Petroleum Authority of Thailand

1
Petroleum Authority of Thailand
Privatization of PTTand Status of Natural Gas
Reform Process
By Anon SirisaengtaksinDeputy President, Natural
Gas Marketing and Transmission PTT Gas
2

• INTRODUCTION
• PRIVATIZATION OF PTT
• NATURAL GAS REFORM
• CONCLUSION

3
OUR MISSION

• Our Mission to help foster and develop the
  countrys oil and gas industry

• Exploration, Development And Production

• Supply / Refining

• Storage / Reserve

• Distribution

• Marketing

• Related Businesses

4
NATURAL GAS PIPELINE SYSTEM

• PTT Responsible for developing Thailands gas
  pipeline network

YADANA
YETAGUN

RAYONG
ANDAMAN SEA
BENCHAMAS
TANTAWAN
ERAWAN
GULF OF THAILAND
BONGKOT
PAILIN
EXISTING PIPELINE ( 2,038 KM)PLANNED PIPELINE
JDA
5
NATURAL GAS PRODUCTION IN THAILAND

• The Thai gas industry has grown into a major
  energy source under our leadership

6
OIL MARKETING

• PTT OIL The largest oil marketer in Thailand
  (1998)
• Over 1,500 retail sites - upgrading network with
  C-Stores

PTT 35.4
PTT 27.1
Shell 16.6
Shell 14.7
Esso 16.7
Esso 14.8
Others 24.7
Others 27.8
Caltex 11.8
Caltex 10.4
Total (Incl.FO_EGAT) 13,105 MML
Total (Excl.FO_EGAT) 8,883 MML
7
PTT INTERNATIONAL

• Regional expansion of core competencies

8
REFINING SECTOR

• PTT has played a major role in the development of
  a world-scale domestic refining industry

Thaioil 49
SPRC 36
RRC 36
BCP 24.29
Thai Lube 30
PTTs Share
Capacity 220 Kbd 130 Kbd 145 Kbd 120 Kbd 21.5
Kbd Config. Complex Complex Complex Hydro Hydro
Fcc,hcu Hcu,vbu Rfccu Skimming Finishing Year
1961 1992 1992 1984 1993 Established
9
PETROCHEMICAL SECTOR

• PTT sponsorship of a domestic chemicals industry

Olefins
Aromatics
Fertilizers
NPC 37.94
ATC 44
NFC 24.997

• Ethylene - 401,000 tpa
• Propylene - 127,000 tpa

• Benzene - 200,000 tpa
• Toluene - 52,000 tpa
• Paraxylene - 322,000 tpa

• NPK Fertilizers
• - 1,000,000 tpa

TOC 49

• Ethylene - 385,000 tpa
• Propylene - 190,000 tpa

10
MEETING THE KINGDOMS NEEDS

• Through PTTs sponsorship, the development of a
  domestic energy industry to meet Thailands needs

PTTSponsorshipDevelopment
OilMarketing
11
PTT TODAY

• A major energy corporation with operations across
  a broad spectrum of oil and gas activities

PTT SOE
EP Natural GasSector
OilSector
PetrochemSector
RefiningSector
PTT OIL
Thai Oil 49
NPC 38
PTTEP 61
PTT International
Bangchak 24
Thai Olefins 49
PTT Gas
Rayong 36
Aromatics (T) 44
Thai LNG Power 40
Star 36
National Fertilizer 25
PTT NGD 49
Thai Lube Base 30
12

• INTRODUCTION
• PRIVATIZATION OF PTT
• NATURAL GAS REFORM
• CONCLUSION

13
REGIONAL DEREGULATION PRIVATIZATION

• Competition increases in Asia through continued
  privatization, deregulation and consolidation

Chaebols
CNPC
Sinopec
CPC
CNOOC
IOC
ONGC
PNOC
GAIL
PTT
Petron
Petronas
Pertamina
14
THE CRITICAL PATH

• In order to survive, we must have a vision for
  the future and a sound strategy for delivering
  that vision

SUCCESS
STRATEGY
VISION
Where arewe going?
How do weget there?
15
OUR VISION . . .

• Entering a new phase with a new PTT vision . . .

PTT SOE
PTT PLC
Vision 2000
Vision 1978
A well-positioned, financially strong,
international competitor
Fostering the development of the Thai energy
industry
16
AN INTEGRATED OIL GAS COMPANY

• Our long term plans call for increasing
  integration

Listing Vehicle
PTT Plc
Oil BU
Gas BU
Intl BU
Subsidiaries
17
ADVANTAGES OF INTEGRATEDSTRUCTURE

• The integrated stucture has several significant
  advantages

• Optimize business synergies
• Regional competitiveness
• Economies of scale
• Absence of stranded assets
• Superior cost of financing
• Employee issues

18
INTERNAL INITIATIVES

• Internal initiatives aimed at increasing
  efficiency, quality and sense of corporate culture

Corporate Structure Profit center based
business reorganization and rationalization
Business Process Reengineering to promote
customer focus
Management Accountability Performance-based
benchmarking (KPI)
Human Resources Develop more efficient
workforce and stronger corporate culture
19
MANAGEMENT BUSINESS SYSTEM ACCOUNTABILITY

• International standard performance evaluation
  systems to promote management accountability

Key Performance Indicators (KPI)
Decentralized decision making process
Performance-based compensation
20
CURRENT GAS INDUSTRY STRUCTURE

• Currently a monopoly supply, transmission and
  distribution system

Producers
PTT GAS BU
Users
PTTEP
Marketing
EGAT
UCL

• Supply
• Gas Separation

IPP/SPP
Transmission
TOT
Industrial
Others
21
LONG TERM THAI GAS INDUSTRY STRUCTURE

• Working with MoI and NEPO toward establishment of
  a separate, legal transmission company
  wholly-owned by PTT

PTT GAS BU
Separate, legal entity
GasSeparation
Supply Marketing
100
Transmission Company

• Operation
• Marketing

• Supply
• Marketing

• Operation
• Maintenance
• Third party access

22
PRIVATIZATION STEPS

• Transferring ownership to the MoF under the
  Corporatization Act prior to PTTs IPO

Today
Mid-2000
End-2000
MoF
MoF
Public
PTT Plc

• PTT Act of 1978

• Corporatize PTT under Corporatization Act
• Establish separate, wholly-owned gas transmission
  company

• IPO and listing

23
PRIVATIZATION TIMETABLE

• Financial/legal advisory team in place
• Next steps Cabinet Approval Corporatization
• IPO planned year-end 2000
• Listing on the Stock Exchange of Thailand

Roadshow
Corporatization
Restructuring
Cabinet Approval
Prepare for Listing
Listing
Nov
Feb
Mar
Apr
May
Jun
Nov
Oct
Aug
Jul
Sep
Jan
Dec
Today
2000
24

• INTRODUCTION
• PRIVATIZATION OF PTT
• NATURAL GAS REFORM
• CONCLUSION

25
PRODUCTION PROFILE (2003)
OTHERS 16
MOGE 5
MOECO 8
TOTAL 15
UNOCAL 32
PTTEP 24
TOTAL PRODUCTION 2,549 MMSCFD _at_ HV. 1000 BTU/SCF
26
CONSUMPTION PROFILE (January - September, 1999)
GSP 15.1
ELECTRICITY 77.8
INDUSTRY 7.2
258
124
1,330
TOTAL CONSUMPTION 1,712 MMSCFD _at_ HV. 1000
BTU/SCF GROWTH RATE 5.4
27
NATURAL GAS DEMAND
MMSCFD
AVERAGE GROWTH 8.4
AVERAGE GROWTH 7.2
AVERAGE GROWTH 12.9
PROCUREMENT 1998 INDIGENOUS 99.9 IMPORT 0.1
28
NATURAL GAS DEMAND OUTLOOK
Gas contract volume(MMSCFD)
4000
Demand
3000
2000
Industries/Cogen
SPP
IPP
1000
1000
EGAT
0
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source PTT Gas
29
NATURAL GAS SUPPLY OUTLOOK
Gas DCQ Volume(MMSCFD)
Demand
3000
JDA
Yetagun
Yadana
2000
Pailin
Tantawan/Benchamas
Unocal
1000
Bongkot
Nampong/Extension
0
1998
2000
2002
2004
2006
2008
2010
2012
2014
(1) Current contracted production
30
BACKGROUND

• On 16th February 1999, the Cabinet of the Thai
  Government endorsed a proposal by the National
  Energy Policy Council (NEPC) for the deregulation
  of the natural gas supply industry. The proposal
  included the following elements
• establishing a separate company to operate the
  existing gas transmission pipeline business

31
BACKGROUND

• promoting competition in the gas supply industry
  by introducing third party access on the
  transmission pipeline(s) as a key mechanism to
  facilitate efficiency and competition and
• establishing an Independent Regulatory Agency to
  regulate the gas supply industry with the aim of
  ensuring fair pricing and non-discriminatory
  treatment in the use of pipeline services as well
  as governing the development of the transmission
  system.

32
REFORM PROCESS SCHEDULE

• The TPA code is now under drafting process and
  shall be completed by the end of this year, as
  specified in the contract engaged by Department
  of Mineral Resources.
• The complete TPA code will be submitted to NEPC
  for approval and then to the Cabinet for
  consideration next year.
• It is expected that the TPA code will be
  implemented by mid of 2000, with NEPO, MOI and
  PTT serving as the short-term Regulator.

33
REFORM PROCESS SCHEDULE

• On 19 October 1999, the Cabinet agreed to have
  NEPO and MOI set up a working committee to draft
  the legislation on regulator agency on energy
  sector.
• Chaired by H.E. Dr. Savit Bhotiwihok, minister to
  the prime ministers office, the committee
  includes a number of related parties.
• The independent regulator on energy sector is
  expected to be set up by the beginning of 2001.

34
REFORM PROCESS SCHEDULE

• PTT transmission pipeline co. will be split off
  PTT Gas, in charge of delivering gas from
  producers to users on a tariff-charging basis and
  ensuring the integrity of the whole system.
• PTT Gas is now in the pivotal point in that it
  has to re-arrange all business strategies in
  terms of how to deal with supplying and marketing
  activities after transmission business has been
  separated.

35
REFORM PROCESS SCHEDULE

• The organizations of the new PTT Gas and the PTT
  transmission pipeline co. are being considered
  through a number of options that contribute the
  most effectiveness and efficiency and suit the
  introduction of liberalization.

36
PROPOSED FUTURE STRUCTURE OF THE GAS SUPPLY
INDUSTRY
UNOCAL
Others
TOTAL
PTTEP
PTT Co Ltd/Plc (Supply Marketing)
100 shareholding
PTT Transmission Company
PTT Distribution Pipeline Co.
EGAT
Private Power Producers IPP / SPP
End Users Industrial Sector
37
Benefits of Competitionto Gas Consumers

• Greater choice,
• Lower prices,
• Improved services, and
• Flow-on benefits to the economy as a whole.

38
Key Role of the Development of Upstream
Marketsin the Development of Effective
Competition

• Development of gas spot market
• Presence of many producers delivering gas to the
  same mature natural gas market
• Reduction in wellhead prices
• IF THERE IS NO COMPETITION IN WELLHEAD PRICES,
  THERE SEEMS NO OVERALL BENEFIT OF INTRODUCING
  COMPETITION IN THE DOWNSTREAM MARKET

39
Likely Outcome ofThai Gas Industry Reform

• Gas transmission business will remain a natural
  monopoly
• Significant increase in costs to facilitate
  introduction of competition
• new business processes
• computer systems
• WILL THE INCREASED COSTS OF CREATING COMPETITION
  BE MORE THAN THE SAVINGS AVAILABLE FROM A MORE
  EFFICIENT, DOWNSIZED MARKETING FUNCTION?

40
Development of an Energy Commodity MarketFrom
fully-integrated monopoly to fully-commoditized

• Stage 1 Infrastructure is developed by
  organizations protected by long-term contracts
  and exclusive sales rights.
• Stage 2 Small quantities of the commodity are
  traded on the fringe between established players
  to meet short-term shortages and sell surpluses.
• Stage 3 Price transparency increases as price
  reporting services emerge and the spot price
  becomes a benchmark.

41
Development of an Energy Commodity MarketFrom
fully-integrated monopoly to fully-commoditized

• Stage 4 Companies start to unbundle and offer
  separate services such as transportation to third
  parties.
• Stage 5 Players start to demand price risk
  management services.
• PTT GAS IS IN PHASE 1 OF DEVELOPING
  INFRASTRUCTURE WHERE THE HIGH COST OF INVESTMENT
  REQUIRES PROTECTION BY LONG-TERM CONTRACTS AND
  EXCLUSIVE SALES RIGHTS

42
Upstream and Downstream Competition
43
Steps to Competitive Gas Supply Industry

• Acreage Management Systems
• grant exploration permits of smaller size and for
  shorter duration
• prevent unitization for anti-competitive purposes
• Third Party Access to Upstream Facilities
• apply TPA terms to upstream facilities as well as
  transmission
• regulate price at the wellhead
• Marketing Arrangements
• coordinated marketing versus separate marketing

44
Market Features of Separate Marketing

• A large number of customers creating a diverse
  gas demand profile
• A number of competitive suppliers
• A range of transportation options creating a
  pipeline grid
• Storage close to demand centers
• Brokers/aggregators providing supply and/or
  demand aggregation services as well as bundles
  supply packages

45
Market Features of Separate Marketing (cont.)

• Gas-related financial markets and
• Significant short-term and spot markets.
• WHERE POSSIBLE, SEPARATE MARKETING IS MORE
  COMPETITIVE THAN JOINT MARKETING AND IS TO BE
  PREFERRED.

46

• Whilst we support the objective of making gas
  markets competitive, it is important not to
  pursue and ideological goal to the extent that it
  actually damages competition by making investment
  unattractive
• (Dr. Roland Williams, Chairman and CEO of Shell
  Australia
• S.E. Asia Offshore Conference, Darwin, June 21st,
  1999)

47
Unique Features of Gas Supply Industry

• Economies of Scale
• Extreme Capital Intensiveness

48

• INTRODUCTION
• PRIVATIZATION OF PTT
• NATURAL GAS REFORM
• CONCLUSION

49
COMPETITIVE COOPERATION

• International expansion and cooperation will
  further develop a perspective in the global
  market place

• Continued regional expansion of core competencies
• Further cooperation with regional peers
• ASCOPE and ASEAN Vision 2020
• Trans-ASEAN gas pipeline
• Further cooperation with majors
• Thai partner of choice
• Technology transfer

50
CO-DEPENDENCE

• Full Circle PTTs privatization and its
  restructuring efforts are dependent upon one
  another for success

PRIVATIZATION
RESTRUCTURING
51
ENSURING A BALANCED STRATEGY

• What is good for PTT must be good for Thailand

ThailandsEnergyNeeds
PTTsCompetitive Positioning
52
Thank you
Petroleum Authority of Thailand
APEC Natural Gas Reform Workshop Siam City Hotel,
Bangkok November 8, 1999