Fitch Thailands Liberalisation of NGV Price Positive for Industry

Thailand’s plan to remove the cap on the retail price of natural gas for vehicles (NGV) is positive for Thailand’s oil and gas sector. Prices of all types of fuel in Thailand will reflect actual costs once the latest NGV reforms are effective, after liquefied petroleum gas (LPG) price reforms were implemented in February 2015 and an NGV price hike was imposed in 4Q14.

The further reduction of losses from NGV sales, as a consequence of the latest reforms, is positive for PTT Public Company Limited’s (PTT, BBB+/AAA(tha)/Stable) cash generation. PTT’s profits have been significantly reduced by the weaknesses in its core upstream division amid low oil prices.

Thailand’s Energy Policy Administrative Committee has said that the NGV retail prices will be liberalised in 2016. The NGV price will be set based on the natural gas cost in Thailand (pool gas price). Prices will be updated on a monthly basis. However, the NGV retail price will be capped at THB13.5 per kilogram (kg) from 21 January to 15 July 2016, after which the cap will be lifted. The NGV price for public vehicles, which account for only around 25% of total NGV volume consumed in Thailand, will continue to remain unchanged at THB10 per kg. However, the government is in the process of reviewing the law to let the country’s Oil Fund subsidise this cap on the NGV price for public vehicles.

PTT incurred heavy losses in its NGV business in 2011-2014. The company reported negative EBITDA of THB20.0bn in 2014 (compared with total consolidated EBITDA of THB251.0bn for the year) and THB8.3bn in 9M15. The smaller EBITDA loss in 9M15 was due mainly to the increase in the NGV retail price in 4Q14. We expect the losses to narrow substantially in 2016.

Demand for NGV in Thailand has been historically distorted by the regulated pricing – particularly during periods of high oil prices, due to its low fixed retail price, resulting in large losses for operators like PTT. Demand for NGV increased substantially during 2011-2013, but growth moderated to 3% in 2014 when the NGV retail price was increased. The increase in NGV retail price plus the lower refined oil prices have sapped demand for NGV in 2015. NGV consumption for 9M15 decreased by about 2% yoy, while consumption of gasoline and diesel increased by 13% yoy and 3% yoy, respectively. A similar trend was observed for LPG after prices were reformed in the beginning of 2015. LPG consumption for 9M15 dropped by 12% yoy.