Power: Gas Down, Coal And Imports Up

BMI View : We have revised down our 2014 electricity generation forecast for Thailand to account for the decline in gas-fired generation, which is brought on by shutdowns and maintenance of several gas fields. We have also made material revisions to our long-term forecasts to reflect the country's new power development plan, such as a downward revision to our long-term gas-fired generation forecasts and an upward revision to our coal-fired generation forecasts. Overall, the country is likely to increase its reliance on electricity imports to satisfy electricity consumption, which is a trend we had previously predicted.

We have revised down our 2014 electricity generation growth forecast for Thailand from 4.6% to 2.7%. This moderation was prompted by news of upcoming shutdowns and maintenance of several gas fields which will negatively affect gas-fired generation.

In November 2013, Thai state utility Electricity Generating Authority of Thailand (EGAT) announced that several major gas fields would be undergoing maintenance activities in 2014. Gas-fired generation accounts for approximately 70% of the country's electricity mix, and the disruptions to gas supply will have a noticeable impact on total generation. Some of the planned shutdowns include:

  • The Yetagun block in Myanmar will shut down between December 25 2013 and January 8 2014, which will affect gas-fired capacity accounting for 18% of the country's total capacity.

  • The Bongkot block in the Gulf of Thailand will be shut down from April 10 2014 to May 5 2014, affecting 7% of total electricity-generating capacity.

  • Gas fields in the Thailand-Malaysia Joint Development Area are scheduled for shutdowns in June and July 2014, affecting 5% of total generating capacity.

Gas Forecasts Moderated And Imports Boosted
Thailand: Power Generation And Imports, TWh

Power: Gas Down, Coal And Imports Up

BMI View : We have revised down our 2014 electricity generation forecast for Thailand to account for the decline in gas-fired generation, which is brought on by shutdowns and maintenance of several gas fields. We have also made material revisions to our long-term forecasts to reflect the country's new power development plan, such as a downward revision to our long-term gas-fired generation forecasts and an upward revision to our coal-fired generation forecasts. Overall, the country is likely to increase its reliance on electricity imports to satisfy electricity consumption, which is a trend we had previously predicted.

We have revised down our 2014 electricity generation growth forecast for Thailand from 4.6% to 2.7%. This moderation was prompted by news of upcoming shutdowns and maintenance of several gas fields which will negatively affect gas-fired generation.

In November 2013, Thai state utility Electricity Generating Authority of Thailand (EGAT) announced that several major gas fields would be undergoing maintenance activities in 2014. Gas-fired generation accounts for approximately 70% of the country's electricity mix, and the disruptions to gas supply will have a noticeable impact on total generation. Some of the planned shutdowns include:

  • The Yetagun block in Myanmar will shut down between December 25 2013 and January 8 2014, which will affect gas-fired capacity accounting for 18% of the country's total capacity.

  • The Bongkot block in the Gulf of Thailand will be shut down from April 10 2014 to May 5 2014, affecting 7% of total electricity-generating capacity.

  • Gas fields in the Thailand-Malaysia Joint Development Area are scheduled for shutdowns in June and July 2014, affecting 5% of total generating capacity.

These disruptions have led us to revise down our 2014 natural gas generation growth forecast from 4.8% to 2.1%, resulting in a decrease in our total generation forecast. We have not revised up our forecasts for other forms of generation despite EGAT proposal to use bunker oil and diesel to fuel power plants during these gas disruptions. This is because the costs of such a switch are extremely high, and we believe that increasing imports of electricity from neighbouring countries would be a more economical approach.

Gas Forecasts Moderated And Imports Boosted
Thailand: Power Generation And Imports, TWh

We note that Thailand could attempt to secure LNG on the spot market, which poses an upside risk to our 2014 forecasts. The country's LNG regasification terminal has operated at a utilisation rate below 40% since it was commissioned in 2011, meaning that there is adequate infrastructure and capacity to support an increase in the use of LNG imports to meet electricity needs. That said, increasing the share of LNG imports in electricity generation would significantly drive up electricity prices, and the costs of importing electricity could once again be a more economical choice.

Long-Term: A New Direction

We have materially revised our long-term forecasts for the Thai electricity sector this quarter to reflect the country's new power development plan (PDP). On October 21 2013, the Thai Ministry of Energy announced that it would be amending the PDP before the end of 2013. While the exact details of the revisions have not yet been announced, several key amendments that the Ministry has outlined include prioritising coal as the preferred fuel for power generation and stepping up imports of hydropower from neighbouring countries.

We believe that the Thai government's decision to prioritise coal in its power development plan is prompted by the country's dire natural gas situation, and we have long called for such a move. The current energy mix in Thailand is unsustainable over the long-term, in terms of both costs and availability of fuel. There is limited scope for growth in gas-fired generation - which accounts for 70% of the electricity mix - as the country's gas reserves will be insufficient to meet its needs over the long-term and imports becoming increasingly costly. Gas reserves in Thailand have been declining since 2002 and we estimate that the country is likely to exhaust its gas reserves in around eight years at the current rate of production, barring any major gas discoveries.

Insufficient Gas Reserves
Thailand - Natural Gas Production and Consumption, bcm (LHS) and Natural Gas Reserves To Production Ratio, years (RHS)

Meanwhile, Myanmar - which supplied more than 75% of Thailand's gas imports via pipeline in 2012 - is likely to cut down on export volumes as gas consumption in Myanmar is increasing following the opening of its economy ( see 'Domestic Needs Hit Thai Supplies', October 5 2012). The only other option left to Thailand is to import LNG, but this will be substantially more expensive than piped gas from Myanmar ( see 'PTT Looks To Long-Term LNG For Domestic Needs', October 17 2013).

Asian Premium
LNG Import Prices Across Selected Countries/Region (US$mn/BTU)

Conversely, we have long held the view that coal is a suitable alternative for natural gas in Thailand's electricity mix. This is because of the country's coal reserves, the competitive costs of coal-fired generation and the lack of other viable alternatives for gas-fired energy ( see 'Tight Gas Supplies Necessitates New Coal Capacity', November 2 2013). Thailand had 1,239mn tonnes (mnt) of subbituminous and lignite coal reserves at end-2011, according to BP's 2012 Statistical Review of World Energy. However, there is serious public distrust toward coal-fired generation as the Mae Moh lignite plant, completed in 1978, led to major to environmental and health issues, sparking years of public protest that began in the 1990s. Previous plans to develop coal-fired plants were often foiled by the public - four planned coal-fired plants were removed from the power development plan in August 2012, and two planned coal-fired plants in Prachuap Khiri Khan were altered to natural gas after a public outcry in 2001. That said, we believe that the lack of cost competitive alternatives leaves the country with few alternatives, and the public will have to overcome their distrust unless they are able to stomach a major increase in electricity prices.

Significant Room For Growth In Coal Production
Thailand - Coal Production and Consumption, Tonnes

These factors have led us to revise down our long-term average gas-fired generation forecasts, while boosting our coal-fired generation forecasts. We now expect gas-fired generation to grow at an average of 3.1% per annum between 2014 and 2022, down from 4.6% previously. Conversely, we have revised up our coal-fired generation forecasts from 3.8% to 5.4%. In terms of overall electricity generation, we forecast total generation to grow an average of 3.8% per annum, down from 4.5% previously. This means that Thailand will need to increase its reliance on electricity imports to satisfy electricity consumption, which is something that the government has already highlighted.

Hydropower Imports To Grow

We believe that the Thai government's plan to increase imports of hydropower from neighbouring countries is strategically sound, and had predicted the move in our analysis of the sector in February 2013 ( see 'Thailand Power: Numerous Challenges On The Horizon', February 6 2013). In fact, we are now forecasting the country to import around 30TWh of electricity in 2022, which is double our previous forecast.

Imports Play A Larger Role
Thailand - Power Generation And Imports, TWh

This strategy is sound because there is significant hydropower potential in Laos, Cambodia, and Myanmar, and all three countries could benefit tremendously from exporting electricity to Thailand. At present, Thailand is already developing hydropower assets in Cambodia, having come to an agreement with the Cambodian government to jointly develop the Stung Num hydropower dam in January 2012. The dam is located in Koh Kong province, which is adjacent to Thailand's Trat province. Thailand also has an agreement to buy 1,500MW of electricity from Myanmar, although implementation has yet to be done due to political difficulties.

Thailand has been particularly successful in developing Lao's hydropower resources for its domestic consumption. The country had secured a power purchase agreement with the Laos government for 90% of the output from the 380MW Xe-Pian Xe-Namnoy hydroelectric project in February 2013 and had been extremely active in developing the controversial US$3.5bn Xayaburi dam.

This success is partially due to the strong support from the Laotian government. Laos is one of the most impoverished countries in the world, and appears keen to exploit its hydropower resources and export electricity to its power-hungry neighbours ( see 'Thai Lawsuit Adds Chapter To Xayaburi Saga', August 7 2012). Currently, only 10% of an estimated 23,000MW of exploitable potential hydropower resources in Laos has been developed, leaving great scope for further exploitation. The Laotian government has plans to build 10 dams on the mainstream Mekong with the intention of exporting output from these dams to Thailand and other countries. Under a bilateral agreement between Laos and Thailand, Thailand will be buying over 5,000MW of electricity from Laos.

Laos Highly Dependent On Hydropower Exports
Laos Net Exports, TWh (LHS), And Laos Share Of Foreign Direct Investments (2001-2009), % (RHS)

That said, we note that the potential for Thailand's imports of hydropower could be limited by water rights and environmental issues. The Mekong River - which passes through Myanmar, Laos, Thailand, Cambodia and Vietnam - is a major water resource (for agriculture and farming, as well as hydropower) for all the countries. In 1995, Cambodia, Laos, Thailand and Vietnam had set up the Mekong River Commission to help manage and co-ordinate use of the river's resources. However, there have been growing tensions between the countries due to water rights and this could lead to delays to the implementation of hydropower plants in these countries. For instance, the construction of the Xayaburi project was delayed due to serious friction between Thailand and its neighbours in 2012. The friction was brought on by concerns about regional food security - Vietnam and Cambodia were against the development of the dam, while Laos and Thailand were in favour of the development.

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