Thailand's LNG imports hit an all-time high in October and could remain high in the coming months as it ramps up purchases of expensive spot LNG cargoes to stave off a widening domestic gas supply shortfall, mainly from sharply lower output at its largest gas field Erawan that is also embroiled in a dispute. The Southeast Asian country's gas crunch comes amid declining output at mature assets exacerbated by slowing investment, COVID-19 related slowdowns, the exit of several international oil majors and national oil companies struggling to boost reserves or make high-profile discoveries.
Thailand's national oil company PTT faces production issues similar to Malaysia's Petronas and Indonesia's Pertamina, and is being forced to tap into the seaborne LNG market at a time when global LNG prices have risen to record levels. Thailand's LNG imports hit an all-time high of 800,000 mt in October, which was a 55% increase from September and a 63% increase from the same period a year earlier, according to S&P Global Platts Analytics. Shipping data suggests November and December volumes could remain high or be even higher. Thailand's LNG imports from January to September averaged 520,218 mt, according to customs data. PTT and state-power company Electricity Generating Authority of Thailand, the two main LNG importers, issued several tenders for spot LNG cargoes for delivery from October to December, reflecting higher-than-usual procurement levels. Several October and November cargoes were awarded at around $30-$35/MMBtu, which are some of the highest prices Thailand has paid for LNG, and some were not awarded due to steep prices, traders said. The Platts JKM for Dec was assessed at $29.265/MMBtu Nov. 11. Thailand has imported more spot LNG so far this year compared to previous years, based on its contracted volumes with Qatar Petroleum and other portfolio players -- BP, Shell and Petronas -- and tendering picked up significantly even after spot prices started climbing since July, Jeff Moore, Asia LNG manager with Platts Analytics, said. This is uncharacteristic of price-sensitive Thai importers, and the NOCs would need to get state clearance for high-priced imports, despite flexibility from suppliers like Qatar, signaling a desperate need for gas supply, traders said.
Gas production declines
Thailand relies on domestic production for about 70% of its total gas demand, and the remaining comes equally from pipeline imports via Myanmar and seaborne LNG at around 15% each. The Erawan gas field in the Gulf of Thailand is the country's single largest gas producing asset that accounted for over 36% of its domestic gas production in 2020, and supplied around 25% of total gas demand, official data showed. Erawan's gas production fell to 801 million cu ft/d in July and 780 million cu ft/d in August, from 1,040 million cu ft/d in June, according to data from Thailand's energy ministry. It had averaged 1,185 million cu ft/d in 2020. Erawan's output is expected to continue declining, and result in a 21% drop in Thailand's annualized gas output for 2021 from 3,262 million cu ft/d in 2020, Chong Zhi Xin, IHS Markit Director for South Asia and Southeast Asia Gas and LNG, said. He said Erawan's production, which has been contracting since July, may halve by the end of this year from 1,036 million cu ft/d posted in January. "This is attributed to falling production rate owing to the lack of investments in new upstream developments," Chong said. IHS Markit expects LNG imports to remain high as PTTEP's ability to ramp up production at other fields to offset Erawan is limited.
Erawan dispute
The Erawan field is currently operated by Chevron, but with the concessions expiring, renewed production sharing contracts had been awarded to state explorer PTT Exploration and Production, or PTTEP, which is scheduled to take over in April 2022. The renewed PSCs had raised concerns about tougher fiscal terms under the new contracts and about whether NOCs can keep hydrocarbons flowing. PTTEP had said there was an investment plan in place to ensure continuity in gas supply when it takes over in 2022, and maintain production levels of at least 800 million cu ft/d from Erawan. IHS Markit's Chong said while PTTEP sought to gain early access as the incoming field operator to shore up production, the plans were complicated by a multi-year dispute over the extent of Chevron's exposure to the costs of decommissioning Erawan's production structures. Chevron Thailand said it is working with the government and PTTEP to "resolve complex transition issues, such as decommissioning liability for assets to be transferred free of charge to the government and operated by PTTEP, as well as safe and non-disruptive site access for both current and future operators." A company spokesman said "production and resource prospects will be significantly affected by the specific assets which the government has chosen not to transfer to the new operator."