Kyaukphyu Plan ‘Lacks Purpose’ If China Pipeline Problems Persist

By William Boot 28 March 2014

Problems afflicting the oil and gas pipelines built by China through Burma could jeopardize the development of a special economic zone (SEZ) around Kyaukphyu on the Arakan State coast, an economist said.

Energy industry reports say the natural gas pipeline stretching from Kyaukphyu to China’s Yunnan Province is operating at less than 20 percent of its capacity, five months after it was declared operational by China National Petroleum Corporation (CNPC).

This revelation, by Interfax Natural Gas Daily, comes on top of news that the chief purpose of the twin oil pipeline through Burma nearing completion by CNPC is in doubt.

Middle Eastern crude oil to be transshipped through Kyaukphyu was meant to feed a new giant 200,000 barrels-per-day refinery and petrochemicals complex in Yunnan’s capital Kunming. However the complex, to have been built by CNPC, has been shelved until at least 2016 as part of cutbacks in China’s over-invested refining industry.

“Kyaukphyu is dependent for its viability on being a transshipment point for energy resources to China,” economist and noted expert on Burma Sean Turnell told The Irrawaddy. “In the absence of this, or in its significant under-use, the economic rationale for the location for an SEZ disappears rather quickly.”

State-financed CNPC has spent an unknown sum of money developing a deep-water oil tanker terminal at Kyaukphyu, which is where undersea pipe links to the Shwe gas fields in the Bay of Bengal also come ashore.

China’s official news agency Xinhua said last October that the gas pipeline had “gone into full operation.”

But Interfax said in a new report on the pipeline: “More than seven months after its commissioning ceremony, the pipeline is handling a fraction of its designed capacity of 12 billion cubic meters (cm) per year, according to Chinese customs data.

“Imports climbed to 56.92 million cm in November, 141.29 million cm in December and 166.02 million cm in January. However, that amounts to less than 20% of the pipeline’s capacity.

“Marketing projections by CNPC had suggested it would initially run at 50% of capacity.”

The South Korean-Indian business consortium developing the Shwe project led by engineering giant Daewoo International is facing operational problems such as undersea drilling, said Interfax, citing industry sources.
The London-based gas industry specialists cast doubt on CNPC’s trans-Burma pipeline ever achieving full capacity throughput without obtaining gas from sources other the Shwe field.

“As CNPC’s offtake [from Shwe] is equivalent to 4 billion cm per year, analysts have questioned where the additional gas will come from to exploit the pipeline’s designed 12 billion cm capacity.

“New discoveries and new developments for the pipeline could come, but so far, it’s not there yet,” Kang Wu, head of Asia operations at Facts Global Energy, told Interfax.

“You can speculate, say it will be filled up. Maybe that will be true, but so far, the development is not concrete enough to say the rest of the pipeline will be filled up soon,” Interfax quoted Kang Wu as saying.

The Ministry of Energy this week named international energy firms as the winners of tenders on 20 offshore blocks to explore for oil and gas, but new gas coming from the seabed in these areas is years off. And the Naypyidaw government has already declared it will not permit the export of any more domestically produced natural gas resources—beyond those agreements already signed, mainly by the former military regime—until all of Burma’s energy needs are met.

The government last September invited tender bids from Burmese and foreign companies for contracts to develop an SEZ around Kyaukphyu. A government outline proposal is for a zone of 120 square kilometers including all of Ramree Island and adjoining on the mainland. An international consortium led by Singapore’s CPG Corporation was this month awarded the consulting tender for the project, and a tender to develop the SEZ is expected to close in November.

A Chinese state-owned firm, China Railways Engineering Corporation, last year signed a memorandum of understanding with Naypyidaw to build an 800-kilometer railway linking Yunnan Province with the proposed SEZ.

Turnell, based at Macquarie University in Australia and co-editor of Burma Economic Watch Bulletin, told The Irrawaddy: “Unlike other SEZ locations, which have advantages for the transshipment of other goods, Kyaukphyu is really just about energy.”

In an earlier interview, Turnell said he doubted whether there would be a great deal of interest in an SEZ linked to a Kyaukphyu port other than from China and its old rival in the region, India.

The Shwe Gas Movement, a domestic rights group, continues to call for more transparency and fairness for local people in Kyaukphyu developments.

“The primary direct consequences of the Shwe Gas project are land confiscation, labor abuse, loss of livelihoods and environmental degradation,” the group alleges.

“Given that Burma’s transition from military dictatorship to a quasi-civilian government is still in an early and precarious stage, some of the abuses associated with this project are ongoing, and new problems have emerged.”