April 20, 2017 10:00 am JST

A new Myanmar oil pipeline helps China dodge US influence

Fewer crude imports by sea means greater energy security for oil-hungry country

WATARU KODAKA and YUICHI NITTA, Nikkei staff writers

SHANGHAI/YANGON China has taken a major step forward in its quest for energy security by opening an oil pipeline through Myanmar, a cross-border project that also underscores the two countries' increasingly close ties.

Chinese President Xi Jinping and his Myanmar counterpart, Htin Kyaw, agreed on April 10 to activate the oil pipeline, which stretches roughly 770km from Kyaukpyu, a port city in western Myanmar, to the Chinese border. The project -- the crown jewel among the economic cooperation agreements the pair signed during talks in Beijing -- should allow oil-hungry China to reduce its reliance on shipments through sea lanes where the U.S. wields significant influence.

The pipeline can carry up to 22 million tons of oil each year, equivalent to nearly 6% of China's total imports in 2016. Crude oil shipped via this route will be processed mainly at large refineries in Kunming and Chongqing in western China for use in nearby areas.

State-owned China National Petroleum worked with Myanmar Oil and Gas Enterprise to build the pipeline through a joint venture in which the Chinese partner holds a majority stake. Offloading of 140,000 tons of Azerbaijan oil from the first tanker to arrive at Kyaukpyu began on the same day the pipeline was activated, according to the Chinese company.

China is becoming increasingly reliant on oil imports as its economy continues to grow. Imports accounted for 65% of oil consumed the country in 2016, up 5 percentage points from a year earlier. Middle Eastern oil, which accounts for nearly half of imports, has traditionally arrived on tankers via the Strait of Malacca and the South China Sea. The Trump administration has ramped up criticism of Beijing over its expanding territorial claims in the South China Sea, and China is acutely aware of the economic and social upheaval it would experience if the U.S. were to close off that route.

The government under Xi has already worked to bolster China's oil and natural gas pipeline links to Russia and Central Asia. Adding the Myanmar pipeline as a third route increases China's energy security and could boost Beijing's bargaining power with Russia and other current suppliers.

WIN-WIN Construction on the roughly $1.5 billion Myanmar-China pipeline began in 2010 and wrapped up in 2015. But the project then sat idle, throwing a wrench in Beijing's plans of making Myanmar a key piece of its energy policy. Ties between the neighbors were warm during Myanmar's long military rule. But under President Thein Sein, who took office following Myanmar's ostensible democratization in 2011, the Southeast Asian nation sought to escape Chinese influence and build closer ties with the U.S. and Europe.

The wind shifted again in March 2016, when the National League for Democracy took power. Party leader Aung San Suu Kyi, who now serves as state counselor and foreign minister, appears intent on bringing her country and China closer together. China was the site of her first official visit outside the Association of Southeast Asian Nations last August, for example.

Stagnation under decades of military rule has left Myanmar with much ground to cover in terms of infrastructure development and improving relations with the country's ethnic minorities. Support from Asia's economic heavyweight in solving these issues could help make up for lost time. China is Myanmar's largest trading partner and a key source of investment, and the Southeast Asian country is keen for its neighbor's assistance in securing peace along their shared border, where various armed groups are active.

Stronger ties with Myanmar also stand to benefit Beijing's Belt and Road Initiative, which aims to create a sphere of Chinese economic influence spanning Southeast and Central Asia and beyond. By supporting emerging nations' infrastructure development, China hopes to build political ties that will be useful down the road.

Htin Kyaw professed Myanmar's support for the initiative at his April 10 talk with Xi. It was also revealed that Suu Kyi will visit China in mid-May and attend a Belt and Road summit.

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