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China-Myanmar oil pipeline starts flowing

Test runs have begun on the pipeline which cost $1.5bn to build over five years

China and Myanmar (Burma) have started test runs on a controversial new oil pipeline linking a deep-water port on Myanmar’s Indian Ocean coast with the city of Kunming in southwest China. 

The 440,000 barrel a day (b/d) pipeline traverses a so-call energy corridor 771 km from the Madae Island Port on Myanmar’s coast through the country and into markets in southwestern China, where a number of new refineries are being built. It runs parallel to a natural gas pipeline, which started up in 2013, which carries gas from Myanmar’s offshore Shwe field along the same route. 

The pipeline, 50.9% owned by China National Petroleum Corporation (CNPC) and 40.1% owned by Myanmar’s Oil and Gas Enterprise (MOGE), took five years to build and previous estimates put the cost at around $1.5 billion.

That the new oil pipeline has come to fruition is a triumph for Beijing on two fronts. 

Myanmar is an important part of president Xi Jinping’s Silk Road strategy. Xi has pledged billions of dollars of investment towards a programme to put China at the centre of a new sphere of economic development stretching from southeast Asia to Europe’s doorstep by linking it with its neighbours through a string of huge infrastructure projects.

Myanmar, considered by some Chinese strategists as China’s “California”, has proven particularly tricky for Beijing. The oil and gas pipeline project was launched in 2009 when Myanmar’s China-allied military junta was firmly in power. But the scheme was thrown into doubt as Myanmar’s political transition emboldened a new wave of local activism, much of which aimed its energy at disruptive Chinese energy and infrastructure megaprojects.

Communities along the pipeline route complained about being forced to sell land to CNPC at depressed land prices, threats to local temples and other sacred spots and the lack of jobs as CNPC brought in Chinese labour. While environmental groups fretted over the risk of oil spills and soil damage. The fears have fanned a sharp rise in anti-Chinese sentiment and protest. 

The Chinese side has refuted many of these concerns and argued that the pipelines will deliver economic benefits to Myanmar. CNPC will pay transit fees to use the pipelines, and around 40,000 b/d of crude and 2bn cubic metres per year of natural gas will be set aside for the Myanmar market. The start-up is a major victory for CNPC in Myanmar, and could pave the way for an eventual expansion of the pipeline’s capacity. 

It is also a win for policymakers in Beijing increasingly worried about China’s energy insecurity. As the country’s reliance on oil imports to meet demand has grown to well over 50%, so too has its paranoia about getting that oil to China’s markets. 

The country’s crude imports have grown to more than 7m b/d, and more than two-thirds of that oil is shipped through the Straits of Malacca, one of he world’s most vulnerable oil transit chokepoints. 

This has made Beijing policymakers uneasy. At its narrowest point in the Phillips Channel, the Straits of Malacca is just 2.7 km wide and has long been a hotspot for piracy. Heightened patrolling of the area by the Singaporean, Indonesian and Malaysian militaries over the past decade has reduced the threat, but piracy remains a concern. Last April, an oil tanker in the Straits of Malacca was raided, the crew kidnapped and 3m litres of diesel were stolen.

Beyond the risk of piracy and terrorism, there is also the risk of collisions and groundings. A major oil spill could significantly slow traffic through the major shipping lane for days, if not weeks. China also harbours concerns about the US Navy’s active role in the area. It worries that in the event of a conflict the US could relatively easily cut off its supplies via the Straits.  

As well as the Myanmar pipeline, Beijing is pushing a number of pipeline projects in Central Asia and Russia that it hopes will make China less reliant on seaborne shipments.

The Myanmar pipeline will allow oil from the Middle East and Africa bound for China’s markets to bypass the Straits of Malacca, though the pipeline’s 440,000 b/d capacity is less than 10% of the total amount of China-bound crude that passes through the seaway. 

The pipeline has the added benefit for CNPC of delivering oil into the southwest of the country, an emerging source of oil demand growth where the company building new refineries. The company plans to open a 200,000 b/d facility in Kunming in 2016, though the project has been delayed on fears of refining overcapacity as China’s oil demand has slowed.

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