SITREP | Thailand: Energy Resources & Market Structure

SITREP | Thailand: Energy Resources & Market Structure

By Asian Development Bank

The 15-year Renewable Energy Development Plan launched in 2008 encouraged the use of renewable energy. Since then, Thailand’s energy policy has sought mainly to maintain energy prices; intensify energy development, including alternative energies to achieve and secure adequate energy supply; push for energy efficiency and preservation in the household, industry, and transportation sectors; and encourage environmentally friendly energy procurement and consumption. 

SITREP |  Thailand: Energy Resources & Market Structure

Policy changes in Thailand’s energy diversification strategy are designed to have an impact on the energy mix, leaning toward coal and renewables. By 2030, it aims to increase coal to 36 million tons of oil equivalent of primary energy and stabilize gas consumption.

Resources and Market Structure

Of Thailand’s domestic energy resources—coal, crude oil, and natural gas—the latter is most abundant, supplying about 70% of the country’s natural gas needs (PTT 2012). Domestically produced coal is mostly lignite, used primarily for electricity generation. Coal is also imported for use by electricity generators and industry. About 20% of crude-oil needs are produced domestically. Oil is refined domestically and Thailand is a net exporter of petroleum products (Energy Policy and Planning Office 2013a). The country’s oil and natural gas reserves are limited, however. The estimated reserves-to-production ratio is 3.5 years for oil and 12.5 years for natural gas. Lignite reserves are larger, with a ratio of 100 years (BP 2012).[1] Thailand is increasingly relying on natural gas to generate electricity, with natural-gas-fired electricity in 2014 accounting for about two-thirds of total electricity generated by the Electricity Generating Authority of Thailand (EGAT; the state electricity generator and market operator), far ahead of coal/lignite, at about one-fifth (Energy Policy and Planning Office 2013b).

As a net energy importer, over 60% of Thailand’s energy consumption comes from imports. Discovery of oil and gas is an ongoing process, but domestic demand for energy has also grown, leaving little overall change in import dependency (Asian Institute of Technology 2010). Alongside the surge in world oil prices during the past decade, this increase in consumption pushed the cost of net energy imports to 1.2 trillion Thai baht (B) in 2011 or 11% of gross domestic product (GDP) (Energy Policy and Planning Office n.d.).[2]

Natural gas is the most widely consumed fuel in Thailand, at 45% of total commercial energy consumption (primarily for electricity generation), followed by petroleum products (36%), coal (12%), lignite (5%), and hydroelectricity (3%) (Energy Policy and Planning Office 2013a). Biofuels and solid biomass are also important components.[3] Electrification is high, at 100% in urban and 99% in rural areas.

 Table Attribute: The Oil Fund in Action: High-Speed Diesel

Table Attribute: The Oil Fund in Action: High-Speed Diesel 

Between 2005 and 2012, net oil-fund levies were applied to diesel in all but 2 years. Based on annual average levies and total diesel consumption, diesel made a net contribution to the fund over this period (Table B1). The oil fund has, therefore, played a stabilizing role in diesel prices and was not considered a subsidy for this fuel (diesel did receive a significant tax reduction, however).

Thailand’s energy industry has both public and private sector entities. The government owns 66.4% of the national oil and gas company, PTT Public Company (PTT), with a 51.1% outright stake and 15.3% through the government-supported equity fund Vayupak (Standard and Poor’s Rating Services 2013). PTT produces the majority of domestically produced oil. The oil sector is open to foreign involvement, although foreign companies often work in joint ventures with PTT. The company, likewise, has a stake in some natural gas production, although foreign companies dominate (US Energy Information Administration 2013). PTT has a monopoly on natural gas distribution. Electricity is largely produced by the 100% government-owned EGAT, which also has a monopoly on electricity distribution. Independent power producers are involved in generation. The Energy Policy and Planning Office (within the Ministry of Energy) oversees all aspects of energy policies, including the oil, natural gas, and power sectors.

Prices, Taxes, and Support Mechanisms

Thailand subsidizes consumption of petroleum and natural gas products through the Oil Stabilization Fund (an oil price fund), tax exemptions, and caps on ex-refinery and retail prices. It caps retail prices for diesel, liquefied petroleum gas (LPG), and natural gas for vehicles (NGV),[4] and subsidizes bio-fuel blends. For diesel and NGV, price subsidies are universal in that wealthy and poor consumers alike can access them. LPG prices vary depending on the consuming sector, and electricity prices are subsidized for low-consuming households.

The oil fund is a monetary reserve that acts as a means of reducing price volatility and for cross-subsidization (Box 1). Levies are imposed on fuels. Subsidies may be provided on a per-liter basis or as lump sum to fuel producers or distributors. Over the years, the oil fund has been used to

(i) reduce price spikes;

(ii) cross-subsidize fuels for economic, political, or social reasons; and

(iii) encourage greater use of domestically produced energy resources. Gasoline, kerosene, and fuel oil are the petroleum products that most often face oil fund levies.

The fuels most often subsidized are higher biofuel blends and LPG. Oil fund levies and subsidies are adjusted weekly, and it is not unusual for a levy to be applied one week and a subsidy the next to keep retail prices stable. This is particularly true of automotive diesel, which the government has committed to maintain at about B30 per liter since late 2010. In theory, the oil fund is revenue neutral. In practice it has required injections of government funds during periods of prolonged deficits (most recently in 2004) and borrowings from commercial banks to allow ongoing deficits (most recently in 2012) (Leangcharoen, Thampanishvong, and Laan 2013).

The LPG pricing mechanism is complex. The ex-refinery price has been capped at $333 per ton since 2009, significantly lower than the world price. Retail prices are also capped for all sectors except the petrochemicals industry. Oil-fund levies are applied to the cooking, transport sector, and industry sectors. Lump-sum transfers are made from the oil fund to LPG producers and importers to compensate for the capped ex-refinery price. Domestic producers of LPG are only compensated for the difference between the cost of production and the ex-refinery price. They are not compensated for the opportunity cost of selling LPG domestically rather than at the higher international price (Figure 1).

The NGV price is largely composed of the base natural gas price and an allowance for NGV infrastructure (transportation and delivery costs plus capital expenses such as NGV service stations). The retail price of NGV is fixed at B10.50 per kilogram, below the cost of production. PTT has sustained significant losses in its NGV operations, which have been only partially compensated by transfers from the oil fund, with subsidized NGV, as noted, available to all consumers. As a preliminary step to targeting the NGV subsidy, the Ministry of Energy, in collaboration with PTT, launched an Energy Credit Card Program in 2011. In addition, the government used an excise tax exemption in May 2006 to support installation of NGV equipment in passenger cars and vans. Import taxes were reduced for equipment and parts for NGV refueling and vehicles. In addition, there is an excise exemption on methane gas itself as a part of the pricing regime to keep NGV prices low.

Figure 1: Composition of Price Subsidies for LPG in Thailand
LPG = liquefied petroleum gas. 

Note: An oil-fund levy was not included in the reference price because the government, to keep prices down, is unlikely to apply a levy to market-priced LPG. 

* Based on 2012 average prices. 

Sources: Authors based on data from the Energy Policy and Planning Office (2013a) and PTT (2012).

Electricity generation is increasingly reliant on natural gas, as noted, well ahead of coal. Natural gas is sourced from wet gas from the Gulf of Thailand (80.8% in 2012), dry gas from Myanmar (16.6%), and liquefied natural gas (LNG) imported mainly from the Middle East and Australia (2.6%) (Energy Policy and Planning Office 2013a)

Conclusion:

Fossil fuel subsidies are a prominent feature of many Asian economies, including Thailand. These are categorized either as consumer subsidies—benefiting users such as transport and manufacturing industries and electricity generation—and producer subsidies, which lower costs for producers involved in the exploration, extraction, or processing of energy products. Subsidies contribute to fiscal imbalances in many countries and operating losses in utilities, in addition to other unintended negative consequences. They restrict public expenditure on development priorities such as education, health, and infrastructure; are inefficient for supporting low-income households; and encourage excessive consumption through low energy prices, increasing air pollution, and greenhouse gas emissions. The need to reform fossil fuel subsidies has increasingly been recognized, with international and national commitments to phase out inefficient subsidies.

The objective of this ADB study is to systematically assess the prevalence of different types of fossil fuel subsidies in Thailand and analyze the potential impacts of their removal. It is hoped that this will provide detailed inputs for the ongoing efforts to reform the subsidies.

Download the Report – LINK

Acknowldegement:

This project report was led by Shikha Jha of the Asian Development Bank’s (ADB) Economic Research and Regional Cooperation Department. She prepared this publication with a team from the Global Subsidies Initiative of the International Institute for Sustainable Development (GSI) comprising Peter Wooders, Christopher Beaton, and Tara Laan of GSI; Andrea Bassi of KnowlEdge; and Kerryn Lang, formerly of GSI.

Endnotes:

[1] The reserves-to-production ratio is the time that known reserves will last at forecast consumption levels.

[2]  All baht–dollar conversions are made at B31.06 per $1.00.

[3]  Most biomass feedstock is from sugarcane, rice husk, bagasse, wood waste, and oil palm residue, and is used in the residential and manufacturing sectors.

 [4] In Thailand, the abbreviation NGV refers to natural gas vehicles and natural gas for vehicles, which is more commonly referred to as compressed natural gas. Given that this study is also intended for a Thai audience, the Thai acronym is used.

Source: ADB, 2015. “Fossil Fuel Subsidies in THAILAND Trends, Impacts, and Reform”

© Asian Development Bank, https://openaccess.adb.org. Available under a CC BY 3.0 IGO license.
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