Mixed Reception in Burma for Tumbling Global Oil Price

By Kyaw Hsu Mon 22 January 2015

RANGOON — The plunge in global oil prices in recent months has proven to be good news for Burmese consumers, but is shrinking profit margins for the country’s crude exporters, industry observers told The Irrawaddy this week.

Since June, global crude oil prices have fallen from about US$110 per barrel to $50 per barrel due to a supply-demand imbalance, bringing prices to their lowest level in almost six years.

Crude oil exports, along with natural gas, are a major component of the Burmese economy, making the global price slump a cause for concern, Burma’s deputy minister of energy has acknowledged.

“Foreign earnings will decline due to the global oil price [drop],” Deputy Energy Minister Aung Htoo said, in response to a question from a lawmaker on the domestic impact of the global oil market’s tumble.

Aung Htoo said the price drop would affect the country’s natural gas sector as well, but the minister added that growing production at the relatively young Shwe and Zawtika offshore gas blocks would help offset the dip in the commodity’s global market price.

While significant interest and investment in Burma’s oil reserves has accompanied to country’s opening to the West in recent years, Aung Htoo said foreign investment in the oil and gas sector would be lower than in past years as companies wait for the global oil market to recover.

In December, Myanma Oil and Gas Enterprise (MOGE) signed four production-sharing contracts with foreign firms for the development of deep-water exploration and drilling sites. Aung Htoo on Wednesday did not mention how many barrels of oil per day Burma currently produces.

The minister said the country could seize on an opportunity presented by the rock-bottom price of oil.

“We have suggested to the government that while the oil prices are dropping, we should buy diesel from abroad and store as much as we can as strategic oil reserves so that we can receive short-term benefits. The international oil price drop has both positive and negative impacts on Myanmar,” Aung Htoo told lawmakers.

Ken Tun, the chairman of Parami Energy Group of Companies, said oil-producing and services-oriented companies in the oil and gas sectors would see the global market drop cut into their bottom lines, while firms currently in just the exploration phase of production might be unaffected if prices rebound before their wells come online.

“It is sure that if global oil prices keep declining, the country’s earnings will decrease, but for us, a services company, it won’t hurt that much because the number of foreign oil and gas companies is increasing here,” he said, while adding that Parami could be affected if oil prices stay low for an extended spell.

“For example, if production companies cut their costs, reduce human resources, the services companies will be affected. These companies will also have to make cuts,” Ken Tun said.

He added that the oil market slump offered a good opportunity for the government to craft a better energy policy, such as reducing costly subsidies on oil imports and building up a network of refineries around the country.

“This is a good time to create a better energy policy by the government,” he said. “We have potential in the oil and gas exports market and could be a regional hub if we can start implementing a better policy in the energy sector,” he said.

While Burma does have crude exporters, a lack of refining capacity means the country is a net importer of refined oil products.

Burma produced about 20,000 barrels of oil per day in 2013, according to various estimates, but a London-based international business risks analysis firm forecast last year that the figure could drop to less than 17,000 barrels per day by 2023.

“We’re still importing oil and gas, about $4.5 billion per year, so if we can control it now, it will definitely be beneficial for us,” Ken Tun said.

The oil market’s ill tidings for exporters has been good news for consumers and manufacturers in Burma, however, as fuel costs have fallen as well, though not as precipitously.

Myat Thin Aung, chairman of Rangoon’s Hlaing Tharyar Industrial Zone, said that as a result, daily commodity prices could fall by 3 to 4 percent.

“Manufacturers are now happy because fuel prices are falling. Production costs will decrease, so they can sell at lower prices,” he said.

The Hlaing Tharyar Industrial Zone, Rangoon’s biggest, is believed to host some 500 factories that set up shop since the zone was created in the early 1990s.

“Every summer season, we have to use our own generators to run factories because the government can’t supply 24-hour electricity, so I expect that the cost of fuel will be less this summer,” he said.

“I hope that prices for people’s daily goods will fall significantly soon,” he added.