Pipelines will energize Myanmar economy, benefit China

Updated: 2013-02-27 06:13

By Ho Chi-ping (HK Edition)

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Imagine a country being lucky enough to tap into neighboring sources of oil and natural gas that promise to substantially reduce its heavy dependence on coal and other fuels. Not only that, the new sources would also slash the number of tanker voyages required by that lucky country to bring oil from afar to provide energy for its industries.

Sounds like a complete pipe dream, you might think. How could such a super win-win deal be reached in this day and age? For decades, hasn't every possible source of oil and fuel been exploited to the last liter? Ah, you skeptics, you've forgotten about Myanmar's fabulous sources of oil and gas that have remained virtually forgotten for decades while the country has remained in the world's shadows, regarded by the West as a pariah state.

China, as a nation that keeps its nose out of other countries' internal affairs, had the wisdom to retain friendly relations with the government of Myanmar. And why not - after all, they share a common border at the southwestern corner of China, where Yunnan meets the northeast of Myanmar.

Pipelines will energize Myanmar economy, benefit China

As China's economy virtually exploded in the 80s and 90s, its leaders surveyed the international scene and undertook a series of aid projects to help friendly but poorer countries to enjoy some modern benefits. Many beneficiaries were desperately undeveloped countries across Africa, where Chinese funding and expertise helped to build infrastructure such as roads, bridges, dams and housing projects. As a result, the countries' grateful inhabitants began enjoying greatly improved and much healthier lifestyles.

Then the aid program was extended to Myanmar. Although the country was rich in assets beneath its soil, its economy was in poor condition. The two countries began discussions on how best to stimulate a revival, and in 2004 feasibility studies began considering the construction of a gas pipeline between the two countries.

A year later, PetroChina signed a deal with the Myanmar government to buy natural gas for 30 years. Then in 2008, China National Petroleum Corp (CNPC), PetroChina's parent company, contracted to purchase gas from Myanmar's Shwe oilfield.

By this time, however, China's energy needs had ballooned so dramatically that it was time for Beijing to consider a still bolder step - a massive oil pipeline project extending from Myanmar to Kunming, capital of Yunnan province.

Canny Chinese planners were highly enthusiastic, realizing that the pipeline would bring China a double benefit. As they pointed out, China was then using a fleet of tankers to voyage all the way to Middle Eastern or African ports to collect crude oil for its refineries. The tankers then had to make the long return voyage across the Indian Ocean, down Malaysia's west coast and through the Straits of Malacca to Singapore and then up the Vietnamese coast before finally reaching China. Once the pipeline opened, the planners explained, China's dependence on oil from those distant sources could be reduced correspondingly, with significant reductions in tanker usage.

Fast forward to today, and the good news is that the gas pipeline will start operations in April and the oil pipeline later in the year. For gas, the first stage will run from Myanmar to Kunming, and the next stages to Guizhou province and the Guangxi Zhuang autonomous region, totaling 2,806 kilometers. The oil pipeline will initially be limited to a 771 kilometer stretch from the Myanmar oilfields to Kunming. Construction of the two pipelines will cost China US$2.5 billion, but once they go into operation, both will immediately start paying for themselves.

Once it reaches full output, the oil pipeline will carry 12 million tons of crude oil to Kunming per year, where a refinery is also nearing completion.

The biggest indirect savings from the oil pipeline will come from a cut of 30 percent in the amount of crude China now buys from Middle Eastern or African countries via tanker ships.

CNPC holds a 50.9 percent majority stake in the combined oil and gas projects, with Myanma Oil and Gas Enterprise holding the balance.

One of the most difficult sections of the project has been the construction of a railway linking Muse and Lashio in Myanmar's mountainous northeast. Although only 130 km long, it involved building 41 bridges, 36 underground tunnels and seven stations. With the pipeline about to begin operations, the difficult endeavor is nearly complete.

The author is deputy chairman and secretary general of the China Energy Fund Committee, a think tank on energy and China-related issues.

(HK Edition 02/27/2013 page1)