IHS Global Insight Perspective | |
Significance | The agreement builds on a heads of agreement (HoA) signed in 2008 and reflects Thailand's rising demand for natural gas from the power-generation and industrial sectors and for natural gas vehicles (NGVs) that over the long term is unlikely to be met by fields in the Gulf of Thailand. |
Implications | It is estimated the supply agreement will help PTT replace imports of 2,400 litres of fuel oil, saving the company 400 billion baht (US$12.42 billion), assuming a constant exchange rate of 33 baht per U.S. dollar, and a fuel oil price of US$70 per barrel. |
Outlook | PTTEP owns a lot of acreage in the Moattama basin and the Andaman Sea basin offshore Myanmar, besides Block M-09 and M-11. Much of this area remains to be explored, raising the potential for increases in gas reserves and exports to Thailand over the longer term. |
Supply Deal Sealed
Thailand's PTT has signed a 30-year supply deal with upstream affiliate PTT Exploration and Production (PTTEP) and Myanmar Oil and Gas Enterprise (MOGE) for gas from the Zawtika field at offshore Block M-09 and Block M-11 in the Gulf of Martaban. The supply deal is generally in accordance with the heads of agreement (HoA) signed in mid-2008. Under the agreement, PTTEP is expected to supply an initial 240mmcf/d of gas to Thailand and another 60mmcf/d to Myanmar according to Thai energy minister Dr Wannarat Channukul.
The agreement is a further milestone in Myanmar's efforts to position the country as a regional gas supplier to protect its autonomy and to maximise revenue streams from its gas reserves. The supply agreement follows the launch of construction of the Shwe gas pipeline project—due to run from Block A1 and A3 in the Rakhine basin to Yunnan Province in south-west China—by China National Petroleum Corp (CNPC) in June 2010. For Thailand, the agreement is an important guarantor of future gas supply security. The producing Yadana and Yetagun fields in Block M-05 and M-06 in Myanmar already account for 21.1% of Thailand's supply mix in 2009, according to figures from the Department of Mineral Fuels. Thailand's interest in Myanmar's natural gas reserves stems fundamentally from its own rising domestic demand. Consumption of natural gas has been steadily increasing in Thailand in recent years, rising from 3,086 mmcf/d in 2006 to 3,564 mmcf/d in 2009. Consumption growth is set to continue as the gas-fired power-generation sector expands and as industrial consumption increases, hitting 4,820mmcf/d by 2014. In the near term, Thailand is looking towards new fields like Arthit, Arthit North, and the Greater Bongkot South due to launch in 2012 or 2013 to meet rising demand. Although at current production rates supplies from the Gulf of Thailand are projected to last 23 years, they are unlikely to meet domestic demand growth, which has pushed PTT to firm up a long-term 30-year agreement for gas supplies from Myanmar. The agreement will provide more gas to the Ratchaburi and Wang Noi power plants, which play a crucial role in providing power to Bangkok and the central region of Thailand as well as supporting the government's plans to promote natural gas vehicles (NGVs).
PTTEP's exploration campaign in Myanmar has mainly targeted acreage in the Moattama basin and Andaman Sea basin, due to their proximity to the Thai market. PTTEP owns a lot of acreage in the Moattama basin and surrounding areas including the M-03, M-04, M-07, M-09, and M-11 blocks. The amount of unexplored acreage means PTTEP has the potential to significantly increase its gas reserves and production streams from the area to boost Thailand's gas supply. M-09 so far contains proven reserves of 1.4tcf although there is the potential for significant reserve accretions as exploration of the block continues. In 2010, PTTEP has already drilled a number of appraisal and development wells including Zawtika 9, Kakonna 4, and Bawgatheikdi 1, probably with the aim of proving up more reserves. Looking ahead PTTEP is planning to carry out a 3D seismic survey over Blocks M-09 and M11 in the first quarter of 2011, which is likely to map areas to the west of the Zawtika discovery and the northern area of Block M11.
Outlook and Implications
The gas supply agreement is expected to replace 2,400 litres of fuel oil imported annually by PTT, and will save the firm 400 billion baht (US$12.42 billion) assuming a constant exchange rate of 33 baht per U.S. dollar and a fuel oil price of US$70 per barrel. The supply agreement will also help advance the third gas pipeline project between the two countries, which was delayed following the financial crisis over concerns about the rate of Thailand's future gas demand growth. Media reports suggest the third pipeline will support the Trans-ASEAN pipeline project—which is aimed at creating an integrated gas pipeline network in South-East Asia—by increasing its length from 2,800 km to 3,020 km. A spur pipeline from the M9 project is also likely to further improve gas availability in Myanmar in line with MOGE's strategy of boosting supplies to the domestic market. This pipeline will provide a further boost to domestic supplies building on the recently completed Yadana to Yangon pipeline (see Myanmar: 10 June 2010: Myanmar Launches Yadana-Yangon Natural Gas Pipeline to Ease Power Shortages).
It is unclear at what price PTT will buy gas from Myanmar, although it will probably be at higher rates than the company purchases from producers working in the Gulf of Thailand. However, with domestic buyers for the gas already announced, PTT is unlikely to encounter problems marketing the gas. It is also unclear how much PTT will pay to Myanmar's government for the gas, although international pressure to promote transparency of payments to Myanmar's government is growing. In April 2010, non-government organisation (NGO) Earth Rights International launched a campaign to persuade Total, Chevron, and PTTEP to reveal the payments they make to the Myanmar government to set a good example to other companies operating in the country. The campaign followed reports by ERI claiming Myanmar's government has stashed away millions of dollars in revenue from the Yadana and Yetagun projects in bank accounts in Singapore by using an outdated currency exchange rate. On 15 July the United States passed the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring oil and gas companies registered with the U.S. Securities and Exchange Commission (SEC) to reveal payments made to governments for extraction of resources on an annual basis. Depending on how the law is ironed out over the coming year, PTT might in future have to reveal its payments to the government of Myanmar for purchasing gas from Yadana, Yetagun, or the Zawtika field or face possible delisting.