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Troubled Pipelines in Myanmar

Posted by Arakan Indobhasa Wednesday, April 23, 2014

Troubled Pipelines in Myanmar

The Sino-Burmese pipeline project has the potential to significantly benefit both China and Myanmar. From the Chinese perspective, however, the pipelines may be creating more problems than they would solve.
| Vol 2 Issue 16
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China Shwe gas pipeline (2).jpg

Soe Zeya Tun/Reuters
The China-Myanmar gas pipeline while it was being constructed. The pipeline went fully operational on October 20, according to China National Petroleum Corp.
Burmese opening and the pipelines
The most unexpected transformation undergone by a country in the 21st century has perhaps been that of Myanmar. In the space of a few years, it has morphed from an isolated authoritarian regime into a burgeoning democracy, emerging as a major investment target for foreign businessmen. As this “last frontier” market is opened up to the forces of globalisation, the country seems irreversibly destined for significant economic and societal development.

Of the many investment projects taking place in Myanmar, the Sino-Burmese pipelines are the most grandiose. With echoes of the Panama Canal, the pipelines seek to expand the limits of energy trading routes through the construction of a massive man-made infrastructure project. Construction began in 2010, when Myanmar was a pariah state and China was one of the few countries engaged in business there. The project was mutually beneficial for both countries, but the Chinese in many ways had significant leverage in negotiating the deal because of Myanmar’s isolation.

The project consists of two pipelines, approximately 1,000 kilometres long, which carry Burmese natural gas and imported crude oil across Myanmar to China. The state-owned oil companies of those two countries, Myanma Oil and Gas Enterprise and China National Petroleum Corporation (CNPC), lead the project. An offshore gas terminal and a deep-sea port on Maday Island feed the natural gas pipeline, which has a capacity of 12 bcm per year and is already operational. The oil pipeline, with a capacity of 440,000 bbpd (about 10 percent of China’s total imports), to be supplied mostly from Africa and the Middle East, will be completed later this year.

The pipeline project is also interconnected with several other infrastructure projects. A Special Economic Zone on the Burmese coast has been designed for foreign companies to construct and operate petrochemical plants and oversee the export of Chinese products. CNPC also intends to build storage tanks that could store 17 days’ worth of the oil pipeline’s capacity. Furthermore, a new Yunnan-Arakan railway is planned, which will facilitate the transport of goods and people from the Burmese coast to China’s southwest.

Benefits for Myanmar
The pipelines will accelerate Myanmar’s economic development in three major ways:
The project will attract more foreign investment, which fuels much of Myanmar’s economic growth (it is estimated that Myanmar needs $170 billion in foreign investment to achieve its growth potential). The pipelines’ construction particularly enhances Myanmar’s reputation as an oil and gas producer, which will spur greater investment in the energy sector; Myanmar’s growing role as an energy supplier is evidenced by the recent rounds of offshore tenders in which numerous oil majors and smaller foreign companies took part. Additionally, the pipelines will have ripple effects throughout the Burmese economy, creating a myriad of other opportunities for foreign investment, especially in the industrial and financial sectors.

2) Myanmar stands to earn significant revenues by selling its oil and gas resources on world markets. Since 2000, Myanmar has been the largest natural gas exporting country in Southeast Asia, and in 2012, 41 percent of all export earnings were derived from natural gas sales. As Myanmar’s reputation as a hydrocarbon producer develops, and as the recently granted licences for offshore and onshore blocks become operational, the amount of oil and gas available for export will expand, thereby increasing government revenues.

3) The pipelines will help Myanmar meet its rising domestic energy demand by spurring domestic oil and gas production. This boosted domestic production, particularly of natural gas, could be used to power the new power plants being promoted by the Burmese government. According to the Asian Development Bank, only 30 percent of Myanmar’s population has electricity access. Such energy poverty poses a significant obstacle to Myanmar’s economic development, and casts negative light on the government’s popularity amongst the populace.

Benefits for China
The project serves as an apparent solution to two of China’s major strategic dilemmas:

1) Approximately 80 percent of China’s oil imports pass via ships through the Malacca Straits. This vulnerability worries China’s geostrategic planners, and has been coined as China’s “Malacca Dilemma” in academic articles and the press. The pipelines address this dilemma by offering a valuable alternative route through which China can import hydrocarbon resources from Africa and the Middle East, thereby giving it greater strategic flexibility.

2) A secondary benefit is that the pipelines promise to bring economic development to Yunnan province, which has the third lowest GDP per capita of China’s administrative divisions. The province currently acquires its oil from the east via rail, a more expensive form of transport. By providing cheaper and more plentiful fuel, the pipelines will hopefully spur economic growth. The pipelines, in conjunction with the Yunnan-Arakan railway, will also establish trade access routes from Yunnan to the Bay of Bengal.

Trouble ahead
Despite these promising benefits, the pipelines bring China a new set of headaches, and in the words of a Chinese independent journalist, the project “seems to generate more problems than the Malacca Dilemma.” Five major issues cloud the pipelines’ future prospects:

1) There is a lack of infrastructure in China to take in the oil expected to flow through the pipeline upon its completion later this year. As Chinese economic growth slows, the push to build up oil consumption-related infrastructure, such as refineries and new pipeline networks, is fading. This means that there is now a serious potential for the pipeline to be completed and the oil to have nowhere to go once it reaches Yunnan, causing a glut on the Burmese coast.

2) As Myanmar gains prominence in the international sphere, more countries are looking to invest in the former pariah state and benefit from its rapidly expanding markets. One of the immediate implications of these developments for the pipeline is that Myanmar is now in a better position to negotiate with China over the terms of the pipeline deal. Whereas previously China was one of the few players willing to do business with Myanmar, there are now several contenders. With its greater leverage, Myanmar may seek to change the terms of the pipeline agreement. Myanmar’s suspension of China’s Myitsone Dam project in 2011 is evidence of Myanmar’s increasing willingness to defy Chinese infrastructural plans.
3) There are numerous security concerns. The pipeline begins in Rakhine State, the site of the violence between Muslims and Buddhists in 2012 that some commentators have described as genocidal. Further north, the pipeline passes through territories that until recently were in a state of open civil war with the Burmese central government.

4) There are several local interest groups opposed to the pipelines’ construction for fears of losing land, jobs, and livelihoods. This opposition is presented most vocally by the Shwe Gas Movement, which regularly demonstrates against the pipeline. The state of local dissatisfaction with the project is augmented by reports that the Burmese government has not distributed funds provided by Chinese companies to compensate local communities along the pipelines’ route.

5) Burmese-Chinese ethnic tensions cause another type of local resistance to the pipelines, distinct from the displacement issues mentioned above. The recent attack on a relay station was allegedly catalyzed by a dispute between Burmese and Chinese workers. Ethnic Chinese living in Myanmar are often regarded negatively, both for reasons of hegemonic suspicions on behalf of the Burmese and the economic divides between impoverished Burmese and relatively wealthy Chinese; ethnic Chinese tend to occupy a higher economic class in Myanmar by benefiting from cross-border trading networks with communities in China.

Troubled pipelines

Although the pipelines’ construction will be finished shortly, the project has not secured China’s imports of oil and gas in as significant a way as was previously hoped. The pipelines will allow China to reduce its vulnerability in the Malacca Straits and, at the same time, economically develop one of its poorest provinces. However the benefits of the pipelines are constrained by several factors, including insufficient infrastructure, future re-negotiations with Myanmar, security concerns, local resistance, and ethnic tensions.

Nicholas Borroz is contributor at the International Security Observer (ISO). Nicholas is an independent analyst of energy geopolitics with an emphasis on oil and gas transportation infrastructure. He works for a DC-based risk consultancy and has three years’ experiencing working for the US government in international affairs where he focused on development, energy, and macroeconomics. This article was originally published by the International Security Observer.

Nicholas Borroz is contributor at the International Security Observer (ISO). Nicholas is an independent analyst of energy geopolitics with an emphasis on oil and gas transportation infrastructure. He works for a DC-based risk consultancy and has three years’ experiencing working for the US government in international affairs where he focused on development, energy, and macroeconomics. This article was originally published by the International Security Observer and has been republished with the author’s permission.

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