November 2020, Vol. 247, No. 11
Features
China Bullish on Myanmar’s Gas Reserves, Pipelines
By Gordon Feller, Energy Writer
In June of 2009, China’s current President Xi Jinping was then serving as his government’s vice president. During that summer, Xi Jinping traveled to Myanmar’s capital city to meet with then Vice Senior General Maung Aye.
The two men signed an important memorandum of understanding (MOU). This document focused on the development, operation and management of the projects related to the Myanmar-China Crude Oil Pipeline. After many years of brokering deals and planning, China has managed to cement its place as the sole buyer of Myanmar’s massive Shwe Gas reserves.
China has gone even further by creating a new trans-Burma corridor, which aims to secure the flow of strategic oil imports from the Middle East and Africa.
Some of the most respectable regime critics estimate that nearly 13,200 Myanmar soldiers are positioned along the pipeline route. Past experience has proven to be a strong predictor of problems associated with Myanmar projects.
Previous pipeline construction and maintenance efforts inside Burma involves forced labor, forced relocation, land confiscation and a host of abuses by soldiers deployed in and around the project’s sites.
International monitors are now reporting that, due to a lack of transparency and accountability, destruction has occurred inside critical ecosystems that had previously been under threat from illegal logging, illegal burning and other ecologically damaging activities.
The Systems
Myanmar holds 23 Tcf (651 Bcm) of proven gas reserves, ranking it 39th in the world. Myanmar has proven reserves equivalent to 141.5 times its annual consumption.
China’s largest oil and gas producer is the China National Petroleum Corporation (CNPC). CNPC has been busy for nearly 10 years, building 2,485 miles (4,000 km) of dual oil and gas pipelines across the heartland of Myanmar. CNPC has been purchasing offshore natural gas reserves, with the goal of providing Burma’s rulers as much as $1 billion per year over a 30-year period.
Yet, it is not only the people of Myanmar who are facing grave risks from these projects. The corporations, governments and financiers involved also face serious financial and security risks. A reignition of fighting between the regime and cease-fire armies stationed along the pipeline route, an unpredictable business environment that could arbitrarily seize property or assets, and public relations disasters as a result of complicity in human rights abuses and environmental destruction all threaten investments.
Major Projects at a Glance
Shwe Gas Project
• Natural gas deposits are located in the A-1 and A-3 blocks in the Bay of Bengal, off the western coast of Burma.
• A natural gas pipeline was laid from Kyauk Phyu in Arakan State to Nanning in southwestern China.
• Offshore rigs for natural gas extraction – Daewoo aims to produce a plateau of 500 MMcf/d (14 MMcm/d) for up to 30 years.
• Offshore rigs will pump the gas through underwater pipes that will enter land southwest of the town Kyauk Phyu on Ramree Island, where one onshore gas terminal is planned to be built.
• A natural gas pipeline, stretching 1,740 miles (2,800 km), with an annual transportation capacity of 424 Bcf (12 Bcm), will transport gas to Nanning in southwestern China.
Trans-Burma Oil Corridor
• Oil pipeline will be built parallel to the natural gas pipeline across the heart of Burma, from the port of Kyauk Phyu in Arakan State, through Magwe Division, Mandalay, Division and Shan State, to China’s south- western provinces of Yunnan and Guizhou.
• Crude oil will be unloaded at the deep seaport and terminal at Maday Island with a 300,000-ton dead weight capacity.
• Oil storage facilities include an oil tank with storage capacity of 21 MMcf (600,000 cubic meters).
• An oil pipeline, flowing 684 miles (1,100 km) to Kunming (with a possible extension to Chongqing), will produce an annual transportation capacity of 22 million tons, or 442,000 bpd.
Newest Mega-Project
Despite the global recession and Myanmar’s relative isolation from the world, the government is pushing ahead on construction of a $7.3 billion deepwater port and $2.7 billion industrial area. The latter will be located in Kyaukpyu’s new Special Economic Zone (SEZ), along the Bay of Bengal coastline.
This strategic town is the terminus of a $1.5 billion oil pipeline and parallel natural gas pipeline running to Kunming in Yunnan Province. Agreements to undertake this mega-project have been signed with Chinese state-owned firms. This move set off alarm bells around the world.
China too remains committed to Kyaukpyu. Unlike any of the other major infrastructure projects related to Kyaukpyu, pipeline construction is moving forward despite significant local opposition.
These were constructed between 2010 and early 2015 by CNPC and Myanmar Oil and Gas Enterprise (MOGE), both state-owned, with CNPC as the majority stakeholder. The gas pipeline became operational in 2013 and is capable of exporting 12 Bcm of gas to China annually.
After a two-year delay, the oil pipeline began operation in April 2017. Some reports indicate that it can carry 22 million barrels of oil per year, which amounts to about 6% of China’s oil imports.
This pipeline project is part of China’s strategic effort – stretching across five continents – to reduce reliance on imports that move through the Malacca Strait. The goal is to avoid the possibility that an adversary (like the US) could close Malacca, and thereby threaten China’s vital energy supplies.
Despite fears that this new project could eventually be used to enable and facilitate Chinese military access, project advocates say that there are political and legal restrictions in place that make this unlikely. The project, according to those advocates, will aid development of Myanmar’s southwestern hinterland.
Like many major projects within China’s trillion-dollar Belt and Road Initiative (BRI), there are many who fear that the project grants China a high degree of financial leverage over Myanmar. This is especially concerning to project critics if the national government is forced to turn to Chinese loans to fund its share of the port and SEZ.
When combined, these could amount to 5% of the national GDP. Myanmar’s 30% stake in the Kyaukpyu port amounts to $2.2 billion. If it takes a 50% stake in the SEZ, that would bring its total responsibility for these projects to $3.5 billion, or about 5% of GDP.
Subsidiaries of China’s CITIC Group Corporation, including China Harbor Engineering, won contracts in 2016 for two major projects in the town – the dredging of a deep-sea port and the creation of an industrial area in an accompanying SEZ. The port project is valued at $7.3 billion, and the SEZ at $2.7 billion. Under the terms of the deal, CITIC will build and then run the project for 50 years with a potential extension of another 25 years.
Kyaukpyu negotiations predate BRI: CITIC signed MOUs in 2009 for the harbor, plus an SEZ-to-south China railway. However, they languished amid Myanmar’s sensitivities surrounding Chinese investments, following the 2011 suspension of the Myitsone dam and violent protests in 2012 over the Letpadaung copper mine.
The railway MOU was canceled in 2014, while the port and SEZ industrial area projects are moving forward, but slowly, and with considerable Myanmar pushback. Only in October 2017 did the two sides reach an agreement on ownership of the port project, and only after CITIC agreed to drop its stake from 85% to 70%. Ownership stakes in the SEZ have yet to be finalized.
Critics think that China will gain a dangerous level of economic leverage over Myanmar due to the accumulation of too much Chinese-funded debt. Chinese loans and large-scale investments have proven highly controversial in other countries. In the Maldives, for instance, Beijing’s been accused of using their financing to force concessions against its national interest.
Mynamar’s Poverty
In terms of poverty, Myanmar always ranks among the poorest countries in the world. This may help to explain why Myanmar’s per capita electricity consumption is less than 5% of the total seen in neighboring Thailand and China.
Burma already receives $2.4 billion per year – nearly 50% of revenues from exports – from natural gas sales but spends a pittance on health and education; one reason it was ranked as the second-most corrupt country in the world in 2008.
Entrenched corruption combined with energy shortages have led to social unrest in the conflict-ridden country; unprecedented demonstrations in 2007 were sparked by a spike in fuel prices.
According to the Asian Development Bank (ADB), 24.8% of Myanmar’s population lives below the national poverty line. In Myanmar, the proportion of the employed population who have less than $1.90 purchasing power parity per day is 2.7%. Forty-six of every 1,000 babies die before their 5th birthday.
The World Bank reported in June of this year that the global COVID-19 pandemic is dealing “a severe blow to Myanmar’s economy.” Economic growth in a baseline scenario is projected to drop from 6.8% in fiscal year 2018-19 to just 0.5% in fiscal year 2019-20.
If the pandemic is protracted, according to the World Bank’s Myanmar Economic Monitor, then “the economy could contract by as much as 2.5% in fiscal year 2019-20, with the expected recovery in 2020-21 subject to further downside risks.”
The slowing economic growth threatens to partially reverse Myanmar’s recent progress in poverty reduction while reducing the incomes of households that are already poor.
The bank provides a baseline scenario in which the domestic spread of the coronavirus is brought under control, the global economy swiftly recovers and Myanmar’s GDP growth rate is projected to bounce back to 7.2% in fiscal year 2020-21.
In that case, poverty rates would increase in the short term and will not return to pre-crisis levels until fiscal year 2021-22. Under the downside scenario, poverty rates would remain above their pre-crisis level until at least fiscal year 2022-23.
Gas Extractors and Key Players
• Daewoo International, based in South Korea (with 51% of the shares)
• Oil and Natural Gas Corporation, based in India (17%)
• Myanmar Oil and Gas Enterprise, based in Burma (15%)
• Korean Gas Corporation, based in South Korea (8.5%)
• Gas Authority of India Limited, based in India (8.5%)
• Gas buyer (with exclusive rights): CNPC
• Gas distributor (with exclusive rights in China): PetroChina
• Cost to develop the gas fields and get the gas to shore: $3.73 billion
• Estimated construction costs of the natural gas pipeline: $1-1.95 billion
• Annual transit fees: $150 million per year, for 30 years, for a total of $4.5 billion
• Estimated revenues from natural gas sales: $ 29.2 billion
• Constructor, designer and operator of oil pipeline inside Myanmar: CNPC
• (CNPC holds a 50.9% stake in the pipelines project with MOGE holding the remaining 49.1%)
• Constructor, designer and operator of other oil project components: CNPC
• Constructor of oil pipeline inside China: PetroChina
• Estimated construction costs for oil pipeline: $1.5 billion.
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