Step on the Gas

Despite the efforts of some Western  governments to isolate the Burmese regime economically, the stark reality is that more private companies and countries than ever are courting the Burmese generals to obtain a share of the country’s vast oil and gas resources.

International energy companies from nine countries are now competing for exploration or production rights for gas and oil both offshore and o­nshore in Burma. A Thai company recently discovered a huge offshore gas field that may harbor as much as two trillion cubic feet of gas.

In the last six months, companies from Australia, Malaysia, Singapore, China, South Korea, Russia and Thailand have secured new licenses to explore for hydrocarbons. Operators from India and South Korea are already engaged in major offshore gas field development and other suitors, such as Japan, are knocking at the door with attractive purchase offers. Two operators from an obscure part of Russia who have begun drilling for oil in Burma’s northwestern Sagaing Division are the latest competitors.

“The idea that Myanmar [Burma] is isolated is a bit of a Western myth,” Bangkok-based independent energy commodities consultant Collin Reynolds told The Irrawaddy. “With the growing scramble for energy security and rising prices for oil and gas, Rangoon is an increasingly important destination for developers and buyers.

“For many countries it is not a question of whether to deal with the military regime but how,” he said.

An example of this has been the secret auction in play by at least five countries to obtain gas from the huge Shwe field off the coast of Arakan near the port of Sittwe.

The Burmese regime is not o­nly able to finance itself from this much-sought natural resource but also secure political and military favors as sweeteners before or after a commission.

Both India and China have recently been falling over themselves to provide weapons, loans or promises of infrastructure investment. And, as a quid pro quo, the Naypyidaw generals can probably rely o­n Beijing and Moscow to veto any Western attempts in the UN Security Council to rap them over the knuckles for human rights abuses and denial of political plurality.

Potential riches are just o­ne more enticement for the regime to hold o­n to power. o­ne example is the burgeoning income it receives from Thailand’s purchase of gas produced in fields in the Gulf of Martaban o­n Burma’s east coast—now close to US $1.5 billion a year.

Burma’s main export is gas, and Thailand is now its chief trading partner. However, the Shwe field to the west will provide even greater riches for the generals and their cohorts and before long China could become their main trading partner.

The regime is always closely involved in all gas and oil explorations through its involvement as a “partner” of the state Myanmar Oil and Gas Enterprise (MOGE), but in reality the state contributes o­nly the licensing rights. It contributes nothing toward exploration and development.

MOGE is also a useful publicity machine for the regime. Thailand’s state-controlled hydrocarbons explorer PTTEP was reluctant to reveal how big its latest undersea finds are in the Zawtika field beneath the Gulf of Martaban, other than to confirm “strong commercial potential.”

But that wasn’t good enough bait to lure other explorers to invest, and MOGE let it be known that it believes the Zawtika field may hold up to two trillion cubic feet of gas.

The junta also has related areas of investment in which it is a non-paying beneficiary partner.

India is keen to redevelop Burma’s western port of Sittwe as a potential access to the sea for its isolated northeastern states via the Kaladan River.

Burma and India were both meant to contribute to the $100 million port project although the actual work is to be done by India’s state construction agency RITES. However, Rangoon has cried poverty and New Delhi—anxious no doubt not to upset a regime it is still negotiating with over the Shwe gas—now says it will pay for Burma’s share of the project cost.

“Developing East Asia is waking up to the need to ensure adequate supplies of power generating resources as they expand their economies,” said an analyst at a Western embassy  in Bangkok who spoke o­n condition of anonymity.

“This is happening at the same time that China is increasingly scouring the world for fossil fuel energy, so competition is intensifying.

“Indonesia and Malaysia have become important regional suppliers, but Burma and Cambodia have been spotted as holding much future potential. There will be no shortage of investors.”

As a result, he said, in this kind of “reality environment” there is little likelihood of Asean putting any serious pressure o­n the Burmese government to free Aung San Suu Kyi or to promote democracy.

In May this year, Thailand’s Ministry of Energy estimated that the country’s gas consumption will grow 12 percent per year at least until 2012. Most of the gas will have to be imported as condensed liquid natural gas (LNG) by ship, and thus Bangkok is quietly backing proposals by Japan and South Korea to develop an LNG processing center in Sittwe linked with the Shwe gas field.

Burma’s energy resource suitors range from top-paying Japan to poverty-stricken neighboring Bangladesh, whose army-backed government is showing a new eagerness to talk and trade with the Naypyidaw generals. A delegation from Dhaka visited Burma in June to discuss a favorable “special friend” gas-buying deal and cooperate o­n hydroelectric schemes near their joint border.

Observers note that the Burmese regime will doubtless seek to manipulate the Rohingya refugee problem in Bangladesh to its advantage, as well as the longstanding offshore territorial dispute with Bangladesh which holds up further oil and gas exploration in the Bay of Bengal.

“The big Western oil majors might have been shamed out of Myanmar by economic sanctions by the Washington and London governments and the campaigns of human rights NGOs, but in this increasingly energy security conscious world, Rangoon will continue to have no shortage of suitors,” said commodities consultant Reynolds. “The same thing is happening with the worst regimes in Africa.”

But the Burmese generals’ game of playing o­ne suitor off against another could also be financially damaging in the longer term, note some analysts.

The price of a rumored behind-the-scenes deal to sell all of the 200 billion cubic meters (over 7 trillion cubic feet) of Shwe gas discovered to date to China would deeply upset both India and South Korea, whose companies discovered the gas and are contracted to deliver it from 2009.

Beijing would almost certainly pay less for the gas than any of the other four bidders, which would reduce profitability o­n investment by the chief Shwe developer, Daewoo Corp of Seoul, and its two Indian state-owned partners, the Gas Authority of India Limited (GAIL) and o­nGC Videsh.

Such an eventuality is already prompting reaction in New Delhi.

“GAIL is reconsidering whether to invest in other [oil and gas] exploration in Myanmar,” an unnamed New Delhi government official told India’s Financial Express.

If MOGE chooses the Chinese as the buyer of all the Shwe gas, it will be “sensitive from the point of view that [Indian companies] will fund bringing gas to China against India’s wishes,” the official said.