December 19, 2013 12:00 am JST

Myanmar's gas fields of dreams

TORU TAKAHASHI, Nikkei staff writer

A truck passes the construction site of a gas pipeline in a suburb of Mandalay on Dec. 4, 2012. The pipeline stretches across Myanmar from the Indian Ocean and into Yunnan Province, supplying much needed gas to China.

BANGKOK -- The race is on. As many as 42 foreign energy companies, including Exxon Mobil, are bidding for rights to develop gas fields in the waters off Myanmar's coast.

     Winning bids will likely be announced early next year, after the passing of a Nov. 16 deadline for filing.

     Nineteen of the 30 gas fields up for grabs are untouched in deep waters. Majors that have entered bids include Anglo-Dutch multinational Royal Dutch Shell, Total of France, U.S. company ConocoPhillips and Italy's Eni.

     Myanmar has embarked on democratization and economic liberalization since Thein Sein in 2011 became president. It has since accelerated the development of its natural resources through the use of foreign capital and technology. It had called for foreign bids on the rights to develop gas fields in the country twice in the past. The majority of bids on those occasions were from Asian companies.

     This time it's different. The blocks offered earlier for development were on land or in shallow waters, so winning bidders were required to form joint ventures with local partners. In the more technologically challenging deep waters, winning bidders will work alone. That prompted Western majors to join the fray.

Long shunned

Myanmar had proven natural gas reserves of 200 billion cu. meters as of the end of 2012, according to BP. This makes the country potentially the sixth-largest gas supplier in Southeast Asia, behind Indonesia, Malaysia, Vietnam, Brunei and Thailand. Oil and gas exploration had rarely been conducted by the majors in Myanmar because the country was until recently under economic sanctions. New major gas fields are widely expected to be found in deep waters in the Andaman Sea, located southwest off Myanmar's coast.

     In the mid-1990s, then Burma's military regime invited foreign bids for the rights to develop gas fields, prompting a number of overseas energy companies to respond. Total and Chevron's predecessor, Texaco of the U.S., were among the companies that began development work. Then U.S. and European governments in 1997 imposed economic sanctions on Myanmar. A barrage of criticism from U.S. human rights groups led Texaco to pull out of Myanmar operations.

     It was Asian companies that filled the vacuum. Malaysia's Petronas acquired development rights from Texaco, and began production in 2000. Gas is exported through a pipeline to Thailand, and provided a valuable source of foreign currency for a sanction-constrained Myanmar. South Korea's Daewoo Group led the development of a gas field located in the west of the country. Thailand's state-owned PTT is set next year to launch production at another field.

China in their hands

Myanmar is in a key geopolitical location, with good access to inland China. Gas produced in the field developed by Daewoo and others is transported overland in a pipeline to Kunming in China's southwestern Yunnan Province. About 80% of the output at the field is exported to China. An oil pipeline runs parallel to the one for gas. China National Petroleum built the two pipelines, which extend 2,500km, as well as related facilities at a cost of more than $5 billion. It began operating in October.

 

The Yadana gas field, operated by Total, sits in waters off Myanmar. Hopes for finding more gas in the Southeast Asian nation's seas are high.

   The two pipelines are key to China's energy security. Capable of transporting 12 billion cu. meters of gas a year, the gas pipeline can meet the energy needs of nearly 100 million residents in Yunnan and the surrounding provinces in China. The oil pipeline allows China to import crude oil without transporting it through the Strait of Malacca in the South China Sea, where it is involved in a number of territorial disputes. China relies on the Middle East for nearly half of its crude imports.

     Energy growth is also required at home. Myanmar faces serious power shortages. It relies on hydroelectric generation for 70% of its power needs, and therefore experiences frequent blackouts in April and May, when water levels get low because of dry season. Myanmar's power demand is projected to grow at an annual pace of more than 10% going forward, as economic development gets into full swing. The government plans to build more thermal power plants, which can supply power steadily all year around. Domestically produced gas will be used at the plants.

     "We will fulfill the obligations stipulated in the export contracts already signed," said Thin Aung, Myanmar's deputy minister of energy, "but we will use the gas produced in newly developed fields primarily at home, only exporting the surplus." He also said that Myanmar will ask foreign companies to agree to the contract provision requiring them to supply gas primarily to the domestic market. This will benefit the majors by providing a stable gas market near their production sites. It will enable them to recoup their investments more quickly.