China secures Myanmar energy route By Sudha Ramachandran
BANGALORE - China and Myanmar have signed an agreement for the construction of
fuel pipelines that will transport Middle East and African crude oil from
Myanmar's Arakan coast to China's southwestern Yunnan province -
short-circuiting the long sea voyage past Singapore - while also drawing from
Myanmar's own gas reserves.
Under the March 27 agreement, a gas pipeline will tap into Myanmar's reserves
at the Shwe gas fields, and an oil pipeline will carry Middle East and African
crude that is currently transported in tankers through the Malacca Strait to
Construction of the US$1.5 billion oil pipeline and the $1 billion
gas pipeline will begin soon and is expected to be completed by 2013. China's
largest oil and gas company, the China National Petroleum Corporation (CNPC),
holds 50.9% stake in the project, with the rest owned by the Myanmar Oil and
Gas Enterprise (MOGE).
The roughly 2,000 kilometers of pipeline will cut through the heart of Myanmar,
beginning near Kyaukphyu on the Arakan coast and running through Mandalay,
Lashio and Muse before crossing into China at the border town of Ruili. The
pipelines will terminate at Kunming in Yunnan province. A gas collection
terminal and a port for oil tankers will be constructed on an island near
Kyaukphyu. The entire cost of constructing the pipelines will be borne by
Myanmar has the world's 10th-largest natural gas reserves, estimated at over 90
trillion cubic feet (tcf) in 19 onshore and three major offshore fields.
According to Myanmar officials, the country's daily gas production will almost
double to 2.235 billion cubic feet by 2015 from the current 1.215 billion cubic
The Shwe reserves in the gas field off the Arakan coast have attracted
considerable attention following the discovery of deposits at block A-1 (Shwe
field and Shwephyu field) in January 2004 and at block A-3 (Mya field) in April
2005. It has been estimated that the Shwe field holds a gas reserve of 4tcf to
6 tcf and the Shwephyu, and the Mya fields have a combined proven reserve of
5.7tcf to 10 tcf. The finds have triggered fierce competition between India,
China, South Korea, Thailand Japan and Singapore.
Thanks to its decades of proximity to Myanmar's military rulers, China has been
successful in swinging decisions in Myanmar's energy sector in its favor. That
it is a veto-holding member of the United Nations Security Council and in a
position to prevent resolutions critical of the junta from being passed at the
top UN meeting place has helped increase China's presence and profile in
Myanmar's oil and gas sector.
Stakes held by Chinese companies in 16 oil and gas blocks make China the
largest foreign investor in Myanmar's energy sector, although it entered only
as recently as 2001.
In December 2008, China finalized an agreement with a consortium led by South
Korea's Daewoo International and including MOGE, India's Oil & Natural Gas
Corporation, GAIL India (Ltd.) and Korea Gas Corporation, under which it was
assured of 30-year supply of gas from the A1 and A-3 blocks beginning 2013. The
pipeline from Kyaukphyu will carry this gas to Yunnan.
Besides opening up a new source of gas in Myanmar for China, the pipeline
project will strengthen China's bonds with Myanmar's military rulers and
increase its already considerable influence over its neighbor. No less
significant, the link will enhance China's energy security, helping to reduce
China's excessive dependence on the Malacca Strait.
The 900km-long strait, which connects the Indian and Pacific Oceans, is one of
the world's busiest shipping channels. Around 65,0000 vessels pass through it
every year, carrying a quarter of the world's traded goods. Roughly a quarter
of all oil transported by tankers passes through the strait, mainly from the
Gulf and Africa to China, Japan and South Korea.
The Malacca Strait is crucial for China's trade and energy security. At
present, roughly 80% of China's annual imports of 1.5 billion barrels of oil
pass through the narrow seaway, which separates Malaysia from Indonesia.
Over the past few years, Chinese analysts and leaders have been describing the
strait, as a strategic vulnerability, drawing attention to the consequences for
China if this shipping channel were to fall into the hands of "hostile powers"
or pirates or terrorists. What if the US were to block China's access to the
strait in the event of a China-Taiwan conflict?
In November 2003, Chinese President Hu Jintao articulated this fear when he
declared that "certain major powers" were bent on controlling the strait.
Analysts have been discussing the country's "Malacca dilemma" since then and
exploring options to overcome it. One proposal, partially undertaken, is to
develop a port and pipeline terminal at Gwadar, in southwest Pakistan, from
where Middle East fuel could also be pumped to western China.
From 2013, Chinese oil tankers from the Middle East and Africa will be able to
cross the Bay of Bengal to dock at Myanmar's Sittwe and Kyaukphyu ports from
where their cargo will be transported through pipelines to Yunnan. The
transport time of fuel that bypasses the Malacca Strait in this way will be cut
by a week.
The pipelines, however, will mean an increased Chinese presence and activity in
the immediate neighborhood of India. The pipelines might have eased Beijing's
anxieties somewhat, but they have added to New Delhi's.