Thailand: State set to float LPG on Aug 1

Thailand: State set to float LPG on Aug 1

Energy policymakers yesterday resolved to fully deregulate the liquefied
petroleum gas (LPG) market by dismantling the price cap and subsidy system
that have been in place for more than three decades.

The Energy Policy Administrative Committee (Epac) said LPG's price slump
offers a good opportunity to float the price. The price float is set to
begin Aug 1, with the whole process to be completed three months later.

LPG value has been controlled by the government since gas was discovered in
the Gulf of Thailand in 1981.

Retail prices of LPG have remained flat at 20.49 baht per kilogramme, said
Epac secretary-general Twarath Sutabutr.

"The price float will not have any immediate adverse effects on the poor
because global LPG prices remain low," he said.

Contract price gas fell by US$32.5 a tonne to $355. This substantial drop in
global gas prices will allow the state to reduce or eliminate State Oil Fund
subsidies, which have kept prices low for years, said Mr Twarath.

"Freeing up the gas price now should help avoid public discontent," he said.

LPG is widely used in household cooking, transport, factories and the
petrochemical sector. Its widespread use makes price increases a sensitive
issue. In the past, politicians subsidised the commodity to gain popularity.

The plan to deregulate gas was set in 1992, but its implementation was
delayed in 1998 and again in 2008 because of political considerations.

The State Oil Fund retains 6.44 billion baht in cash that it could readily
use for subsidies if global gas prices rise.

Today's low gas price would allow the government to strengthen its balance
sheet by collecting fees from gas users in case the subsidy is
re-implemented, said Mr Twarath.

Areepong Bhoocha-oom, the Energy Ministry's permanent secretary, said
floating gas prices would also facilitate gas trading systems. This
consideration is of prime importance because the Gulf of Thailand's gas
supply may be depleted as soon as 2022.

He said policymakers will gradually open up the LPG trading business, which
has been controlled by the country's oil and gas conglomerate PTT Plc for
more than three decades.

Last month Mitsubishi Corporation registered as an LPG trader with the
Department of Energy Business.

Among the major LPG retailers in Thailand are PTT Plc, Siamgas and
Petrochemical Plc (SGP) and WP Energy Co.

The plan to liberalise LPG trade was welcomed by most gas companies,
including SET-listed SGP, the second-largest LPG trader in the country.

PTT, the biggest domestic trader, also welcomed the move.

Auttapol Rerkpiboon, PTT's senior oil business executive vice-president,
said PTT is ready to compete in the free market as well as rent its gas
depot in Chon Buri province to other traders.

Jintana Kingkaew, SGP deputy managing director, said the estimated global
gas contract price is unlikely to rise beyond $1,000 a tonne, although
consumption remains high as it moves in line with a low global oil price.

The government should allow domestic prices to move in line with global
prices because the contract price remains higher than domestic gas, she
said.

Domestic gas prices come from different gas blocks, each with different
costs and prices. The government needs to make sure this does not obstruct
making floated prices fair for consumers in different sectors, said Ms
Jintana.

Since the liberalisation of imported LPG in December last year, SGP imports
44,000 tonnes of LPG a month, most of which is destined for re-export.

Local gas markets shrank by 2.8% year-on-year in the first quarter this
year, more than SGP expected by 1.2%. The divergence was mostly because of
petrol's falling price, which encouraged motorists to switch from gas to
petrol.

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Link to Original Article:
http://www.bangkokpost.com/news/transport/1282503/state-set-to-float-lpg-on-
aug-1

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com