Burma’s Bumper Energy Sale

By William Boot
Irrawaddy Online: 1 September, 2006

Three neighbors are vying to buy the next huge trench of Burma’s natural gas, in return for arms, political silence or other favors, while much of the country stays in the dark

Down on the waterfront of the old port town of Sittwe on Burma’s west coast, there is growing activity and unfamiliar faces from India and China. Engineers from the two countries are sizing up the place as their politicians lobby the military regime in Naypyidaw for the big prize under the sea a few miles off the coast.

While much of Burma continues to suffer power blackouts or, worse, has no access at all to electricity, the generals are preparing to sell off another large slice of the country’s natural energy resources. Now, with a late bid by Thailand making it three of Burma’s friendly neighbors vying for the much sought after fossil fuel, the question is who will the junta favor—and for what reasons?

Burma is rich in natural gas, and perhaps also oil, but it is mostly being sold abroad. Instead of fuelling the country’s own decrepit and inadequate electricity-generating industry, it is helping to keep the junta in power by paying for weapons and keeping neighbors sweet.

Grouped along the coast around Sittwe are five fields, or parcels of seabed, known as the Shwe group, beneath which prospectors estimate there are many trillions of cubic feet of gas waiting to be tapped. Only one of these fields, Block A-1, has been thoroughly explored so far and it is estimated to contain up to 10 trillion cubic feet, of which 5.6 trillion can be commercially brought to the surface under present economic conditions, says the main prospector, Daewoo of South Korea.

Based on prices paid by Thailand for gas being tapped in the Yadana and Yetagun fields in the Burmese Andaman Sea to the east, Block A-1 could be worth more than US $12 billion to Snr-Gen Than Shwe and his junta, says the Shwe Gas Movement, an NGO collective campaigning for democratic rights in Burma. The gas has become so valuable, as Middle East instability pushes up oil prices and the world worries over future energy security, that the junta is now facing unprecedented pressure, and charm, from Asian bidders—while western boycotting countries can only look on in dismay and, probably, envy.

What had for a long time looked like a done deal between Burma and India for the entire Block A-1 gas has been complicated by the emergence of both China and Thailand as rival suitors.

The gas seemed destined for India with the first-ever visit to Burma by an Indian head of state last March, when President APJ Abdul Kalam signed various memorandums of understanding. But while India continued to hedge over a pipeline delivery plan, and argued with Bangladesh over a possible route through that country—now abandoned—China’s state energy giant PetroChina quietly slipped in and also signed an MoU to buy Shwe gas. The Myanmar Oil and Gas Enterprise (MOGE), which controls all energy deals as a direct arm of the junta, 

announced—unconvincingly—that that there was enough gas for both countries.                      

That’s not really how New Delhi and Beijing see it. The Indian government has just received a cost estimate for routing a 1,550 km pipeline from Sittwe through its northeastern states of Assam and Mizoram, bypassing Bangladesh—$3 billion.

China would face a similar bill to build a pipeline up the Irrawaddy river and through Kachin state into its Yunnan province and beyond. Neither country will want to make that size of investment without the surety of at least a 20-year gas supply deal.

Into this closed-door bidding contest has stepped Thailand’s state-dominated oil and gas conglomerate PTT, which has boldly asked not only for sole purchase of the A-1 field gas, but also exclusive concessions for its exploration subsidiary PTTEP to drill in several of the neighboring blocks.

“The Burmese are delaying making a decision no doubt in the hope that they could play one off against the other to their financial benefit,” said Collin Reynolds, an energy commodities analyst in Bangkok. “It is not clear whether they encouraged the Thais to also become involved, or if Thailand is trying to capitalize on the India-China stalemate.”

Burma has become heavily dependent on gas revenue. A report last month by the Asian Development Bank said gas was Burma’s biggest export—annual sales to Thailand alone are worth more than $1 billion—and warned that “any global shock that reduced energy prices or slower demand could adversely affect the economy.”

Whether the regime will entertain PTT’s late Shwe bid may depend on other factors, say commentators. For example, Thailand and China recently won approval from the regime to jointly develop hydroelectric dams along Burma’s Salween river on its eastern border with Thailand.

Thailand is already the biggest single buyer of Burmese gas. Through concessions granted to PTTEP in the Yadana and Yetagun fields off Burma’s eastern coast in the Gulf of Martaban, Thailand is currently importing about 1.13 billion cubic feet a day.

Ironically, a Bangkok government agency last month suggested that Thailand had become too gas-dependent for power generation—it now fuels about 70 percent of generating capacity—and should diversify fuel sources.

The Washington-based human rights NGO EarthRights International, which has been monitoring Burma’s energy resources sell-off, said: “The introduction of China to the Shwe gas picture was unexpected but not surprising. The MoU with PetroChina represents the ever-growing economic and trade relationship between Burma and China, coinciding with several recent diplomatic visits between high level officials from each country.

“Burma’s military junta is politically and economically unstable and insecure. This climate arguably contributes to a sense of urgency to all of the junta’s undertakings, particularly when those undertakings secure needed revenue.”

All three neighbors have vested interests in propping up the Burmese regime beyond the gas equation. India eyes Burma as a geographical gateway to Southeast Asia. China wants a deepwater port on the Indian Ocean, and a pliant neighbor. Thailand is after water and electricity from hydrodams along the Salween.

“Located at the crossroads of Chinese and Indian power, [Burma’s] challenge lies in striking a balance that enables it to benefit economically from the two rising powers,” an analyst on China and energy issues at the Institute of International Affairs in Singapore, Lim Tai Wei, told The Irrawaddy. “Its close geographical proximity means that it can benefit directly from the two giants if it manages to sustain the delicate balancing act.”

Lim said Beijing has “patiently practiced charm diplomacy” with Burma, but India is not without some cards to play. It is a 30 percent development stakeholder in Block A-1 and Block A-3, in which South Korea’s Daewoo is the main gas production contractor with MOGE. The irony here is that the Indian partners, the Gas Authority of India and the Oil and Natural Gas Corporation, could end up having to sell gas to rivals China.

India has also recently signed an agreement with Burma to build a $100 million port facility in Sittwe which will function as a transit hub for cargo vessels to be allowed to travel up and down the Kaladan river, linking India’s landlocked northeastern states with the sea. Indian goods will go down river, oil will go up. The port is scheduled to become operational in late 2009. India will invest in navigation improvements on the Kaladan.

Observers say it is no coincidence that in early August convoys of heavily laden Indian military trucks crossed into Burma at the Moreh border under cover of darkness, as reported by the BBC’s Burmese Service.

Both India and China compete for favors by supplying arms to the junta, and for strategic reasons Beijing also wants access to the Bay of Bengal. Whether or not China becomes the main customer for the Shwe gas fields, it has ambitions to build an oil pipeline from the Sittwe area northeastwards up to the Yunnan provincial capital of Kunming. “The project, if completed, would change the geopolitical picture of oil distribution in Southeast Asia which, when compared to the present Malacca [Straits via Singapore] oil route, creates a reduction of 1,820 sea miles [to China’s southern coast],” said Lim.

India may have bagged Sittwe as its port for northeastern India, but China is furtively building a deep-water port 60 miles to the south at Kyaukpyu on the island of Ramree, which would be capable of handling large oil tankers, and naval vessels.

Analysts say this is just one of a so-called “string of pearls” port facilities China plans around the rim of the Indian Ocean—as part of Beijing’s aim for the strategic containment of India’s looming rivalry.

“Although headway has been made in Myanmar-Indian relations,” said Lim, “[Burma’s] main security partner remains China. China is training [Burma’s] naval intelligence officials, helping Rangoon execute surveys of its coastline and helping to modernize its naval bases at Hianggyi, Coco, Sittwe, Zadetkyi Island, Mergui (known as Myeik) and Kyaukpyu by building radar, refit and refuel facilities that are expected to support Chinese submarine operations in the region.”

Even as the junta kept India, China and Thailand on tenterhooks in July over the sale of the Shwe gas, new evidence emerged of the potential fossil gold mine under Burma’s Bay of Bengal territorial waters. A French-Burmese deep-water geological survey of tectonic plate movements, sponsored by France’s Total Oil, produced evidence of previously unknown gas and oil deposits, said a statement by MOGE.

The size of these new deposits, the location of which was not disclosed, will need specialist drilling prospectors—tempting enough perhaps to spark a new round of junta wooing.