Myanmar's energy potential: Opportunities and challenges for neighbouring India

The Myanmar-China natural gas pipeline (Myanmar section) commenced delivery of natural gas to the Peoples Republic of China (PRC) after it was inaugurated by Myanmar Vice President U Nyan Tun at Mandalay on July 28.

 

The pipeline is part of the Myanmar-China Oil and Gas Pipeline project, which also includes a crude oil pipeline. Starting from Kuaykphyu on Myanmar’s Arakan coast, it passes through the Rakhine state, Magway and Mandalay regions and Shan state and enters the PRC at Ruili, Yunnan province through Namhkan on the Myanmar border. It took three years to construct the Myanmar section of the pipeline, which underwent a test run on May 30.

 

The Pipelines

 

The $2.5 billion pipeline project (Myanmar and China sections) will cover a total distance of 2,500 km, including 793 km in Myanmar and 1,727 km in PRC. The gas pipeline section in Myanmar has six processing stations. The crude oil pipeline, which is also nearing completion, will cover approximately 2,402 km, traversing 771 km in Myanmar and 1,631 km in Chinese territory. It starts from Maday Island in Myanmar carrying crude oil into Yunnan and eventually to Chongqing in PRC. The pipeline will transport oil brought by sea from the Middle East and Africa to south-western PRC. The project also involves the construction of a new deep-water 300,000-ton crude oil unloading port and associated storage facilities on Maday Island.

 

The gas pipeline has been designed for an annual throughput of 12 billion cubic meters. The transmission capacity of the crude oil pipeline on the Myanmar side is designed at 22 million tons per year. The gas pipeline has been constructed as part of an agreement signed between PetroChina and the Myanmar government for the supply of 6.5 trillion cubic feet (tcf) of natural gas to the PRC over a 30 year period. The natural gas is being exported from the Shwe gas project in the Rakhine Basin, which could have a peak production capacity of 500 million cubic feet per day.

 

Myanmar Hydrocarbon

 

Myanmar has 7.8 tcf of proven natural gas reserves according to BP Plc data, and is worth about $75 billion at benchmark prices for gas futures traded in the U.K. The U.S. Energy Information Administration estimates 10 tcf of proven reserves. Myanmar, as per official statistics, is also estimated to have 3.2 billion barrels of recoverable crude oil reserve.

 

Myanmar has three main large offshore oil and gas fields and 19 onshore ones which produced 421 billion cubic feet (bcf) of hydrocarbon in 2011. Gas now accounts for more than 90% of Myanmar’s hydrocarbon production (of which over 80 percent is exported to Thailand) and is expected to exceed 2.1 bcf by 2015.

 

The foreign investment in Myanmar's oil and gas sector had reached $14.372 billion at the end of February 2013, accounting for 34.14 percent of the country's foreign investment. The foreign investment will increase in the future as Myanmar prepares to bid out more of its offshore and onshore blocks for exploration to oil majors.

 

Hydrocarbon Blocks

 

In 2011, the Myanmar Ministry of Energy (MOE) offered 18 onshore blocks for bidding and has awarded eight of these to foreign firms. In January 2013, the MOE put up a further 18 onshore blocks for tender, and another 30 offshore blocks in April 2013. The rounds have attracted significant interest, with over 75 letters of interest submitted for the onshore blocks. Myanmar’s first offshore licensing round in more than 20 years is expected in the second half of 2013, having been delayed from late 2012.

 

One contentious issue related to these pipelines is the amount of oil and gas they must deliver within Myanmar, as the central and northern part of the country are short of energy supplies. As per the present terms, 2 million tons of crude oil and 20 percent of the designed throughput of gas of the whole project will be off-loaded in Myanmar, which will be helpful to  promote Myanmar's economic development and people's living standards.

 

Implications

 

Energy security has been a priority for the PRC since the early 1990s, especially after it overtook the US as the world's largest overall energy consumer in 2009. Last year, the major part of China's total oil imports -- about 4 million barrels a day out of 5.43 million barrels -- was shipped through the Strait of Malacca, where the US Navy has a strong presence. To ensure the security of its energy lifeline, Beijing has constantly been making efforts to diversify its energy-supply routes. The Myanmar energy corridor is a part of this strategy.

 

Besides bypassing of the Malacca straits, a noteworthy implication of these pipelines lies in the fact that they will carry gas from a source as close as possible to Chinese borders and by the cheapest means of transporting oil and gas. Further, these pipelines will also provide China a potential direct line to over 30 new offshore oil and gas exploration blocks that will go up for international auction in 2013. This will provide a significant cost advantage to the Chinese entities in the forthcoming bidding.

 

According to MOE, in all, 61 companies have been prequalified to bid for 11 shallow water and 19 deepwater blocks in the international tender. The shortlisted companies from India include RIL, ONGC Videsh, Cairn India, GAIL (India) Ltd and Jubilant Offshore Drilling.

 

However, what India will be watching with concern is the change in maritime commercial traffic in its back yard - the Bay of Bengal. It is expected that as early as September this year (though the Chinese have said oil may not start before year-end),  crude oil tankers carrying China-bound oil will sail into the Bay of Bengal to Myanmar's coastal town of Kyaukpyu ( Maday island), where the oil will be unloaded into the new pipeline. 

 

This will shift part of the Chinese maritime security focus from the Malacca Strait to the Bay of Bengal and increase the Chinese naval presence in the Bay of Bengal. India on its part is reported to be constructing a new submarine base on its eastern coast that will be named INS Varsha at a cost of Rs.160 crore and upgrading its capabilities in the Andaman &Nicobar islands.

 

As Myanmar takes on the path of economic development, the international competition for its natural resources will see a buzz of activity in the Bay of Bengal .It will bring both challenges and opportunities for India, as it too will try and secure for itself some minerals and hydrocarbon resources closer to its borders.

 

South Asia Monitor