “It’s a relatively natural fit for LNG to come in and fill the gap as domestic supplies decline.”

FGE sees Thailand’s LNG imports rising to about 7.4 million tons a year by 2020 and 11.5 million by 2025. Those projections are in line with other independent analysts. The Thai energy ministry is more aggressive in its outlook, saying imports could rise to more than 20 million tons by 2025.

New demand could arise from areas outside the capital of Bangkok, Kittithat said. If the country moves forward with a plan to import LNG into Myanmar to supplement pipeline gas imports from that country it could help supply western Thailand. Protests over a proposed coal-fired power plant in the country’s southern Krabi province may cause the government to shift course and build an LNG terminal and gas-fired plant instead, he said.

Upstream activity

PTT’s upstream unit, PTT Exploration & Production Pcl, is also playing a role in the company’s LNG strategy. The drilling arm of the company owns an 8.5% stake in Anadarko Petroleum Corp.’s proposed Mozambique LNG project. PTT E&P’s Chief Executive Officer Somporn Vongvuthipornchai said in an interview last week that his firm and the parent company could invest together in other LNG projects to secure supply.

LNG suits the country’s needs because it can be increased and decreased to fit changing seasonal demand, according to PTT. Demand in Thailand peaks in the summer when air-conditioners are on full blast, which is the opposite of other major buyers like Japan, South Korea and China, where imports rise in the winter to meet heating needs.

“LNG can respond to demand immediately,” Wuttikorn said, “which is good for security of supply.