Thailand considers petroleum reserve amid oil price volatility

Thailand is considering various strategies to mitigate the impact of global crude oil price fluctuations, beyond merely subsidising domestic oil prices through the dwindling Oil Fuel Fund.

One proposed solution is the development of a strategic petroleum reserve (SPR) to enhance national oil security and safeguard against potential supply disruptions caused by geopolitical conflicts.

Energy Minister Pirapan Salirathavibhaga suggested the creation of an SPR to ensure a steady oil supply during unforeseen delivery interruptions from major suppliers. His plan aims to complement the new oil strategy set for implementation from 2024 to 2037.

However, this proposal has met with resistance from energy experts within the business community.

Pirapan advocates for increasing Thailand’s oil reserves, both in crude and refined forms, to cover 90 days of usage, up from the current 50 days. The United States, China, and Japan, which consume substantial amounts of crude oil, already maintain large strategic reserves to buffer against supply crises.

According to the oil plan, 53% of Thailand’s crude oil imports last year came from the Middle East, 11% from the US, 10% from Malaysia and Indonesia, and 26% from other regions.

Increase reserves

Pirapan’s proposal would see the total oil reserves increase by 10 billion litres beyond current levels. The plan includes utilising commercial oil stocks held by companies for 25 days and crude being transported by vessels for an additional 25 days, ensuring a 50-day supply. The SPR would add another 40 days’ worth of reserves.

Concerns about global oil supply disruptions have heightened due to escalating geopolitical tensions. The conflict between Israel and Hamas in October last year triggered fears of global crude oil price volatility, given that the Middle East accounts for 33% of the global oil supply.

The permanent secretary of the Energy Ministry, Prasert Sinsukprasert, reiterated the importance of energy conservation, noting that the national crude oil reserve stood at 3.91 billion litres with an additional 1.63 billion litres en route to the country.

In February 2022, similar supply concerns arose following Russia’s invasion of Ukraine, which saw global oil prices skyrocket above US$100 (3,593 baht) per barrel. At that time, Thailand’s national crude oil reserve was 3.2 billion litres, with another 1.46 billion litres being transported. The country had enough fuel reserves for over two months, with 27 days’ worth of crude oil.

High global crude oil and liquefied natural gas (LNG) prices posed significant challenges, necessitating substantial government expenditure from the Oil Fuel Fund to subsidise domestic oil prices. The International Energy Agency had previously recommended in 2013 that Thailand consider developing an SPR, but the proposal was shelved due to a crude oil surplus in 2014.

The new oil plan, set to be enforced this year, prompted Pirapan to instruct the Department of Energy Business to conduct a study on the SPR proposal. However, industry executives have highlighted financial constraints as a primary obstacle.

Budget limitations

An oil refinery company representative noted that both the government and oil companies face budget limitations, making it difficult to invest in oil storage facilities and purchase significant quantities of oil. The government’s fiscal 2025 budget is already allocated towards other projects, including a 10,000-baht digital wallet scheme.

Yodphot Wongrukmit, former senior executive vice-president of energy conglomerate Bangchak Corporation Plc, expressed doubts about the necessity of an SPR. He argued that non-Opec oil-producing countries could supply crude oil to the market, mitigating the risk of oil scarcity.

To enhance national energy security, the government can promote the use of biofuels, reducing dependence on oil imports. Ethanol, derived from sugar cane, can be mixed with gasoline to produce gasohol, while palm oil-derived methyl ester can be blended with diesel to produce biodiesel.

These alternative fuels can be sourced domestically, reducing the impact of global crude oil supply disruptions.

A representative from the sugar cane crushing industry emphasised the potential of biofuels as a long-term solution to high oil prices. Yodphot suggested that the government invest in research and development to make biofuels cost-competitive with refined oil, reported Bangkok Post.