THE MYANMAR CONNECTION
Thailand depends upon Myanmar’s natural gas to supplement its domestic production, which is not enough to meet domestic demand. This dependence shows no sign of slacking, as Thailand prepares to import more gas from Myanmar in anticipation of growing domestic consumption. Recently, Thailand upped its investment in Myanmar’s gas E&P sector through its state-owned oil-and-gas company PTT. The company already has pipelines connecting to Myanmar’s Yadana and Yetagun fields, and it is in the process of developing the Zawtika field in cooperation with Myanma Oil and Gas Enterprise.
Traditionally, Thailand has been one of the few major players in Myanmar’s gas sector, but this is changing. Foreign investors are increasingly targeting Myanmar across all sectors, oil and gas included. As a result, Thailand’s dominance is subsiding. In 2013, Myanmar awarded PTT two offshore blocks, reportedly without a formal bidding process. A repeat of such favourable treatment is unlikely as an increasing number of investors compete with Thailand to take a part in Myanmar’s energy projects. Additionally, Myanmar’s domestic demand for gas is increasing. As a result, it seems probable that more gas that would originally have made its way to Thailand will instead be set aside to generate power for Myanmar’s electricity-hungry populace.
THE NEED FOR DIVERSIFICATION
Given these developments, Thailand needs to look elsewhere to meet its gas needs. The options are either to import gas from other countries or to boost domestic production. Thailand has already developed an LNG import terminal in Rayong. However, while the import terminal is useful in terms of the strategic flexibility it offers by not tying Thailand to a single supplier, it is less economically efficient than importing via fixed pipelines. For this reason, while the LNG terminal is an important tool to diversify import options, Thailand should also look towards other alternative sources of gas.
At the moment Thailand is connected to only one other country via pipeline besides Myanmar: Malaysia. That pipeline’s development was marred with protests and political controversy, and it skirts near Thailand’s troubled southern provinces, an area where armed insurgency has claimed thousands of lives over the last decade. Thailand should look into possibilities for importing Malaysian gas and consider developing new pipelines with other countries. Such international infrastructure deals require tedious negotiations with neighbours, though, and at best they are long term solutions that take years to arrange.
More immediately, Thailand should grow its own domestic production. This would be easier to arrange than international cooperation with gas suppliers, and for this reason could potentially yield quicker results. As of yet, Thailand has been unable to cover its own demand with domestic production alone. There are rumours of sizeable domestic reserves, however, particularly in the Gulf of Thailand.
OBSTACLES TO FOREIGN CAPITAL
Developing these domestic resources will require foreign capital. Unfortunately, the investment climate in Thailand is losing its attractiveness for two main reasons. First is the recent coup, which raises concerns about Thai markets’ stability. Second is Myanmar’s economic opening, which has created a competitive new investment market across the border.
Representatives of Thailand’s Ministry of Foreign Affairs recently visited Myanmar, which currently chairs ASEAN, in order to convince it that the coup does not pose a threat to regional stability. That such a dialogue could occur both illustrates Thailand’s fall from grace and Myanmar’s increasing importance as a regional actor. Whereas Myanmar is liberalising after a half century of junta rule, Thailand has experienced yet another in a long string of coups, with reports of increasing authoritarianism and growing numbers of political refugees. It is important not to overstate Thailand’s decline and Myanmar’s rise; Thailand has weathered many coups and remains a strong economy in the region, while Myanmar’s transition from authoritarian rule to democratization is arguably stalling. Still, the contrast in the two countries’ recent experiences is striking.
Thailand needs to attract investors despite its political turbulence, and it needs to woo investors away from Myanmar, which is also seeking foreign capital for offshore ventures. When reaching out to international investors, Thailand should keep three factors in mind:
Thailand should not impose onerous requirements for selling gas to domestic markets, as is rumoured will happen in Myanmar. This would likely alienate foreign investors, especially since there is no guarantee that local wholesale buyers will be able to pay market price for the gas.
Thailand should impose local employment quotas for offshore projects in order to ensure local knowledge transfer. This would benefit the local population and soothe nationalist sentiments, of which there are many. At the same time, it would not alienate foreign investors because Thailand already has a fairly skilled workforce in the hydrocarbon industry.
Similarly, Thailand needs to engage local stakeholders when designing and implementing offshore energy projects. This would address concerns that such projects adversely impact local communities and ecosystems. From a more business-oriented perspective, projects with local buy-in meet less popular opposition, which is a major disincentive to foreign investment.
Thailand still maintains a leading position in Myanmar’s hydrocarbon sector, but as the trend of the latter’s economic opening continues, Bangkok should pursue a strategy to diversify it gas supply. In the long term, such a strategy could include looking to other countries and developing corresponding gas import infrastructure. In the medium term, however, boosting domestic production would offer a more immediate benefit. As such, Bangkok should pursue E&P activities in the Gulf of Thailand in a way that guarantees local knowledge transfer, doesn’t overly restrict the marketing of produced gas, and addresses local communities’ concerns.
Nicholas Borroz is an independent analyst of energy geopolitics with a focus on oil and gas transportation infrastructure. He works for a DC-based risk consultancy and has three years’ experience working for the US government in international affairs where he focused on development, energy, and economics. You can reach him on Twitter @Nborroz or on his blog nicholasborroz.wordpress.com.