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Ultra-deepwater progress boosts Myanmar’s options

The sanctioning of the Shwe Yee Htun-2 project suggests the government is finally aligning its interests with those of operators

Myanmar’s struggling oil and gas sector received a welcome boost in mid-December with the signing of a production sharing agreement (PSA) between the government and French major Total that paves the way for the development of Southeast Asia’s first ultra-deepwater gas project. 

Stakeholders can now start the pre-Feed phase for Block A-6, known as Shwe Yee Htun-2. Total announced last September that it had encountered 40m of net gas pay in the block, after drilling at depths of 4,850m in water depth of 2,325m, with preliminary tests also confirming good reservoir quality, permeability and well production deliverability. 

The sanctioning of such a complex, cost-intensive, ultra-deepwater project—despite global natural gas prices dipping under $2/mn Btu in January for the first time since 2016—underlines its importance to the country.

“A-6 has been the success story in an otherwise disappointing market. Half the blocks that were awarded in the 2013 bidding round have been relinquished and, in other blocks, operators have failed to meet exploratory drilling requirements,” says Jordan Zele, country director at FMR Research & Advisory.

“A-6 has been the success story in an otherwise disappointing market. Half the blocks that were awarded in the 2013 bidding round have been relinquished” Jordan Zele, FMR

The government had planned to hold a new international bidding round for gas concessions last year—the first since leader Aung San Suu Kyi took power in 2016—but it was delayed due to internal wrangling over a draft oil and gas law, particularly over how it deals with PSAs.

"The present [standard] PSA fiscal terms are just too economically tough for marginal fields and deepwater reservoirs," says Kyaw Kyaw Hlaing, chairman of the Myanmar Oil and Gas Enterprise, a national energy firm.

However, the fiscal framework for Shwe Yee Htun-2 has been established, and the operators and government have agreed a target of 2023 for first production. But the difficult issue of how much gas will be used for local power production and how much will be exported is still to be negotiated.

Power vs. exports

The country is facing a looming power shortage; most of the gas from its major offshore fields—Yetagun, Yadana and Zawtika—is exported, and output overall is declining. However, Woodside, which has a 40pc interest in the joint venture, wants to connect the field to Tota’s Yadana complex project, which would give the development access to the Thai market. 

“The Myanmar government will hope to keep the majority of the gas in Myanmar to help bridge the country's growing power gap,” says Zele. “However, the operators will be negotiating to sell their gas to more lucrative foreign markets”. 

4,850m Drill depth of the exploratory well in Shwe Yee Htun-2

Local partner MPRL E&P, which founded the project in 2007 and now owns 20pc of the joint venture, believes it may be possible to align both the government’s and the operators’ positions. 

“Myanmar’s demand for electricity is growing at a pace far faster than its supply. Natural gas from the Block A-6 project can be leveraged to generate a new supply of affordable, reliable and clean electrical power to underpin nationwide growth,” MPRL E&P executive director U Tint Swe tells Petroleum Economist.

 “But, at the same time, gas exports to neighbouring countries have historically accounted for the highest foreign exchange revenues generated for the Myanmar government. This situation makes Block A-6 a strategically very important project for the nation and the Myanmar government.”

 

 

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