Thailand's Underutilized Gas Plants Drag Energy Costs Higher—A Structural Drag on EGAT and Fiscal Stability

The core of Thailand's current crisis is a sudden, severe supply shock. The closure of the Strait of Hormuz, a chokepoint handling roughly 20% of the world's oil and liquefied natural gas (LNG), directly threatens the lifeline for a significant portion of the country's imports. Specifically, approximately 30% of Thailand's LNG and 50% of its crude oil passes through this strait. This geopolitical disruption has forced an immediate, reactive policy shift.

Prime Minister Anutin Charnvirakul was confirmed on March 19, inheriting a clear mandate to address this energy policy emergency. His new administration faces a volatile setup: rising global oil prices colliding with a domestic fuel market that had been shielded from full market costs. The political timing is tight, with the cabinet reshuffle occurring just as the energy crisis became acute.

The government's first major market intervention came on March 26, when it implemented a 6-baht-per-litre fuel price hike. This sharp increase was not a routine adjustment but a targeted move to curb hoarding and smuggling, as domestic prices had previously been artificially low compared to regional neighbors. More broadly, it aimed to reflect market costs more accurately. However, this action directly strains the government's fiscal buffer. The Oil Fuel Fund, the long-standing tool for absorbing price shocks, is facing renewed debt strain as it is called upon to manage the fallout. This sets up a classic tension: using the fund to protect consumers in the short term risks deepening long-term fiscal vulnerabilities, a pattern that has repeated for over two decades.

The Structural Imbalance: Underutilized Gas and Rising Costs

The immediate supply shock from the Strait of Hormuz closure is a severe but temporary blow. The deeper, more persistent problem is a structural imbalance in Thailand's energy system, where supply infrastructure is misaligned with demand and economics. This mismatch creates a costly vulnerability that the new cabinet must now navigate.

At the heart of the issue is a massive underutilization of existing gas capacity. Seven privately owned gas-fired power plants, with a total capacity of over 11 gigawatts, operated at a mere 10% capacity factor in 2025. This means they were effectively idle for most of the year, generating almost no electricity. The economic cost of this inefficiency is staggering: these plants have cost the state-owned Electricity Generating Authority of Thailand (EGAT) and ratepayers THB159 billion (USD5.02 billion) since 2023. The government has even suspended operations at several of these facilities, citing an oversupply of electricity, which underscores a fundamental misjudgment in past planning.

This underuse is mirrored in the stalled pipeline for new capacity. The government's long-term plan to bring 6.3GW of new gas-fired capacity online by 2037 is now in serious doubt. Nearly all proposed projects face extensive delays, and in 2025, EGAT canceled tenders for three major projects. The root cause is a global shortage of critical equipment, which has tripled capital costs for new gas plants in recent years. This makes the entire expansion plan far more expensive and less economically viable than intended.

The result is a painful pivot toward more expensive fuel sources. As domestic gas plants sit idle and new projects falter, Thailand's dependence on imported liquefied natural gas (LNG) is increasing. This shift is a direct contributor to the fiscal strain on the Oil Fuel Fund. The fund is designed to absorb price shocks, but its effectiveness is undermined by the combination of decades of price controls and the rising cost of the fuel it must subsidize. The recent spike in global LNG prices, driven by the current geopolitical tensions, is now creating a persistent fiscal drag. The fund is being called upon to cover the gap between these higher import costs and the artificially low domestic prices, deepening its debt and limiting its ability to act as a buffer in future crises.

The bottom line is that Thailand's energy system is caught between two costly inefficiencies: paying for gas plants that generate little power, and paying more for LNG to fill the gap. This structural imbalance turns a temporary supply disruption into a long-term economic pressure, setting a difficult stage for the new cabinet's energy policy.

Financial and Economic Pressure Points

The immediate commodity imbalance is now translating into tangible financial and economic risks. The government's response is a mix of targeted support and structural strain, but the measures themselves highlight the depth of the pressure.

To cushion the blow, the Cabinet approved a package of seven measures on March 26, including THB 10 billion (USD ~303 million) as soft loans to boost liquidity for SMEs and other sectors. This is a direct attempt to prevent a wave of business failures and job losses. Other elements, like subsidies for transport operators and the "Green Flag" project for farmers, aim to protect specific vulnerable groups and sectors. Yet these are reactive tools, not a solution to the underlying cost pressures.

The broader economic risk is a direct hit to household budgets and business costs. As the Prime Minister begins his second term, the administration faces a clear warning: a prolonged oil shock could intensify pressure on household budgets, business costs and overall economic confidence. When fuel prices rise sharply, the cost of everything from groceries to factory output increases. This squeezes disposable income and profit margins, potentially triggering a slowdown in domestic consumption and investment. For a country already grappling with growth below potential, this is a significant headwind.

The most persistent risk, however, is the long-term fiscal drag from the Oil Fuel Fund. The fund's recurring deficits represent a structural vulnerability. For over two decades, governments have used it to absorb price shocks, but each cycle leaves a legacy of debt that is eventually passed on to the public. As the current crisis unfolds, the fund is facing renewed strain, with its debt accumulation adding to the national fiscal burden. This creates a vicious cycle: the fund is depleted during a crisis, requiring new borrowing, which then limits its ability to act in the next one. The new cabinet must now manage this emergency while also addressing the long-term economic restructuring that business groups have long urged. The financial and economic pressure points are clear, but the path to relief is narrow.

Catalysts and Watchpoints for the New Administration

The new cabinet's immediate task is to manage a severe, short-term supply shock. The key near-term test will be the stability of the Strait of Hormuz and the resulting global oil price trajectory. If the closure persists, it will prolong the emergency measures and deepen the fiscal strain on the Oil Fuel Fund. The government's directive to secure new energy sources within a week follows the closure of the strait and underscores the urgency. For now, the focus is on bridging the gap, but a prolonged disruption would intensify pressure on household budgets and business costs, as warned by analysts could intensify pressure on household budgets, business costs and overall economic confidence.

The effectiveness of emergency supply measures is the next critical watchpoint. The government has approved urgent purchases of three additional LNG shipments for March and April, while also ordering coal plants to operate at full capacity. These steps aim to maintain power and fuel supply, but they come with significant trade-offs. The shift to more expensive LNG, particularly from new sources like the U.S., is expected to drive household electricity bills back to record highs. More importantly, these temporary fixes do not address the underlying structural imbalance. They merely highlight the cost of the current reliance on imported fuels, a vulnerability that the new administration must begin to resolve.

The long-term economic overhaul, however, hinges on a different set of catalysts. The government must demonstrate progress on accelerating the stalled gas expansion plan. The plan to bring 6.3GW of new gas-fired capacity online by 2037 is in serious doubt, with nearly all projects delayed and capital costs tripled by global shortages. The suspension of four gas plants in 2025 citing an oversupply of electricity shows a planning misstep that created a costly backlog. The new administration will need to reassess this plan, balancing the need for reliable power against the rising cost of LNG imports and the ambition of its updated climate pledge. The release of the next Power Development Plan in 2026 will be a key signal of this direction.

In practice, the new cabinet faces a narrow path. It must manage the immediate crisis with emergency procurement and coal, while simultaneously laying the groundwork for a more resilient energy mix. The watchpoints are clear: monitor the Strait's status, track the cost and reliability of emergency LNG and coal, and watch for concrete steps to restart and re-evaluate the stalled gas expansion. Success will be measured not by a quick fix, but by the government's ability to navigate this immediate pressure while making tangible progress on the long-overdue economic restructuring.