Related Articles
Forward article link
Share PDF with colleagues

China's energy strategy advances in Myanmar

MYANMAR's (Burma) planned elections later this year are unlikely to lead to an easing of Western economic sanctions. But its energy sector will continue to expand, driven by Asian investment, writes Ian Lewis

Most of the momentum is coming from China, whose state-owned China National Petroleum Corporation (CNPC) has begun building twin, 800 km oil and gas export pipelines.

The elections, whose scope remains unclear, are regarded by opposition groups as an effort by the military government – which has been in power for five decades – to extend its powers. If that turns out to be the case, sanctions that have severely reduced Western investment will continue, leaving the door open to Myanmar's Asian neighbours.

Countries such as Thailand, China, South Korea and India have no restrictions on doing business with the country, with many of their political leaders saying engagement with the junta through energy and minerals trade will help to integrate Myanmar into the international community.

China is pouring money in, not just to secure access to the country's gas and minerals, but also to gain direct pipeline access to oil supplies from the Indian Ocean. This is a much-cherished prize, as China relies on tankers passing through the Straits of Malacca for a large proportion of its oil – 65% of the country's 2009 imports were sourced from the Middle East and Africa, according to BP's Statistical Review of World Energy. The narrowness of the straits, which run between Malaysia and Indonesia, make them congested and vulnerable to pirate attack.

"Myanmar is an important part of China's energy strategy. It needs to diversify oil supply away from the Straits of Malacca and options are limited, other than pipelines from Kazakhstan and planned links from Russia and Myanmar," says Claire Wong-Low, an analyst on Chinese national oil companies for PFC Energy, a consultancy.

CNPC started work late last year on a port to handle crude imports at the Myanmar end of the oil pipeline, on an island in the Bay of Bengal, near Kyaukphyu in Rakhine state. The pipeline, with an initial capacity of 440,000 barrels a day (b/d) – around 5% of Chinese oil consumption according to BP – will be owned by CNPC with 50.9% and state-owned Myanmar Oil & Gas Enterprise (Moge) with 49.1%.

The 12bn cubic metres a year (cm/y) gas pipeline will deliver volumes to China from Myanmar's $5bn-plus, offshore Shwe project, which holds reserves across two blocks of up to 218bn cm, says project operator Daewoo International. The South Korean firm, which has a 51% stake in the Shwe project, leads a consortium that signed a 30-year supply deal with CNPC in December 2008. Other members of the group are Moge (15%), India's state-owned ONGC (17%) and Gail India (8.5%), and Korea Gas (Kogas) (8.5%). These companies have also been offered equity in the gas pipeline, in which CNPC holds 50.9% and Moge 49.1%.

In 2007, China offered to pay an annual transit fee of $150m/y for use of the pipelines across the country, analysts say. On this basis, the junta would receive around $4.5bn over the 30 years of the contract. The Shwe Gas Movement (SGM), which opposes the project, calculates the government is likely to receive revenues of at least $29bn from gas sales over this period.

Passing through difficult mountainous terrain, the pipeline projects will be expensive. Although no official costs have been released, SGM estimates the oil line could cost around $1.5bn to build, while the gas link could cost up to $1.95bn. There will also be a risk of disruption, as the border region through which the pipelines will run are home to armed ethnic groups opposed to the junta's rule.

But such concerns are unlikely to deter Chinese firms that are used to operating in high-risk environments, such as Democratic Republic of Congo and Sudan, to meet growing demand at home. "China's policy has always been very pragmatic. Domestic economic concerns are the drivers," says Wong-Low.

The bulk of construction work on both pipelines should be finished by 2012, says CNPC. Both will run to Kunming, in China's remote western Yunnan province, providing a boost to a less-developed region. An oil refinery is planned for the city, while the gas will also play a role in efforts to reduce China's reliance on coal for power generation.

And gas sales should benefit Myanmar's economy, bringing in billions of badly needed dollars, while gas from the pipeline could be supplied to underdeveloped areas along its route. But opposition groups, such as SGM, have questioned the extent to which the junta will spend the income for the benefit of Myanmar's people and wider economy.

Although China is set to be the dominant export market for Myanmar's gas in the future, Thailand is already a significant buyer, with around a third of its gas demand met by its neighbour, and state-owned PTT plans to boost its imports from its operated blocks in Myanmar's Gulf of Martaban.

And others are eyeing Myanmar's gas reserves – which totalled 0.57 trillion cm in 2009, according to Cedigaz. Following a trip to the country by a South Korean delegation in early June, companies from that country will be allowed, for the first time, to operate an onshore block jointly with Moge. South Korea's Yonhap news agency says the countries also agreed to discuss development of eight more offshore blocks.

Also in this section
Petrel views Crimean gas-export opportunity
21 September 2018
Gazprom has received a plan to develop energy projects in the disputed region of Crimea
Gazprom faces tax grab
21 September 2018
The Kremlin is pursuing another way to extract money from Gazprom, after failed efforts to force a dividend rise
India prepares launch of gas hub
20 September 2018
If all goes to plan, by the end of this year India should have established a gas trading hub