May 12, 2007

MYANMAR GAS: THE PIPELINE PSYWAR

by B. Raman

In a despatch of April 21, 2007, China's official Hsinhua news agency has quoted the SINOPEC, the state-owned Chinese oil company, as stating that the construction of the China-Myanmar oil pipeline is expected to start this year. According to the company, at the beginning of April, 2007, the National Development and Reform Commission (NDRC) approved the Sino-Myanmar oil pipeline, which would link Myanmar's deep-water port of Sittwe (Akyab) with Kunming, the capital of the Yunnan Province. It did not, however, indicate when the pipeline would be completed.

2. The news agency despatch also indicated that there was a proposal to construct a separate gas pipeline linking the Arakan coast with Yunnan over a distance of 2380 kms. The construction of this gas pipeline would involve an investment of US $ 1.04 billion. In return for this, China would extend to Myanmar a credit of US $ 83 million to enable it to develop its gas resources. The agency said that this pipeline will transport 170 billion cubic meters of natural gas from the Middle East to southwest China in the next 30years.

3. The emerging picture is that Myanmar has allowed Chinese companies to construct two pipelines connecting the Arakan coast with Yunnan----one for oil and the other for gas. While the oil pipeline will start from Sittwe, it is not yet clear from where the gas pipeline will start. Most probably, from Kyaukpu. Both the pipelines will be used to transport part of China's imports of oil and gas from West Asia and Africa in order to reduce the dependence on the Malacca Strait. Subsequently, these pipelines will also be used to transport any oil or gas that may be discovered by the Chinese companies to whom contracts for exploration in the Arakan area have been awarded.

4. Three State-owned Chinese companies are presently exploring in off-shore blocks awarded to them by Myanmar's Ministry of Energy in the Arakan area----the China National Petroleum Corporation (CNPC), the SINOPEC and the CNOOC. Earlier, Huang Qifan, the Vice-Mayor of Chongqing in Yunnan, had been quoted as stating that the CNPC would be constructing an oil pipeline connecting Sittwe with his town, where a refinery with a 10-million-ton capacity would be established. It is not clear whether his announcement, which named the CNPC as the constructor of the oil pipeline, and the latest Hsinhua despatch, which named the SINOPEC as the constructor, referred to the same pipeline.

5. On April 21, 2006, the "Shanghai Security News", quoting what it described as well-informed sources, had circulated the following report: "The plan to build a crude oil pipeline between Burma and China has been shelved because of viability concerns. The pipeline was vetoed for its poor economics, insiders say. Burma produces no oil and building a transit pipeline is not viable in economic terms. On the other hand, if constructed, the pipeline's capacity would account for merely 10% of the oil shipments currently passing through the Malacca Strait, which would not go far in solving the country's energy supply security concerns."

6. Commercial sources monitoring energy developments in China had commented on this report as follows: "The news contradicted earlier reports that the Chinese Government had green lighted the construction of the pipeline. The Shanghai-based newspaper, however, cited an official with the National Development and Reform Commission (NDRC) as saying that a bilateral agreement should be reached with Burma first and then NDRC can sanction the project. Sinopec and PetroChina, the two companies reportedly pushing the project forward, have also denied their involvement in the pipeline. "

7. Now, after a year, the SINOPEC, as quoted by Hsinhua, says that the oil pipeline has been approved and that the construction will start this year. What has made this pipeline, which was considered as not viable in April last year, viable now? If the Myanmarese authorities have allowed the Chinese to construct an oil pipeline from Sittwe, what happens to the Indian proposal for a gas pipeline from the same place? Is it confirmed that the Myanmarese authorities have decided to sell the gas produced in the two blocs awarded to a consortium of Indian and South Korean companies to China, as reported by some sections of the media? If so, what happened to the Indian and South Korean proposals to purchase this gas?

8. The confusion continues due to a lack of transparency about the various oil/gas projects in the official circles in Myanmar as well as India. Most of the announcements and claims have been coming from the Chinese companies with no corroboration or contradiction from the Indian or Myanmarese side.

(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: itschen36@gmail.com)

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