BMI View: We have maintained a pessimistic forecast for Thailand's hydrocarbon sector over the past year due to failure of the government to promptly address key issues with regard to environmental regulation and wealth distribution. However, data from exploration activities in early 2013 and a pick - up in exploration activity in July support a view that Thailand may be able to overcome these above - ground hurdles. The 21 st licensing round, which was to be launched in mid -2013 but has yet to materialise, will provide a strong test of investor confidence in the country's credentials.
We have expressed concerns about Thailand's ability to maintain production growth through our ten-year forecast period from 2013 to 2022. Among several issues we see three main features that could constrain the country's below - ground potential:
Growing offshore oil and gas exploration has fuelled concerns about its threat to Thailand's tourism industry. Environmental risks associated with such activities have increased demand s for tighter regulations going forward.
Concerns about the taxation and redistribution of hydrocarbon revenues, supported by the country's academic community , bolstered objection by the population against the current production sharing system.
Weakening regional demand has pushed companies such as PTTEP to reduce investment in various projects, including some involving domestic production. (see ' Delays Loom As PTT Adjusts To Economic Fundamentals ' , July 11).
Successive postponement of a proposed 21 st licens ing round, along with exploration delays by companies awarded exploration rights in the 20 th round , underpins our view that Thailand's gas production could flatten around 40b n c ubic m etres (bcm) by the end of the decade, while liquid s production w ould continue to slip downward over the forecast period.
|Above-Ground Hurdles Imposes Output Ceiling|
|Thailand's Oil (LHC) & Gas (RHC)Consumption, Production & Net Exports|
21st Round As Confidence Test
As expected , data released by Thailand's Ministry of Petroleum shows that Thailand's hydrocarbon production in the first half of the year has flatten ed , and is mostly comparable to 2012 levels. I n particular , gas production has been dropping throughout the first six months of 2013.
|Thailand Monthly Production* Rates, Oil (LHS, '000b/d) & Gas (RHS, bcm)|
While this is in line with our short - term forecast, we highlight an increase in exploration activi ty in the first half of the year, which poses upside risk if they are later determined to have commercial quantities of hydrocarbons . Between January and March , PTTEP drilled 14 onshore and three offshore exploratory wells, while an additional six offshore wells were drilled by several independents which include CEC International , Pearl Oil , Pan Orient and Shaanxi Yangchang .
There were also several announcements of further exploratory wells to be drilled early July. These include in particular a n appraisal ofL44/43 concession by Hong Kong & China Gas Company , and Coastal Energy's extension test of the Sinphuhorm field on block L15/43 following a discovery at the Sinphuhorm East-1 well .
If sustained, this acceleration in exploration activities creates an upside risk to our long-term view. The level of Interest shown in the country's 21 st licensing round will ascertain if international oil companies and independents' sentiment towards Thailand's hydrocarbon sector has improved. Although initially planned for 2012, the round was postponed to the beginning of 2013 and again to mid-2013 as the government continues to design new regulation for the industry. At time of writing the round remains to be launched, but we expect it to start before the end of 2013 with results to be announced in early 2014.