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Rising oil prices, especially in the third quarter to October, spurred by the threat of a US-Iraq war, did not deter the upswing in domestic oil and gas demand, which was poised to record average growth of 6% year-on-year, to the equivalent of nearly one million barrels of oil per day.

Giving an extra push to the demand for motor fuel was Thais' love affair with cars, with some 400,000 new vehicles entering Thailand's congested road system in 2002.

Relatively stable power tariffs were expected to contribute to an almost 5% rise in national electricity consumption.

A potential US-Iraq war and the threat of terrorism prompted the government to come up with a contingency plan to deal with any possible energy crisis as well as new security measures at petroleum installations.

On the policy front, a new Energy Ministry came into existence in 2002 with the promise of better administration of the country's energy affairs.

Meanwhile, the long-awaited verdict on whether the trans Thailand-Malaysia gas project would finally proceed moved a step closer with Prime Minister Thaksin Shinawatra showing strong determination to push the project ahead.

But clouds of uncertainty continued to shroud the two controversial coal-fired power plant projects in southern Thailand and the Thaksin administration has still not clearly spelled out their fate.

Late in the year, a new major power source for Thailand began to emerge as Thailand and Burma reached a consensus to embark on the US$5.5-billion Salween hydro power project.

However, Thailand's electricity demand in the future is now seen as not growing at the pace anticipated earlier, prompting a downward revision in the power demand growth forecast over the next 14 years.

On a more positive note, the petroleum exploration industry was given a major boost as the Industry Ministry finally released seven oil and gas exploration blocks and granted new production licences to existing concessionaires, after a delay of two years.

Another positive development, in terms of preventing energy prices from inflating, was the successful negotiation to ease the terms of natural gas purchases from the Yetagun field in Burma as well as supplies from Unocal-operated fields in the Gulf of Thailand.

PETROLEUM AND ELECTRICITY DEMAND SOAR

Thailand's petroleum demand, excluding consumption from petrochemical requirements, rose 6.4% in the first nine months of 2002 to 989,500 barrels of oil equivalent per day (boed) due to the economic rebound.

The Ratchaburi power house: More Burmese natural gas has been used to meet Thailand's appetite for power.

Growth in consumption of natural gas outstripped that of refined oil products due largely to the continued surge in natural gas demand for power generation.

Power producers, in turn, have stepped up production to meet rising electricity demand in the country.

Usage of natural gas in the period jumped 8.5% to reach 372,500 boed, 90.1% of which was used for power generation.

Total consumption of refined oil products increased 5.1% to 617,000 boed with demand for every product showing a rise _ diesel oil was up 5.6% to 276,400 boed; gasoline up 6.4% to 124,400 boed; fuel oil up 5.7% to 84,000 boed; aviation fuel up 0.6% to 64,400 boed; LPG up 4.6% to 66,800 boed and kerosene up 11.4% to 1,100 boed.

Spurring demand for petrol and diesel fuel was the sharp increase in new vehicle sales. Domestic vehicle sales, excluding motorcycles, in the first 10 months of 2002 soared 39.6% to 325,818 units, consisting of 101,839 cars (up 25.3% year-on-year) and 223,979 commercial vehicles (up 47.2%), according to data compiled by Toyota Motor Thailand Co.

Thailand's electricity consumption rose 4.5% in the nine-month period to June 2002 to 79,715 gigawatt-hours.

The peak demand of 16,681 MW took place at 2 pm on April 4, 2002, breaking the previous high of 16,126 MW recorded on April 23 in the previous year, as temperatures soared.

The Energy Policy and Planning Office projected for the full fiscal year ended in September 2002, the country's overall electricity demand would be 4.7% higher than in the previous year.

HIGHER OIL PRICES

Global oil prices began to climb from slightly over the US$20-a-barrel range in the first quarter of this year to the $24-27 level in the second quarter.

They then began to move up further by an average of $1.10 to $2 in the third quarter, fuelled by stronger demand and fear of potential military action that could disrupt oil supplies from the Middle East.

With the prospect of a resolution of the potential US-Iraq conflict emerging in November, oil prices began to ease to the range of $22-24.

Pump prices in Thailand seesawed in line with world oil prices, touching a peak in October in Bangkok of 16.49 baht a litre for 95-octane gasoline and 15.49 baht for 91-octane petrol.

Analysts agreed that in the near term, oil prices were likely to remain robust, however the resolution of the Iraq conflict would ultimately bring down oil prices to the average level that was seen in the past 10-15 years.

CONTINGENCY PLANS

Lowering the car speed limit to 80 kph, curtailing department stores' opening hours, and rationing fuel in the worst-case scenario, are among the contingency energy-saving plans endorsed by the National Energy Planning Committee in the event that a US-Iraq war resulted in an oil shortage.

Officials affirmed that capping local oil prices would be the last resort in the event of an oil crisis resulting from possible attacks by the United States on Iraq.

In October, Thailand bolstered security at all of its 85 petroleum depots and six oil refineries after US intelligence officials warned the government of a possible threat from terrorist organisations.The extra security measures came shortly after the deadly bomb blasts on the Indonesian island of Bali and followed recent warnings by several western countries that major tourist spots in Thailand could face possible terrorist attacks.

BETTER HANDLING

OF ENERGY AFFAIRS The management of energy affairs in Thailand was likely to improve markedly under the bureaucratic reform put in place on Oct 1, along with a new cabinet line-up.

Pongthep Thepkanchana, 51, who previously oversaw part of Thailand's energy affairs, was named Energy Minister with a brief to improve policy making, management and oversee the new ministry.

All relevant state agencies and enterprises, previously scattered under the control of four ministries and the Prime Minister's Office, are now under the umbrella of the new ministry.

The old structure prevented state agencies from carrying out government policy in a unified way because they were supervised by different ministries.

The new ministry deals with all energy-related issues including petroleum, electricity, renewable energy and conservation.

POWER DEMAND GROWTH FORECAST REVISED DOWN

Thailand has revised down its power demand growth forecast over the next 14 years due to a downward revision in economic growth projections and successful energy conservation.

The new projections, prepared by the state electricity load-forecast body, now estimates Thailand's peak power demand rising by 1,104 megawatts a year between October 2002 and September 2006 from a previous projection of 1,285 MW. That will bring the peak demand in 2006 to 21,648 MW.

The forecast for October 2006 to September 2011 was cut to 1,535 MW a year from 1,607 MW, bringing the peak demand in 2011 to 29,321 MW. The projection for October 2012 to September 2016 was also reduced to 1,806 MW a year from 2,022 MW with peak demand rising to 38,351 MW in 2016.

The new power demand projections were calculated largely in line with the revised economic growth forecasts which were projected to rise by 3.5% to 4-5% between 2003 and 2005, due to the impact of the declining US economy and as a result of energy-saving programmes.

The revised power demand forecast would cause a delay in the timing of electricity delivery and purchase from new plants planned by the Electricity Generating Authority of Thailand (Egat) and private power producers both in

Thailand and neighbouring countries.

THAILAND-MALAYSIA

GAS PIPELINE PROJECT The Thaksin Shinawatra administration made a landmark decision in May 2002, issuing a long-awaited ruling to proceed with the stalled Thailand-Malaysia gas pipeline and the related gas separation plant project, ending years of confusion, debates and fighting between opponents and proponents on whether the two-nation energy projects should be allowed to go ahead.

The gas scheme will now proceed but its planned onshore section passing through Songkhla province would be slightly re-routed to avoid the area where most of the hard-core opponents of the scheme are living.

A section of the onshore pipeline of the gas project will be re-routed to within a five-kilometre radius of the original path, where environmental impact assessment studies have been conducted. It was decided that the landing point of the pipeline, to be laid from the Thailand-Malaysia Joint Development Area in the southern Gulf of Thailand, be moved to Ban Nairat in Tambon Taling Chan, 4.8 km from its original path at Ban Kobsak in Tambon Sakom.Both are in Chana district, Songkhla.

The alternative route of the 36-inch inland line is expected to be shorter than the current route which is 87 km, extending from the Chana district of Songkhla in Thailand to Kedah in the northern Malaysian peninsula. The re-routing would also mean the relocation of the two 425-MMcfd gas separation units to the new pipeline landing point.

Last July, Mr Thaksin reassured his Malaysian counterpart, Dr Mahathir Mohamad, during the latter's state visit to Thailand, that the Thai govern ment would push ahead with the delayed project.

The delayed pipeline was supposed to be completed in the third quarter of this year to transmit 390 MMcfd of gas from Cakerawala gas field in block A-18 of the JDA to Malaysia.

Opponents have not given up. In November, a petition from 1,384 academics calling for a review of the project was sent to the prime minister.


They branded the project as offering more advantages to Malaysia than Thailand, while affecting the livelihood of local residents in Songkhla and failing to pass environmental impact assessment standards.

But Mr Thaksin refused to budge, reaffirming his determination to see the scheme through.

Meanwhile, Trans Thai-Malaysia (Thailand) Ltd, the project sponsor, said the laying of the gas pipeline was set to begin early in 2003, with the commencement of commercial operations expected by the end of 2004.

COAL-FIRED PROJECTS

FATE STILL UNCLEAR The May 10 government announcement also dealt vaguely with whether the two controversial coal-fired projects in Prachuap Khiri Khan _ the 1,400 MW facility of Union Power Development Co (UPDC) and the 700 MW plant of Gulf Power Generation (GPG) _ could move ahead.

The government would only say that it had granted ``permission'' to the Electricity Generating Authority of Thailand (Egat), the contractual buyer of Bor Nok and Hin Krut power, to ``discuss'' and ``resolve problems'' with the two project sponsors.

The unclear official statement led to two conflicting reports from the government. One suggested that Egat was told to negotiate with UPDC and GPG to put off, once again, the supply start-up dates by a few years and compensation incurred by the delay.

The other report said the Thaksin Shinawatra administration had indeed decided to scrap the two power plants in the southern province of Prachuap

Khiri Khan, but it was reluctant to say so in public for fear of hurting the investment atmosphere.

Egat was asked to exploit contractual loopholes for terminating the two projects without paying them penalty compensation, reportedly 11 billion baht.

Two major sticking points are that the two sponsors of the projects, worth US$2 billion in total, had failed to complete project funding arrangements by April 30 and were unable to promote understanding among local residents and environmentalists.

SALWEEN POWER PUSHED

Thailand and Burma struck a basic accord to embark on the US$5.5-billion Salween hydro power project but differences emerged over where the main power house should be located.

Rangoon wanted the main power plant, with a proposed generating capacity of 3,000 MW, to be built on Burmese soil, or more specifically in the Tha Sang district. Bangkok suggested Mae Sariang district in Mae Hong Son, the northern Thai town on the border with Burma, as the location.

The split of opinion emerged at a recent discussion in the Burmese capital

between Burmese and Thai power authorities_ the first formal talks described as a starting point to an effort to jointly exploit energy resources from the Salween river which offers generating potential of 5,000 MW.

Egat governor Sitthiporn Rattanopas said Thailand suggested Thai soil as a location mainly because it would be easier to negotiate loans and bring in investors to the project.

NEW E&P LICENCES

The Industry Ministry finally agreed to award seven oil and gas exploration blocks, granting new licences to existing concessionaires, after a two-year delay.

Granting these permits was among the last acts of Suriya Jungrungreangkit in his last two days as Industry Minister before becoming Transport Minister in a new cabinet lineup, spurred by the Thai government's bureaucratic reforms in October.

Mr Suriya had deliberately withheld granting the permits to pressure the firms involved, especially ChevronTexaco and Royal Dutch/Shell, to improve their terms and conditions proposed in July 2000 as part of the 18th licence bidding round.

The new exploration licences would trigger spending of more than US$32 million by the concessionaires to explore the tracts over the first three years, according to officials.

Five new production licences were granted to existing concessionaire groups led by the Royal Dutch/Shell,

Pacific Tiger Energy, Harrods and PTT Exploration & Production Plc (PTTEP).

YETAGUN TERMS EASED

The Yetagun consortium, led by UK-based Premier Oil, has signed an accord to amend the terms of its Burmese natural gas sales to Thailand's partially privatised energy firm PTT Plc following protracted negotiations.

The deal, clinched after Burma's cabinet last October endorsed amendments easing the terms in the long- term gas contract, were described as a ``win-win'' situation as they allowed PTT to pay less for the gas, deferring the purchase of incremental supplies, while the developers can increase gas deliveries to the Thai firm.

The amendments resulted in PTT paying about 4.2 billion baht a year less for Yetagun gas, piped from the Gulf of Martaban.

UNOCAL CUTS GAS PRICES

Yielding to prolonged political pressure, Unocal Corp agreed to cut the price of natural gas it sells to PTT Plc. The reduction, by about five US cents per 1,000 cubic feet of gas or 2% of the prevailing wellhead prices, would cost the US energy firm between 12 billion and 13 billion baht in lost revenue for Thai gas sales over the next 10 years. Unocal is the largest natural gas producer in Thailand, delivering about one billion cubic feet a day from its 13 fields in the Gulf of Thailand, representing about a third of Thailand's overall indigenous gas supplies.