PTT’s Expansion Plans Will Benefit Myanmar’s Natural Gas And LNG Sector

Myanmar’s energy sector will benefit from PTT’s overseas expansion strategy, as the state-owned looks to diversify away from the mature and saturated Thailand market.

PTT’s focus will be on natural gas, demand for which is expected to expand at a robust rate in Myanmar, alongside shifting government power policy.

PTT investment will improve domestic gas availability, posing upside risk to Myanmar’s gas consumption and LNG imports growth.

Myanmar looks set to benefit from PTT’s overseas expansion plans, as the state-owned firm looks to diversify away from the mature and saturated domestic energy market. After years of subdued investment activity and adhering to stringent cost-optimisation efforts, PTT remains keen to deploy its sizable cash reserves to pursue a more expansionist agenda going forward, amid a positive backdrop of stronger oil prices and energy demand growth across Asia’s EMs. PTT has long-identified Myanmar as a top investment destination, due to its large, growing population and significant unmet energy demand. In 2018, PTT allocated nearly 30.0% of its USD1.8bn upstream capex for E&P operations in Myanmar, the largest allocation among overseas markets.

While PTT’s investment interest will be broad-based, the firm’s focus will be on natural gas, consumption of which is expected to expand robustly across Myanmar over the coming years, alongside shifting government power policy. Myanmar has traditionally relied on hydropower and indigenous gas supply for power generation. However, hydropower’s susceptibility to outages during dry weather conditions, along with the public’s growing aversion to coal and declining domestic gas production, has prompted the government to consider LNG as a primary energy option, as a means to addressing its energy shortage problems and reducing electricity access inequality nationwide. Indeed, the share of gas in the overall power generation mix is forecast to expand to 44% in 2027 from 35.0% in 2017, while the combined share of hydropower and coal decreases to 53% from 64%, according to our Power team’s projections.

While PTT’s investment interest will be broad-based, the firm’s focus will be on natural gas, consumption of which is expected to expand robustly across Myanmar over the coming years, alongside shifting government power policy. Myanmar has traditionally relied on hydropower and indigenous gas supply for power generation. However, hydropower’s susceptibility to outages during dry weather conditions, along with the public’s growing aversion to coal and declining domestic gas production, has prompted the government to consider LNG as a primary energy option, as a means to addressing its energy shortage problems and reducing electricity access inequality nationwide. Indeed, the share of gas in the overall power generation mix is forecast to expand to 44% in 2027 from 35.0% in 2017, while the combined share of hydropower and coal decreases to 53% from 64%, according to our Power team’s projections.

PTT’s investment will improve domestic gas availability, and underpins our bullish outlook for gas consumption and LNG imports growth in Myanmar over the coming years. The bulk of any potential investment is likely to be channelled to PTT’s existing projects. PTT holds significant stakes in three of Myanmar’s four largest offshore fields, the Yadana, Zawtika and Yetagun. These fields account for nearly 80% of Myanmar’s total gas production, though additional investment is needed to halt natural declines. The Thailand SOE is also an active explorer, particularly in Myanmar’s offshore blocks, and remains keen to develop potential oil and gas reserves across the M3, M9, M11 blocks, where it plans to add more than 26 additional development wells over the coming quarters.

In order to supplement declining gas output, PTT is also studying the feasibility of developing an FSRU offshore the Martaban Sea, which if realised, would materially bolster Myanmar’s total LNG import capacity post-2020, together with two other state-approved LNG-to-power projects. The consistent availability of LNG will also have the added benefit of enabling Myanmar to meet its gas export obligations. Myanmar is contracted to supply 13.9bcm of pipeline gas annually to Thailand and China, though actual volumes often undershoot this amount due to supply constraints.

Source: Fitch Solutions

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