Gulf of Thailand oil and gas exploration faces stubborn hurdles

Thailand and Cambodia are back at the negotiating table over joint Gulf of Thailand oil and gas exploration just months after both countries swore in new prime ministers.

On Feb. 7th, Cambodian Prime Minister (PM) Hun Manet flew to Bangkok to meet his counterpart Thai PM Srettha Thavisin for a one-day summit. One of the purposes of the meeting was to discuss Gulf of Thailand oil and gas development. This comes against what both countries see as challenging global developments that are impacting their respective energy sectors.

Thailand, with a population of some 72 million people, boasts the second largest economy among members of the Association of Southeast Asian Nations (ASEAN) behind economic powerhouse Indonesia. Cambodia, with a population of only 17 million people, consistently ranks toward the bottom in economic growth and development among its ASEAN members. Some 1 million mostly poor Cambodians are migrant workers in Thailand.

Joint exploration and production

At stake is a so-called Overlapping Claims Area (OCA) in the Gulf of Thailand that consists of a 27,000 square km section ripe with gas and oil reserves. Talks over the OCA in the Gulf, an inlet of the South China Sea, have occurred a number of different times, going as far back as 1969. Cambodia delineated the area in the west in 1972, while Thailand counterclaimed in the east in 1973. The southern boundary is marked by the 1991 Cambodian-Vietnam maritime border.

Unlike much of the nearby South China Sea, where China claims more than 90 percent of territory based on hard-to-prove historical claims, it has no competing claims in the Gulf of Thailand. Estimates vary, but some place potential gas reserves in the OCA as high as 11 trillion cubic feet in addition to large quantities of condensate and oil.

Thailand currently has 34 active petroleum exploration and production projects in 47 fields in the Gulf of Thailand. Its daily petroleum production capacity is around 558,000 barrels of oil equivalent. This breaks down to 2.4 bcf of gas per day, and condensate of 75,000 barrels per day (bpd). Crude production is posted at around 70,000 bpd, according to the Thai Department of Mineral Fuels. 

Gulf gas production has largely declined in recent years along with ongoing reserve depletion.

Domestic gas production now only meets around 28 percent of Thailand’s power generation needs. As such, it imports the remaining gas needed, mostly from neighbouring Malaysia (LNG imports) and Myanmar (pipeline gas). Legacy gas producer Qatar has also signed several off-take deals with Thailand for LNG supply. Thailand imported some 1.55 million mt of LNG in 2023, up 40 percent year-on-year, according to an S&P Global Commodity Insights data report.

At COP28 in Dubai last November, Thailand affirmed its targets for carbon neutrality by 2050 and net zero greenhouse gas emissions by 2065. However, many environmental NGOs are skeptical that the country can reach those goals. Only 5.25 percent of its electricity is produced from renewable energy, including large hydropower projects.

While Thailand remains overly-reliant on gas, Cambodia’s gas consumption is almost negligible while it doesn’t have any gas-to-power plants. The country, though it has six offshore oil and gas blocks, doesn’t usually produce any fossil fuels.

Cambodia’s power mix in 2021 included hydropower (41 percent), coal (41 percent), fuel oil (8 percent), and solar at 6 percent. Cambodia, for its part, though still a major fossil fuel user for its power sector, has also set a net zero 2050 goal.

Stubborn hurdles remain

Phumthep Bunnak, a former Thai government energy policy advisor, told Gas Outlook that this round of new joint exploration talks could be more politically driven than other talks, adding that in the past “the main challenge has always been getting over the territorial disputes.”

A report by the Australian-Thai Chamber of Commerce (AustCham Thailand) agrees. Citing a 2001 memorandum of understanding (MoU) between Thailand and Cambodia to settle the maritime dispute, it said that flare-ups in political tensions and issues over land border demarcations between the countries – particularly around the Preah Vihear temple – stopped formal discussions from ever progressing beyond high level ‘”talks about talks.” By 2009, the Thai Cabinet voted to scrap the 2001 MoU.

In 2011, Cambodian and Thai soldiers exchanged gunfire for two hours at the boundary near the temple, resulting in the death of two Cambodian soldiers and one Thai villager. A Thai soldier was also shot dead at the same location a year earlier. Subsequently, Cambodia filed a case against Thailand at the International Court of Justice (ICJ). In 2013, the ICJ ruled in favour of Cambodia, and ordered Thai troops to leave the area.

Revenue sharing

However, even if there’s sufficient political will on both sides this time, work remains deciding how to demarcate overlapping areas in addition to future revenue sharing. Figuring this out could also be a long process because Thailand holds most of the cards since more gas is near the areas near its border.

“The Cambodian side of the overlapping claims area is likely to face more challenging drilling and extraction issues, impacting feasibility,” the AustCham Thailand report added. Meanwhile, Thailand insists that the disputed area be divided into three parallel zones running north to south, with the revenue from the central zone to be shared equally on a 50/50 basis.

The share from the outer zones would be weighted in favour of the country adjacent to that area. In the past, Thailand’s starting position was that weightings be 80/20 to itself on the western side of the OCA and 80/20 to Cambodia on the eastern side of the OCA.

Moreover, even with a 50/50 revenue split across the board, Thailand would be the largest beneficiary, primarily due to Thailand having a more sophisticated and developed oil and gas industry. This would be needed to both develop the blocks and then refine the product, according to the report. Cambodia, for its part, has no domestic capacity, regardless of whatever revenue sharing model is agreed.