At the Wellhead: public opposition to drilling is slowing Thailand’s bid to hike natural gas output

Thailand’s gas demand is rising, and it wants to produce more from its own resources. But public opposition is making that latter goal hard to fulfill. In this week’s Oilgram News column, At the Wellhead, Mriganka Jaipuriyar talks about the quandry the country faces.

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Thailand is facing big challenges in boosting its indigenous gas supply as efforts to boost exploration and production are stuck in a web of environmental protests and policy hurdles.

The Southeast Asian country was expected to launch its 21st licensing round in January 2012 — five years after the last round — but strong anti-industry sentiment among the Thai public forced the Department of Mineral Fuels to delay the launch.

The DMF is planning to offer 22 blocks — 17 onshore and 5 offshore — spanning an area of 46,000 sq km (17,480 sq miles). The blocks are estimated to hold a combined reserve potential of 3-5 Tcf of gas and 5-
10 million barrels of oil, according to the DMF.

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The negative sentiment stemmed from health and environment concerns when Malaysia-based independent Mitra Energy drilled an exploratory well on the outskirts of the capital city of Bangkok early last year.

The well, in the Thawi Wattana area, was part of the Mitra’s L45/50 onshore block and came up dry—but it left a bad taste with the public.

The DMF has since staged an information campaign on petroleum exploration, production and environmental protection to try and win over public opinion.

A DMF official told Platts on January 17 that no new date for the licensing round has been set yet, as her department is still working on “promoting a good understanding among the public about exploration and production activity in the country.”

NuCoastal, a subsidiary of Toronto-listed Coastal Energy, has also not been able to start its drilling program on block G5/50 located 42 km (26.04 miles) from Samui island, a popular tourist destination famous for its white sandy beaches and coral reefs.

Villagers on the island and along nearby coastal provinces are fearful that a Macondo-like oil spill will destroy their livelihood. They have lodged complaints at the Central Administrative Court, seeking an injunction on drilling activity of more than 20 projects in the Gulf of Thailand.

The DMF is working toward realigning the blocks to exclude “sensitive” locations such as areas close to communities and tourist spots to avoid controversies.

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The realignment of the blocks is one of the main reasons for the delay in the 21st licensing round, according to another DMF official.

Thailand has seen its proven gas reserves fall by 6% from 10.7 Tcf in 2005 to 10.06 Tcf in 2011, according to DMF’s data.

Gas demand, meanwhile, has consistently grown over the last several years and rose by almost 9% year on year in the first 11 months of 2012 to an average 4.53 Bcf/d, data from the Energy Policy and Planning Office showed.

The National Energy Policy Council expects gas demand to rise to over 7 Bcf/d by 2030 as power generation capacity grows. The power sector accounts for 60% of the kingdom’s total gas demand.

According to Songpope Polachan, the DMF’s director-general, Thailand’s production of natural gas has reached its peak of 3.6-3.8 Bcf/d. He said Thailand could maintain this level for the next five years and could even stretch to 10 years, but that would require more exploration efforts.

To prepare for a domestic supply-demand gap, state-run PTT recently formalized its plans to double capacity of the country’s LNG import terminal to 10 million mt/year by 2016. The company had earlier talked about doubling capacity but had not set a firm time-frame.

Meanwhile, the future of some of Thailand’s biggest offshore gas fields hinges on some key changes in the country’s Petroleum Act, which may require Parliament’s approval.

Under Thailand’s Petroleum Act, renewal of gas concessions in Thailand is only allowed once for 10 years.

The first renewal of the two main projects — Chevron’s four blocks in the Gulf of Thailand and state-owned PTT Exploration and Production’s Bongkot project — was done in 2007 with an effective date in 2012. The ten-year renewal means that the concessions are now set to expire in 2022.

Extension of concession beyond 2022 is not supported by the law and law changes and concessions renewal should be completed in 2015 to allow for continuity of investments, Credit Suisse said in a note last month.

The Bongkot and Bongkot South project produced an average 1 Bcf/d of gas in December, while the Chevron blocks produced another 1 Bcf/d. Together, they accounted for 60% of Thailand’s total gas production.

“We believe that concessions will eventually be renewed but critical conditions being: timing as a delay may cause output to fall,” Paworamon Suvarnatemee, research analyst at Credit Suisse said in a report issued last month.

A lack of reinvestment may cause a decline in production in the Gulf of Thailand.

Revision of existing law to allow for contract renewal is now being studied by the energy ministry with a target to complete the study in the second quarter of this year.

Thai Energy Minister Pongsak Ruktapongpisal supports a change to the existing act and has said that he would propose an amendment to allow one more extension of the current concession terms.

–Mriganka Jaipuriyar in Singapore


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