LNG Power Development: Lessons learned from Thailand

Electricity demand is continue to grow in Thailand, and domestic gas supplies are declining. As a result, Thailand is increasing its use of natural gas for power generation and has set a target of importing more than 10 million tons of LNG per year to make sure that there is enough supply of electricity.

Electricity is the most important infrastructure for national development.

The advantages of LNG power include high availability (not affected by weather like hydropower, wind power, and solar power), large capacity, fast response time, and lower emissions than other power sources, helping to reduce environmental pollution. LNG is a flexible energy source that can be imported from multiple sources, helping to reduce dependence on traditional energy sources.

Mekong – ASEAN recently spoke with Mr. Somsak Chutanan, an energy project development consultant and advisor to many power projects in ASEAN, about the experience of developing the energy industry in Thailand, which has a natural gas share of over 50% in its total power generation mix.

Mekong – ASEAN: Mr. Somsak Chutanan, what is the current power generation mix and natural gas share in Thailand?

Mr. Somsak Chutanan: Thailand is a net importer of energy.

We have hydropower, thermal power (coal and gas), renewable energy (wind and solar), and biomass. In Thailand's power generation mix, thermal power (coal and natural gas) is the main source, accounting for about 56% of total electricity production. The rest is hydropower, which accounts for about 24%, and renewable energy (wind and solar), which accounts for about 19% of total electricity production in 2023.

These sources of electricity are supplied by the Electricity Generating Authority of Thailand (EGAT), independent power producers (IPPs), small private power producers (SPPs), and imported electricity.

Forty years ago, we started to exploit natural gas from the Gulf of Thailand for power generation. As gas supplies increased, we expanded gas pipelines to other gas-fired power plants in Bangkok, Ayutthaya, Saraburi, and Ratchaburi, near the Myanmar border. At this time, Thailand began to buy more gas from Myanmar. We had to connect domestic and imported supplies together.

However, blending gas from these sources is a bit complicated because the characteristics of each gas source are different, and the calorific value is also different. Machinery and equipment suppliers for gas-fired power plants are required to make some design adjustments to burn more types of gas.

Some major LNG-fired power projects, such as the 750 MW Map Ta Phut 2 LNG-fired power plant (completed in December 2022) and the 750 MW Khlong Khlung 1 LNG-fired power plant (completed in July 2023), have contributed to increasing the use of gas, offsetting the decline of coal in the power generation mix.

In addition, Thailand is also implementing a number of other LNG-fired power projects, such as the 750 MW Map Ta Phut 3 LNG-fired power plant (scheduled for completion in 2024) and the 750 MW Khlong Khlung 2 LNG-fired power plant (scheduled for completion in 2025).

As electricity demand continues to grow, but gas fields in the Gulf of Thailand have been depleted, we need more gas for power generation and the only remaining option is to import LNG. This is the main factor driving Thailand's LNG import demand to surge in recent years (up 127% since 2019).

Mekong – ASEAN: Mr. Somsak Chutanan, what are the most important issues to consider when investing in an LNG-fired power plant project?

Mr. Somsak Chutanan: When developing an LNG-fired power plant, it is necessary to consider the port, receiving terminal, gas storage and regasification facility, and gas pipeline to the power plant.

For the projects that have been implemented, we usually have to find a port with a water depth of at least 20 meters to be able to receive vessels with a capacity of 100,000 tons or more.

In addition, the location of the port is another factor to consider, as the cost of LNG is heavily dependent on transportation costs. A 1,500 MW gas-fired power plant requires an investment of at least 2 billion USD.

Investors also need to carefully calculate to choose and build a receiving terminal in a suitable location to reduce LNG costs and then supply it to all power plants in the same area.

A deep-water port and a large central terminal will help to reduce not only the cost of gas, but also the cost of building many unnecessary small ports. This means saving investment budget.

Along the coast of Vietnam, there are not many suitable locations for building LNG terminals. If each investor of an LNG-fired power plant wants to import LNG to build a terminal for their power plant, it will lead to unnecessary waste.

According to the target set for 2030 in Vietnam's Power Development Plan 8 (PDP8), to meet the gas supply for 13 LNG-fired power plants located scattered throughout the country with a total capacity of 22,400MW, the total storage capacity needs to reach about 15-18 million tons of LNG per year. However, Vietnam currently only has a single LNG storage project in Thi Vai with a capacity of 1 million tons of LNG per year.

The increase in gas prices due to transportation costs will affect the electricity price.

Mekong – ASEAN: Mr. Somsak Chutanan, how is the electricity price for LNG-fired power plants in Thailand constructed, and what are the risks that investors may encounter?

Mr. Somsak Chutanan: **In Thailand, natural gas is brought into a gas separation plant and only methane remains to be burned in a power plant. Other gas components obtained after separation are used as raw materials for the plastic, electronics, and textile industries. Therefore, the selection of the best transit terminal location becomes a very important factor in the development of natural gas businesses as well as other economic sectors.

Methane, which is used as the main fuel for electricity generation in Thailand, is priced for four groups: Independent Power Producers (IPPs), Small Power Producers (SPPs), Industrial Production, and Transportation.

Of these, the price for IPPs, private companies that invest in building and operating power plants to sell electricity to the national grid, is kept at the lowest level to maintain lower electricity costs.

However, as I mentioned earlier, investing in a gas-fired power plant is a very large investment. Therefore, to help investors raise capital for the project, the Thai government has signed power purchase agreements with investors with some key conditions.

First, the electricity price will change according to exchange rates and market fluctuations in input fuel prices. Long-term power supply contracts allow investors to arrange long-term fuel supplies to avoid the unforeseen risks of fuel price changes.

Typically, investors will sign long-term gas purchase contracts for 20-25 years to ensure the most reasonable costs for the investment. The price of purchasing gas and logistics costs in foreign currency (USD) when converted to local currency will have many risks. Therefore, the electricity price in Thailand is linked to USD.

Based on this, the electricity price will consist of two components: fixed capacity costs and variable energy costs, which will be paid according to the actual amount of electricity supplied.

In Thailand, to reduce unforeseen risks, the government provides guarantees in the event of: changes in laws and regulations, government delays in implementing work, or exchange rate fluctuations.

The Thai government understands that mobilizing private investment is necessary to share the burden of public investment and promote economic development.

Since 2019, EGAT has implemented a number of policies to support domestic power producers, such as importing LNG at the lowest competitive price on the international market and implementing guidelines on the liberalization of natural gas business (phases 1 and 2) for use at power plants.

According to the resolution of the Energy Regulatory Commission (ERC) on April 5, 2023, EGAT set a target of importing 1.2 million tons of LNG per year to reduce fuel costs for power generation, support electricity prices, and reduce the burden on people starting from October 2023.

Therefore, the total amount of LNG purchased in October just passed increased by 25% from the same period in 2022, pushing Thailand from the 11th to the 8th position in the global liquefied natural gas (LNG) import ranking. According to flow data from Kpler, Thailand had imported 22.9 million cubic meters (MCM) of LNG as of October, higher than the record 19.8 MCM for the whole of 2022.

Mekong – ASEAN: Thank you for the conversation!