IEEJ： October 2014ｃ○ IEEJ 2014

Special Bulletin

A Japanese Perspective on the International Energy Landscape (187)

September 19, 2014

Thailand's Energy Policy Challenges and Expectations on Cooperation with JapanKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 18-19, I had an opportunity to exchange views with Thai government officials
and energy industry people in Bangkok on Thai energy policy problems. In Thailand, a military coup
took place May this year to contain a bitter dispute between supporters and opponents of former
Prime Minister Thaksin Shinawatra that had divided the country in two. Since then, the Thaisituation has so far been stable under interim Prime Minister Prayuth Chan-ocha. A roadmap has
been given for a transition from the present interim government to a full-fledged one through ageneral election scheduled for next year. Various initiatives will be implemented during the transition
to stabilize domestic politics, the economy and national livelihood and to achieve nationalreconciliation.

To achieve the national reconciliation, however, Thailand will have to resolve many difficult
challenges including a fair democratic election satisfactory to the people, fundamental wealth gaps
and income distribution. Future developments remain unforeseeable. Under such situation, Thailand
has various energy challenges regarding the stabilization of the national economy and livelihood.
Policymakers and energy industry people cannot ignore these challenges. The following summarizes
Thai energy challenges I felt through the exchange of views.

First, I felt that government officials had great interests in problems regarding stable energy
supply. Thailand's largest energy source is oil, which accounted for 47% of Thai energy supply in
2013. While oil's share of total energy supply has gradually fallen and is expected to continue
declining, oil is likely to remain the most important energy source in Thailand. The country depends
on imports for 67% of its oil supply, importing oil primarily from the Middle East. Due to the crude
oil price spike since 2011 and the recently destabilized Middle East situation including Iraq and therise of ISIL, oil supply security is a grave policy matter of concern to Thailand.

Attracting attention in this respect are Thailand's efforts to enhance emergency response
capacity including oil reserves. Thailand has raised mandatory oil inventories for domestic oil1

IEEJ： October 2014

ｃ○ IEEJ 2014business operators and is about to consider building government oil reserve facilities. Given higheconomic costs, however, twists and turns are expected to come before a final decision. At the sametime, Thailand is deeply interested in international cooperation in developing emergency response
capacity. It has made steady efforts to deepen cooperation with the International Energy Agency andindicated deep interests in enhancing the feasibility of an oil supply security framework for theAssociation of Southeast Asian Nations. In this regard, I felt that Thailand is greatly interested incooperation with Japan as well.

Second, Thailand also has grave interests in natural gas supply security. Gas's share of fuels forthe power generation sector is as high as 70% in Thailand, indicating that stable electricity supply isclosely connected to stable gas supply. Thailand depends primarily on domestic gas output and limits
pipeline gas imports from Myanmar to some 30% of its gas demand. It has recently started liquefied
natural gas imports. As electricity demand has expanded, how to expand gas supply has become akey challenge. While domestic gas output is expected to decline over a medium to long term, how tomaintain domestic gas output, including whether to expand investment from abroad and revise gas
development systems, is likely to become a major problem. Expectations are placed on theexpansion of LNG imports as a new option. In this regard, LNG import prices in Thailand have theAsian premium problem as in other Asian LNG importing countries. I felt that more competitive
LNG procurement will become a key urgent challenge in Thailand as well as in Japan.

Third, Thailand and other countries has are facing difficult challenges regarding energy
development and environmental problems. As noted above, gas has a dominant share of Thai
electricity supply, prompting policymakers to consider diversifying electricity sources. Particularly,
diversification options include coal, renewable energy and nuclear energy. Among them, coalincluding domestically produced low-grade coal (brown coal) is viewed as the most economicallycompetitive. In fact, however, the construction of coal thermal power plants and relevant facilities
has reportedly been very difficult because Thai citizens, in particular those live close to site ofplanned coal related facilities, strongly oppose coal-fueled power generation due to environmentalconcerns. The introduction of nuclear power generation is positioned as a long-term challenge, while
renewable energy generation is viewed as having problems in terms of economic efficiency andstable supply. In this way, Thailand has plunged into a dilemma in which the country is experiencing
difficulties in proceeding with coal power generation that is viewed as the most economicallypromising. In our exchange of views, therefore, the Thai side indicated strong interests in Japan’s
experiences and know-how concerning clean coal technologies including IGCC (integratedgasification combined cycle) plants using brown coal, as well as how to build relations with local
residents to win their acceptance of energy infrastructure facilities.
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While the escalation of the divisive political dispute has caused an economic slump in Thailand,
its medium to long-term growth potential is still high. At present, Thailand has close economic
relations with Japan. Given the recent international relations in Asia, Japan’s political relations withThailand as one of the leading ASEAN countries are growing more important. Various energy policy
challenges in Thailand indicate that the country, while being required to make efforts to solve
relevant problems on its own, must take advantage of international cooperation to effectively addressthese problems. In this respect, Thailand has great expectations on and interests in enhancing
cooperation with Japan. Given this point, Japan may have to develop the promotion ofJapan-Thailand energy cooperation as part of its international energy strategy.

Contact: report@tky.ieej.or.jp
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