Bangkok (Platts)--29Nov2012/434 am EST/934 GMT

Thailand's energy ministry has laid out a new plan to bring local LPG prices more in line with real costs and end most of the subsidies that have set the kingdom back by a total $3.3 billion over the past five years.

The plan drawn up by the ministry's Energy Policy and Planning Office, or EPPO, calls for gradual hikes to raise LPG prices for the three consumer sectors -- household, transport and industry -- to Baht 36/kg ($1.17/kg).

The Baht 36/kg target is based on an average global LPG price of $900/mt ($0.90/kg) that EPPO has assumed will prevail during 2013 and 2014, when the plan is to implemented, according to official sources.

That pricing assumption compares with Saudi Aramco contract prices that have averaged so far this year at $914.58/mt for propane and $917.92/mt for butane. The CPs set the price of LPG lifted from Saudi Arabian ports under long-term supply contracts and tend to set a base level for markets east of the Suez.

The plan, due to be presented to Pongsak Raktapongpaisal, Thailand's new energy minister, proposes that the price of LPG for household use be raised Baht 0.5/kg each month starting January 2013, until it hits Baht 36/kg.

The current household LPG price is pegged at Baht 18.13/kg, but that is based on an outdated LPG price of $333/mt -- while global LPG prices are around $1,000/mt, and the ex-refinery price of LPG produced from Thailand's own natural gas separation plants are at about $550/mt, according to sources.

Platts assessed prices of propane and butane cargoes for delivery along the major Singapore-Japan route 30-45 days forward at $1,031/mt and $971/mt, respectively, on Wednesday. Propane touched a record high of $1,305/mt on February 28 this year and butane at $1,245/mt.

LPG for the transport sector, now fixed at Baht 21.38/kg, should go up by Baht 1.20/kg a month for 12 months until it hits the target Baht 36/kg price.

For industrial users, the LPG price, now controlled at Baht 30.13/kg, would rise by Baht 0.5/kg a month until December 2013.

The new roadmap means a substantial part of the LPG price subsidies would be dismantled, leaving only a small segment of the LPG household consumers -- described as "low income earners," and which include the likes of small-time food hawkers and vendors and consumers who use about 10 kg of LPG a month -- with subsidized LPG supplies, the sources said.

Official data show that there are about six million Thai households classified as low-income earners because of their low electricity consumption, as well as some 200,000 food hawkers and vendors who may be eligible for subsidized LPG.

Ministry officials earlier this year estimated that about Baht 10 billion a year would be needed to subsidize this LPG household segment. That compares with subsidies for household LPG that have been around Baht 4 billion/month, accounting for 80-90% of all subsidies for keeping domestic LPG prices below actual costs.

Thai energy policymakers see a great urgency to fix the country's LPG price distortion in view of the soaring consumption of LPG, especially by the transport sector. There has also been increased smuggling of LPG to neighboring countries where LPG prices are around Baht 40-50 baht/kg.

Thailand's total LPG consumption, excluding that used as petrochemical feedstock, grew 6% year on year in the first nine months of 2012 to 5.52 million mt, according to EPPO statistics.

Usage by the household sector jumped 13.8% year on year over the same period to 2.25 million mt; transport sector consumption rose 15.3% from a year earlier to 794,000 mt; and industrial usage fell 18.9% year on year to 462,000 mt.

The Thai government also sees the need to restructure its overall domestic petroleum product prices to narrow price differences with neighboring countries -- to curb the shift of cheaper products out of the kingdom ahead of the implementation of Asean Economic Community at the end of 2015 -- and to bring prices more in line with international markets.

--Boonsong Kosit, newsdesk@platts.com --Edited by Elston Soares, elston_soares@platts.com