Tentative Western Oil Majors Line Up for Myanmar Hydrocarbon Glory

Published on Sep 24 2012 // article, Featured Analysis, Slide Show

The Giants Are Coming: Tentative Western Oil Majors Line Up for Myanmar Hydrocarbon Glory 

Since President Obama’s easing of sanctions against the Southeast Asian country in July, American as well as foreign companies are flocking to Myanmar for business — all sectors are on the table including banking, insurance, pharmacy, manufacturing, services and energy.

General Electric was the first American company to set foot in Myanmar after sanctions were lifted and secured a medical equipment deal with two hospitals in just a week after Obama made his announcement. Other American companies seeking investment opportunities in Myanmar include Caterpillar, Citibank, Kraft Foods, Ford, Bell Helicopter, Hewlett-Packard and Arrow Technologies. Last week, MasterCard said it had signed a deal with a Myanmar bank that it hopes will pave the way for electronic payments in a poor country where most transactions are made in cash. The list continues to grow almost daily.

And in a sign of things to come, Singapore Airlines announced on September 4 that it will start a daily service to Yangon (Rangoon) in October to meet growing business and tourist demand for flights to Myanmar’s largest city. Also, this month, Japan’s Nippon Airways joined airlines from Thailand, China, India, Malaysia, Singapore and Vietnam, which have already resumed direct flights to Myanmar since economic and political reforms began.

Financing is also coming to Myanmar. The World Bank recently announced that it will resume lending to Myanmar for the first time in nearly 25 years and has opened an office in Yangon. Asian Development Bank (ADB) also recently opened offices in Yangon. Additionally, Japan has extended nearly $900 million in loans to Myanmar.

But the sector that the Myanmar government is banking on to bring much needed revenue to modernize and rejuvenate its anemic and impoverished economy is oil and gas. More poignantly, analysts point to natural gas as the main focus of foreign investment in the coming years.

However much about Myanmar’s oil and gas is a mystery.

Conflicting reserve data

For starters, there is a problem with securing good geological data in Myanmar. A lot of the data already on hand was collected with old and unreliable equipment, a Yangon-based investment manager told Interfax in August.

Also, the country’s reserves vary depending on who you talk to. Myanmar’s proved gas reserves were placed at 11.8 trillion cubic feet (Tcf) at the end of 2010, or 0.2 percent of the world’s total according to the BP Statistical Review. The US Energy Information Administration (EIA) lists Myanmar’s proved natural gas reserves as of 2010 at 10 Tcf, placing their gas reserve ranking at 37th globally. However, Myanmar is more hopeful. Myanmar’s Minister of Energy Than Htay said in January that his country’s natural gas reserves are at 22.5 Tcf.

Myanmar currently produces 19,600 barrels per day of crude oil and 1.475 billion cubic feet (Bcf) a day of natural gas, Myanmar’s Ministry of Energy Planning Department said in March. The ministry also claims that the country’s proved oil reserves total 104 million barrels onshore and 35 million offshore. The EIA ranked Myanmar’s natural gas production at 36th globally in 2010 and crude oil production at 65th.

So, if Myanmar is not hydrocarbon rich, what’s all the fuss about? The fuss is over the lure of the unknown. Lack of exploration work during the years that Myanmar was under Western sanctions means much is unknown about the country’s reserves and new discoveries are still being found. For example, Burma Petroleum Company, a joint venture with Chinese oil major Sinopec and state-owned Myanmar Oil & Gas Enterprise (MOGE), confirmed a major gas discovery in January. Myanmar state media earlier reported that the Chinese-led company has discovered reserves of 909 Bcf of natural gas and 7.16 million barrels of condensate in central Myanmar. The discovery was made at the Pahtolon oil field. Further tests are being conducted.

Myanmar, in an effort to feed the energy feeding frenzy of American, Western and Asian companies, is ready for business and opening up tenders.

“Since the sanctions have been eased by the US, the UK, the Western powers, the giant companies are interested; they come to my ministry daily to discuss how they could participate,” Than Htay told reporters in Yangon on August 26. “Shell is inquiring, BP from the UK is also coming to discuss. There are many giant firms coming.”

“The oil industry is a technology and capital intensive industry, but we are very poor so we need to seek foreign investment and we definitely need to collaborate with the international oil companies and need to see their investment,” he said.

Myanmar already held an energy tender for 18 oil and gas exploration blocks in July 2011 — before the easing of US sanctions. It was the first formal bid held in five years. Before that tender, companies had to enter into private discussions with the government for direct block awards. Some of the companies that entered into these agreements and have been or are currently operating offshore Myanmar include French oil major Total, Malaysia’s Petronas and Rimbunam, South Korea’s Daewoo, Thailand’s PTT-Exploration & Production (PPT-EP), China’s CNOOC and CNPC, India’s Essar, GAIL and ONGC, Australia’s Danford Equities, Russia’s Sun Itera Oil & Gas, and Silver Wave Energy whose parent company is based in Singapore.

Most Western oil firms were conspicuously absent from the July bidding however. The energy department short-listed bidders and invited selected firms to review geological and geo-physical data of the 18 onshore blocks.

In January Myanmar awarded 10 onshore blocks to eight of these firms from the tender. The Myanmar Times reported that countries in Southeast Asia bagged most of the awards since interest from major state-linked Chinese players was lukewarm, providing the way for lesser know companies to secure blocks. Malaysia’s Petronas secured a block, as did Thailand’s PPT-EP. India’s Jubilant Energy also secured one production sharing block as well as a Switzerland-based company, a Russian company, an Indonesian company, a smaller Chinese firm and a Hong Kong listed firm.

Myanmar failed to strike deals with the remaining eight blocks since they were not seen as lucrative.

MOGE corruption concerns delay upcoming tender

Another oil and gas tender creating considerable media buzz and speculation was set for later this month. The Myanmar Ministry of Energy said 29 offshore blocks would be offered alongside 34 onshore blocks in the next bidding round. It would be the first opportunity in at least 15 years for US oil companies to participate in Myanmar.

However, news broke on September 5 that Myanmar delayed the tender to meet transparency standards of Western oil majors. A Myanmar government official stated that the tender was postponed after several oil companies (ConocoPhillips, Hess, Royal Dutch Shell, BP, BG Group, and Australia’s Woodside Petroleum) approached the government with their concerns.

The fly in the ointment that delayed the tender was MOGE’s lack of transparency. MOGE indeed has a horrible track record, one that makes international human rights groups stay awake at night. In fact, according to Transparency International, Myanmar ranks just behind Somalia and North Korea as the world’s most corrupt country in its 2011 corruption index and the country’s rule of law was given a 3-percentile rank.

All foreign firms investing in the Myanmar oil and gas sector are required to take on a local partner and enter into a production sharing contract and partnership with MOGE, which oversees licensing and holds a majority stake in all onshore and offshore blocks.

Allegations against MOGE abound. Derek Mitchell, then-US special envoy to Myanmar, voiced his concerns to a key US Senate Committee during his ambassadorial confirmation hearing on June 28.

“The issue of MOGE is one that we are looking very carefully at,” he said. “We have concerns about this enterprise and its transparency and the corruption that is associated with it through reports that we have. There are particular concerns here with connections to the military and such.”

Nobel Peace Prize winner Aung San Suu Kyi warned the International Labor Organization that MOGE “lacks both transparency and accountability at the present.”

However, Western oil majors, US diplomats and Nobel Peace Prize winners aren’t the only ones to level accusations against Myanmar’s oil and gas industry. Its citizens also take aim.

In May protests broke out in Yangon over power outages and the exporting of Myanmar gas abroad. Myanmar gas is exported to generate power in other countries despite the fact that roughly 75 percent of its population doesn’t have access to electricity from the national grid. Yet, it appears that the new Myanmar government takes these concerns seriously now.

Last month the government decided to set aside adequate quantities of natural gas for domestic use, though local media reported that it will not be available until 2016-2017. The government also secured agreements to set aside gas from Rakhine state from the controversial Myanmar-China gas pipeline that is set to come online by the second half of next year.

How Myanmar appeases both its citizens who have their first taste of freedom in decades, and willing but anxious oil companies remains to be seen. Hopefully, Myanmar’s government, after decades of isolation and economic hardship, will learn lessons from the past and play ball at home and on the world stage.

Energy Tribune