Outlook for PTTs expansion in research and development (R&D) investment, impact on forecast margins and profitability; strengths

and weaknesses of Thailands current framework for R&D

PTTs expansion in R&D investment PTT Research and Technology Institute, or PTTRTI, is the technology and innovation provider for PTT Group that keeps abreast of breakthrough technologies and innovations with an emphasis on fostering its technology base while moving towards A Technology Center for petroleum, petrochemical and alternative energy to achieve its regional leading role in quality, safety and environment management for the optimum benefits of the nations energy security. PTTRTI receives 0.5 1.0 billion THB for its annual budget; and the budget increase to 1.5 2.0 billion THB in the last 3 years (approx. 3% of PTTPLC Profit). The majority of research investment is mostly spent on infrastructure construction for research capabilities build up in new R&D areas to support PTT future business such as conventional and unconventional reservoir exploitation, racing lab, EV and battery test, biogas, algae pilot pond, cellulosic ethanol, and so forth.

Impacts on forecast margins and profitability PTTRTI consists of 5 major R&D departments: 1. Petroleum Products and Alternative Fuels Research 2. Energy Application Technique and Engine Lab 3. Process Technology Research 4. Geo-science and Petroleum Engineering Research 5. Environmental Research and Management The main mission of PTT Group is to secure Thailands energy supplies. While energy shortage affects energy sector worldwide, the responsibility on energy solution is one of the main tasks of the department #1 and #4. Geo-science and Petroleum Engineering Research department supports PTTEP for new exploitation techniques (e.g. EOR) or unconventional resources management (e.g. CBM and oil shale) to enable the target of 900 kbd upstream production expansion in 2020 of PTTEP; while Petroleum Products and Alternative Fuels Research departments vision is to be a regional leader in fuel & alternative fuel, lubricant, & specialty technology. The department develops fuels, lube and alternative fuels such as premium products of biodiesel and cellulosic ethanol, aligning with PTT business requirement, customer needs and global regulation. Energy Application Technique and Engine Lab department also support the Petroleum Products and Alternative Fuels Research with engine testing for new fuel & lube product development to assure the product quality. Energy efficiency as well as process optimization to decrease energy consumption is also the issue being studied in the department.

The other two departments provide technology to decrease operation cost and prevent PTT from impacts of environment and health risk issues. The Process Technology Research Department conducts research to optimize process energy efficiency with accurate process simulation technique and also develop process chemicals such as catalysts and adsorbents. Environmental Research and Management Department helps PTT Corporate in assessment of environmental impacts from PTT business such as standardization and training of Carbon Footprint of PTT Group, air pollution model, and water supply management for PTT sites and neighbor industrial estates. The department also provides pollution mitigation technology for air pollution, solid waste, and waste water treatment. The research scope of each department might have minor changes according to fluctuation of technology and trends worldwide and national policies. However, the vision and main goals of each department still be solid. In case that R&D outcome is commercialized on plan, there are 5,800 MTHB yearly pay back from research and development activities in the next 5 years with basis: 1,200 MTHB value creation from reservoir development (CBM and oil sand) 3,600 MTHB value creation from production excellence (EOR and flare gas recovery) 800 MTHB cost saving from gas and oil field process chemicals (catalysts, adsorbents, drilling fluid, corrosion inhibitors and wax inhibitors) 200 MTHB value creation from polymer specialties (engineering plastics and bio-plastics specialty grades) And also some other pay back further than monetary outcome such as loss prevention from environmental impact, process licensing, intellectual properties, testing services, brand image, and sustainability of PTT Group.

Strengths and weaknesses of Thailands current framework for R&D From the latest cabinets policy announcement, there are 5 key issues of R&D under the topic of science, technology, research and innovation: Develop Thailand to be knowledge based society Increase scientists, researchers, and mentors in science studies to fulfil the need of country Encourage and strengthen research collaboration of government sectors, academic institutes and private sectors Improve research management system by development of more R&D networks in Thailand to reduce the redundant in research topics and develop R&D master plan. Utilize astrological and geographic information technology for resource management, agriculture planning, natural disaster prevention, and quality of life improvement

Thailand is at 48th rank in Global Innovation Index 2011 with 2 major weaknesses: institutions and human capital in research. Thailand has weak political stability during the past decade, resulting in fluctuation of research policy and framework; while the government research institutes (or partially government dependent as PTT) have low flexibility of research process. The education is a major problem for development in R&D human capital. Thailand has high pupil-teacher ratio (94th rank in

education pillar) and also has low investment in R&D compared to nations income (approx. 0.2% of GDP). Fortunately, the latest policy claims to put 2% of Thailands GDP for R&D investment.