Gas Float A Feather In Thai Govt Cap

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ANALYSIS

Gas float a feather in govt cap

Achara Deboonme

Wachirapong Thongrung

Photo : Thanis Sudto

With global energy prices rising and supplies in the Gulf running out, fixing the price no longer makes sense; Subsidy makes PTT unattractive to investors; allowing prices to rise lowers pressure on firm to raise funds.

Despite pressure from truck operators and taxi drivers, the government has plenty of reasons to go ahead with changing the energy pricing structure, which will lead to the floating of energy prices including that of liquefied petroleum gas (LPG) and natural gas for vehicles (NGV).

NGV, known in other parts of the world as compressed natural gas (CNG), was brought to Thailand in order to reduce oil imports. It was effective. Though global oil prices spiked nearly two-fold between 2009 and 2011, Thailand's gross energy import value rose only slightly to Bt1.03 trillion in 2011. Though this is a new record, it is worth noting that Thailand's energy import value has stayed above Bt800 billion since the early 2000s. Without NGV, which is much cheaper than petrol or diesel, the value could have been higher.

According to PTT, the sole distributor of NGV, there were as many as 283,481 NGV-driven vehicles at the end of last year, more than 10 times the 23,496 vehicles in 2006.

Compared to other types of fossil fuel, NGV provides more complete combustion and hence reduces greenhouse gas emissions. Given the frequent natural disasters that Thailand and other countries have been facing, the consumption of NGV should be promoted, but at a reasonable price. If Thailand is serious about promoting the gas, there are many reasons why the government should go ahead with its price-float strategy.

Firstly, all types of energy are global commodities subject to the rule of supply and demand regardless of the exploration and production sites. Gas from the Gulf of Thailand should cost as much as gas from Burma or the Middle East, based on the fact that everybody in the world should have access to natural resources, but at an agreed price. Hence, it is not logical that the gas should be retailed at Bt8.50 per kilogram forever. It should be noted that since PTT first made the gas available to the public in 2000, the price of crude oil has risen from below US$40 (Bt1,268) per barrel to over $100.

What's more, the price of liquefied natural gas exported by the United States has risen 191.6 per cent over the past 10 years, from $4.30 per thousand cubic feet in 2001 to $12.54 in October 2011, according to the US Energy Information Administration.

This is why the price of gas here should be allowed to rise. If PTT opted to export gas, it would earn more and the nation would reap more dividends, which could help replenish budget deficits or finance public services. Yet, for years, the gas had been used cheaply in the Kingdom, as the price has been fixed.

Secondly, Thais should realise that supplies in the Gulf of Thailand are running out. The Energy Ministry, if it still bears some credit, announced last week that full-stream supply from the Gulf would only last five years and if it's streamed at a lower rate it might last 20 years. If we are to start importing the gas without changing the pricing structure, Thais will not be able to accommodate the big change.

Thirdly, people should realise that Thailand has been importing natural gas since 2008 due to a spike in consumption and in light of higher oil prices. In 2008, of all energy imports, the value of natural gas accounted for the second-largest share at 8 per cent. It is unimaginable how far this would have risen without consumption control.

Fourthly, PTT, though still a state enterprise with a government stake of more than 50 per cent, is no longer the Petroleum Authority of Thailand. Now, it operates like a private company, with stakeholders to take care of. Though it remains responsible to Thai consumers, shareholders who do not benefit from the cheap gas will obviously consider their investment wasted.

PTT executives have complained that the NGV price has been kept below actual cost. To date, the company has had to shoulder the extra cost of about Bt40 billion - NGV costs Bt15 per kilo, nearly double the Bt8.50 it is retailed at. As long as the price remains fixed, a larger number of petrol stations would only increase consumption and raise the financial burden. However, the number of NGV stations has only risen four-fold in the past six years, from 102 in 2006 to 449 in 2011, despite the 10-fold increase in consumption.

PTT estimated that energy price subsidies last year ran up to Bt130 billion, including Bt68 billion on diesel, Bt36 billion on LPG and Bt26 billion on NGV.

Without the cost, PTT would see less of a need to raise funds through bonds or loans in order to secure more energy supplies abroad to satisfy the thirst of everybody. Yes, it is PTT's obligation to all Thais, who consume all types of energy, to secure more energy.

Just as the government promised to float the price at Bt6 per kg over the next 12 months, PTT announced that the number of NGV stations would be increased to more than 500 this year, requiring Bt980 million in investment. So far, stations have been located near the pipelines, to reduce the transportation cost. Therefore, it would seem unreasonable to operate too many stations in Chiang Rai, where gas is delivered by diesel-driven trucks.

Though PTT has been criticised for monopolising the NGV market, the Energy Ministry has no restrictions on newcomers. PTT does have an advantage - it's the owner of the pipelines. And as a matter of fact, the Energy Regulatory Commission is in existence to regulate gas-transmission fees if any newcomers emerge and use the service.

The new price structure is expected to kick off next Monday, and if any policy from the Yingluck government has been beneficial for the country, it is this one. Previous governments have given in to pressure from the transportation industry, but this government can win investor confidence with this policy.

Let the market mechanism go into full play in the energy sector, and it would guarantee equal benefits for all Thais.

-- The Nation 2012-01-10

[sparebox2]

Gas is a natural resource of the country. Why must citizen of the country have to pay for their own resources (other the the cost of extraction & transportation)?

[ratcatcher]

Gas is a natural resource of the country. Why must citizen of the country have to pay for their own resources (other the the cost of extraction & transportation)?

For the same reason people pay for water, lumber, coal and other resources. It's called "business"

[MaiChai]

Business versus the people; which do you think will win?

[bkk_mike]

Gas is a natural resource of the country. Why must citizen of the country have to pay for their own resources (other the the cost of extraction & transportation)?

But that's the point, isn't it... - It costs 15 baht to extract and transport, and they're selling it for 8½ baht.

Admittedly, I never trust (not just in Thailand) oil companies cost estimates per barrel as they tend to give higher weight to their more expensive sources, and less weight to their cheaper sources.

Just be thankful you're not in the UK where, despite producing our own oil and gas, it's not subsidised, but is, instead, more heavily taxed than everything else except alcohol and cigarettes.

[gregb]

What everyone fails to address in this analysis is the reason why the subsidy was enacted in the first place. There is a long term goal that is being abandoned by abandoning the subsidy, and that is a tremendous mistake.

Liquid fuels are going to become increasingly scarce, and a proper NGV infrastructure will take decades to create. It will never be profitable to implement an NGV system in a competitive environment, because too many hidden subsidies are already available to the existing infrastructure based on diesel fuel. Further, the advantages of NGV will be spread over the entire economy, not concentrated into the hands of the company who sells it, and there is no clear, unbiased way to calculate these either.

In short, to abandon the NGV subsidy is to abandon NGV as a goal. It will never reach the necessary level of adoption without help. Now, there are 2 ways to accomplish this goal. The first is to give NGV a subsidy, as has been the case for the last several years. The second is to sell NGV at cost, as is apparently the current desire, while raising taxes on diesel and benzene to the point where NGV again becomes irresistible. So if the government insists on doing this, it should be announcing a new 60% tax on all liquid fuels at the same time, raising the price of diesel to approximately 50 baht per liter.

The article is absolutely wrong that this is a feather in the government's cap. This is a poorly advised, hideously bad policy which is dooming the country to long term decline. I have no problem paying more for NGV, but this simply can not be done without taxing traditional fuels to make them uncompetitive.

This short sightedness is an absolutely horrendous mistake by the government which sadly our children will pay for. It is nothing more than unacceptable greed today at the expense of those living tomorrow.