Thai energy expert urges fuel price structure reforms

An energy expert from Thailand’s leading think tank is urging the government to reform its fuel price structures and to ease policy constraints preventing further investment in renewable energy, so the country can survive the energy crisis resulting from tensions in the Middle East.

Sensitive to volatility

Energy expert, Areeporn Asawinpongphan, of the Thailand Development Research Institute (TDRI) explains that the country remains vulnerable to global oil price volatility, due to its high dependence on crude oil and gas imports.

“If global oil prices are above 100 US dollars per barrel, it will definitely impact the broader economy. When the prices are up, it will not only impact the energy and transportation sectors. It will cascade through the whole supply chain, including farming,” Areeporn explains.

The country’s net imports of oil and gas account for about 8% of GDP. The key challenge, however, is not to eliminate fuel imports entirely, but to gradually reduce them.

“If the government can do this, whether it's through promoting energy efficiency, supporting and diversifying domestic energy resources, we can definitely build more resilience in the energy system,” she says.

Oil price structures

The price of diesel in Thailand has risen, after the 15-day cap fuel prices expired on Tuesday. Still, the government is now trying to cap the diesel price at 33 baht per litre. The government uses the Oil Fuel Fund to subsidise the price to the tune of about 18 baht per litre. If there were no such subsidies, Thais may have to pay as much as 50 baht per litre for diesel.

“Using the Oil Fuel Fund only delays the impact because, in the end, the burden will be absorbed by households and businesses,” Areeporn explains.

The fuel price structure in Thailand, as set by the Energy Ministry, is split into four main components. 60-70% are ex-refinery costs based on the original crude oil price and the refining margin, 25-30% are taxes, such as excise tax, local tax and value-added tax, 5-10% isfuel funding, such as payments to the Oil Fuel Fund and the Energy Conservation and Promotion Fund, and 4-7% are marketing margins.

Ex-refinery costs in Thailand are currently based on oil prices in Singapore, as it is the oil trading hub in Southeast Asia and its proximity to Thailand.

Still, the energy expert feels that some components of the price overlap unduly. Therefore, she suggests reforming the fuel price structure, to ensure that the prices reflect actual costs.

“We need to pay the local tax, the excise tax and the VAT on the wholesale price and VAT on the retail price. If we can manage this more effectively, the price of oil paid by the Thai people would be much lower than what we pay today."

Finance Minister, Ekniti Nitithanprapas, has reportedly agreed to find ways to reduce the taxes on diesel.

Oil shortage or panic?

A number of service stations have been displaying “Out of Fuel” signs in recent weeks, feeding the fear among Thais of an oil shortage, despite the government’s calls to refrain from hoarding fuel and claims that there is still enough oil for domestic consumption.

The Energy Business Department’s Director-General has addressed the chaos at petrol stations, stating that there is not a shortage as such, but shipment bottlenecks.

Areeporn observed that the perceived shortage was caused by public panic buying and challenges in managing the logistics of fuel transportation.

“Transportation is a big issue because we have not prepared for this in advance. That's why people are panicking about this, as fuel transportation is not well managed yet,” Areeporn commented.

Some even argue that Thailand can produce its own gas and oil.

The Energy Business Department has explained that the country has six oil refineries, producing at least 175 million litres of finished oil products per day. That includes 32-33 million litres of benzine, 75-80 million litres of diesel, 25 million litres for aircraft fuel, 13 million litres of fuel oil and 6-7 million kilograms of LPG. This, they say, is enough for domestic consumption.

Despite this, Areeporn points out that its current production capacity does, in fact, not meet the country’s demand, and even worse, it’s declining.

“We only produce just 20% or less of our country's demand,” Areeporn says, emphasising a huge barrier to the country’s energy security.

Another concern are policy constraints in the energy sector, which remains dominated by an ‘enhanced single buyer model’, restricting competition and investment from the private sector in energy-related projects. This, she says, prevents the development of domestic energy resources, including renewable energy.

“If we are open for more competition, private companies would be more than welcome to enter the market to invest in energy projects in Thailand and they could invest to build more domestic renewables. We have plenty of solar, wind and bioenergy in which we are waiting for someone to invest. Once we can invest, we can build more domestic energy resources and rely less on imported energy," she believes.

-Fair prices first-

To survive the global energy crisis, the Thai energy expert believes that the Thai government should move towards strengthening energy resilience, especially through strategic petroleum reserves.

Areeporn also encourages the government to promote more domestic energy production and reduce policy constraints, to open the sector to private investment to build energy resources and related technologies to strengthen Thailand’s energy resilience.

Before anything else, though, fair oil prices should come first.

“Thailand should move towards having enough oil supply at a fair price during the crisis, because we still need to import oil, as we cannot produce enough to meet our country's demand,” Areeporn concluded.