Myanmar to open offshore oil and gas bids by April

March 4, 2013 - 9:29 AM
Myanmar Energy

Than Htay, Myanmar’s minister of energy, third left, shakes hands with foreign participants to “Myanmar Upstream Summit", an oil and gas conference in Yangon, Myanmar, Monday, March 4, 2013. Myanmar plans to put over 20 offshore oil and gas exploration blocks up for auction by April, government officials said Monday, as the country pushes to attract foreign investment and expertise to help close the gap between domestic energy supply and demand. (AP Photo/Gemunu Amarasinghe)

YANGON, Myanmar (AP) — Myanmar plans to put over 20 offshore oil and gas exploration blocks up for auction by April as the country pushes to attract foreign investment and expertise to help overcome an energy deficit that's a legacy of gas export deals made by its former military rulers.

Myanmar produces more than enough natural gas, which is its primary source of energy after biomass, to meet domestic needs. But it exports about 80 percent of the 1.2 to 1.4 billion cubic feet of gas it produces each day to Thailand under contracts signed by Myanmar's old authoritarian military rulers.

A new gas pipeline to China, which may not be able to commence operations in June as scheduled because of a recent outbreak of violence in Myanmar's northeast, would initially send an additional 400 million cubic feet of natural gas per day out of the country. Eventually, that could rise to 1.2 billion cubic feet per day, government officials said.

That leaves Myanmar with about half of the natural gas it needs to meet domestic demand. If it didn't export so much, it could easily meet its domestic needs, which are expected to rise from 471 million cubic feet per day in the fiscal year that ends March 31 to 918 million cubic feet per day next fiscal year, according to Ministry of Energy statistics.

Myanmar's energy sector today reflects the larger drama of a country struggling to change course, while still honoring contracts made by previous regimes on often unfavorable terms. The struggle to balance old commitments with new values and new freedoms can be seen around the country. A violent crackdown on protests against the Letpadaung copper mine in northwestern Myanmar — which is jointly owned by a Chinese company and a company owned by the Myanmar military — has triggered an official inquiry led by opposition leader Aung San Suu Kyi. And farmers who claim their land was seized by the country's old military junta are waging countless smaller battles to get their property back.

Ministry of Energy officials say that when those gas export contracts were negotiated, the world was a very different place. Back in 1998 and 2000, when Myanmar made its first big offshore gas discoveries, the moribund domestic economy meant demand for natural gas was low. Even today, 69 percent of domestic energy consumption comes from biomass, like wood. Meanwhile, the country, struggling under Western sanctions, badly needed foreign currency.

Those contracts, which mandate that 20 percent of production be kept for domestic use, could well be renegotiated, but the government must proceed carefully as it balances domestic complaints with the need to reassure foreign investors that their contracts will be honored.

"Now with development, we need oil and gas for domestic use," Htin Aung, Myanmar's Deputy Minister of Energy, said in an interview. "But we have signed the agreement and we are abiding by our commitments."

China is poised to become a major importer as well. Htin Aung said China's 495 mile gas pipeline, which connects the Bay of Bengal with Yunnan province in southwest China, will start operations in June, while a parallel 481 mile oil pipeline will begin pumping in September.

The pipelines are strategically important to China, which now routes most energy imports through the narrow Strait of Malacca and wants to develop an alternate supply route. The pipelines pass through an area of northeastern Myanmar where violence recently broke out between the government and ethnic Kachin fighters who want greater self-rule. China has been concerned about the skirmishes and brokered peace talks between the two sides in February.

Htin Aung insisted that there would be no delays to the pipelines because of fighting in Kachin and Shan states, but another ministry official, speaking on condition of anonymity because he is not authorized to speak with the press, said the violence, along with regulatory delays, could push back the start of operations to the end of the year.

"In northeast Myanmar, there is violence, so there is delay in our projects," he said.

For now, the Ministry of Energy is betting on new discoveries to close the country's energy gap.

The government plans to open bids for offshore blocks by April, Zaw Aung, the director of planning at Myanma Oil and Gas Enterprise — the government's exploration and production arm — told delegates at the Myanmar Upstream Summit oil and gas conference in Yangon on Monday. Foreign firms are more interested in Myanmar's offshore blocks, which have greater potential, than in the 18 onshore blocks the Ministry of Energy placed on the auction block in January. The government also plans to drill over 300 new wells itself in the next five years, Zaw Aung said.

Any new discoveries, he said, "will be prioritized toward domestic supply."

Zaw Aung said decisions on the onshore bids probably won't be finalized until November. In the meantime, he said his office — understaffed, with just a half dozen people to handle the bids — would work as quickly as possible to open the offshore round.

Terms of the offshore bids haven't yet been finalized. Foreign companies "definitely" will have to work with a local partner for onshore and shallow water blocks, but no decision has yet been made as to whether foreign players will be allowed to take a 100 percent interest in the technically more complex deep-water blocks, Zaw Aung said.