T To Save Billions With New Deals

PTT PCL expects to save 10.29 billion baht over 10 years due to a new agreement with three natural gas sellers. After four years of talks, the gas sellers, Unocal, Mitsui & Co. and PTT Exploration & Production have agreed to change the gas pricing formula used in earlier contracts. The change will result in 2%-7% price reductions over the remaining 10 years of the gas purchase agreements. Of the total gas price reduction, THB5.29 billion will come from gas purchased from the Erawan field with the remaining THB5 billion from the Unocal 2 and Unocal 3 fields, PTT said in the statement. Unocal owns 80% and 70% of the Erawan and Unocal 2 gas fields, respectively, with the balance taken by Mitsui Oil Exploration. Unocal holds a 71% stake in the Unocal 3 gas field. The remaining interest is owned by Mitsui Oil Exploration with 24% and PTT Exploration with 5%. Following the amendment of the contracts, the use of the producer price index will be applied to calculate gas prices instead of the wholesale price index. This will bring down prices by around 0.6%, said Minister of Industry Suriya Jungrungreangkit. However, other factors to calculate the gas price remain unchanged, he added. Thailand 's Industry Ministry and PTT previously had sought to change the formula to base the fuel component in the contracts on Singapore spot fuel oil prices rather than average refinery posting prices. The THB10.29 billion in gas price reduction will be used to reduce electricity charges, Suriya said. The Thai government has been under public pressure over an increase of electricity charges following a rise in natural gas prices and the fall of the baht against other currencies. Natural gas is the main source of power generation and main fuel in several industrial sectors. Thailand 's natural gas consumption totals 2.4 billion cubic feet a day. "The contract amendment is based on the change in economic conditions, which is understandable. It doesn't deter foreign investment to Thailand," said Chuck Williamson, chairman and chief executive officer of Unocal Corp. "It's not a treat to the investment in Thailand." Unocal has set aside $4.3 billion over the next 10 years to continue to supplying gas to Thailand, he said. Unocal has to invest around $400 million annually to maintain its production level. As of the end of March, its Thai unit was producing 965 million cubic feet of natural gas a day and 34,058 barrels of condensate a day. Under the contract amendment, the gas prices at Unocal 2 and Unocal 3 gas fields will be lowered by 2% effective October this year until the end of the contract in May 2010. The operators of the Erawan gas field agreed to reduce the price by 2% from July this year to June 2006. Their gas sale contract is extended by another six years from July 2006 to April 2012. During the extension period, the operator will reduce the price by 7%, Viset Choopiban, PTT's president, said. Apart from the extension of the gas supply contract, Unocal last week got the green light from the Industry Ministry to move ahead in its projects to produce oil in the Yala field and natural gas in the Funan field, said Nopadon Mantajit, director general at Department of Mineral Resources.