Thailand lays out new strategy to cut LPG subsidies, raise prices
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 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based on an outdated LPG price of $333/mt -- while global LPG prices are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
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
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, email@example.com
--Edited by Elston Soares, firstname.lastname@example.org