Uncertainty Surrounds Burma Gas Auction, Pipelines and Transparency

By William Boot 4 April 2013

Much-delayed plans to kick-start an international scramble for oil and gas on Burma’s Bay of Bengal coast are due to be unveiled this month, but the Ministry of Energy has yet to provide any details of the license auction, or the level of transparency which will be in place to oversee it.

Up to 20 offshore blocks will be offered for exploration licenses, according to the ministry. However, potential foreign bidders still do not know whether they will be permitted to hold a full license—with a 100 percent shareholding—or take on domestic partners.

Foreign firms seeking onshore licenses must have a local partner, but offshore exploration requires heavier investment and a level of technology unavailable to Burmese companies, say industry analysts.

The auction was meant to take place last September but was postponed amid foreign concern about the transparency in the bidding process and the involvement of an unreformed Myanma Oil & Gas Enterprise, widely seen as a tool of the former military regime.

Four weeks ago Minister of Energy Than Htay said the government had taken the “necessary actions” to ensure Burma’s oil and gas sector fulfilled the standards of the Extractive Industries Transparency Initiative (EITI).

Based in Oslo, Norway, EITI is an international body which overseas financial openness and fairness in the industry.

According to EITI, however, Burma is still only at the stage of preparing to become a member and has yet to apply for inspection to qualify for candidate membership.

“Revenue from oil and gas is the largest source of foreign income for the government of [Burma],” said an EITI statement. “According to the IMF, revenue from gas will likely increase by 85 percent over the next three years as the Shwe gas project becomes operational.

“By preparing to implement the EITI, the government is taking practical steps to ensure that a robust framework is in place for dialogue about the governance of these natural resources.”

Analysts say the recent outbreak of sectarian violence between Buddhists and Muslims in Burma, renewed fighting in Kachin State and a major clean out of corrupt and incompetent senior officials by President Thein Sein may have distracted the government from the exploration licensing auction.

The president has in recent days forced the dismissal of key leading officials in the Ministry of Finance and Revenue, the Trade Department, the Department of National Economic Planning and Development and the Commerce Department as part of a dragnet to clean up the government.

“There is still an air of uncertainty around the proposed offshore oil blocks auction due this month,” industry analyst Collin Reynolds in Bangkok told The Irrawaddy on April 3. “We still do not know any details of the auction, such as how many blocks, locations and terms.

“It all could go ahead, however, Burma is under intense scrutiny from the international community in view of its recent past and the close financial involvement of the former regime.”

Chinese national oil companies are expected to be among bidders for Burma’s offshore blocks, where large volumes of natural gas are reckoned to be under the sea.

China’s interest is linked to its plans to use Burma as a conduit for oil and gas via the two pipelines it is building through the country from the central coast terminal it has developed at Kyaukphyu, where it also has proposed to bring a freight railway line from its landlocked Yunnan Province bordering Burma.

“Not only will these pipelines become a reliable means of delivering energy imports from the Middle East and Africa directly to China, without having to navigate the narrow Strait of Malacca and increasingly volatile South China Sea, they will also provide China a potential direct line to over 20 new offshore oil and gas exploration blocks that will go up for international auction in April,” said Eric Draitser, an American geopolitical analyst writing in the Asia Times.

One of the pipelines is due to begin pumping gas from the Shwe field in the Bay of Bengal in the middle of this year, but fighting between a Kachin militia and the Burmese army near the northern end of the pipeline just before it enters Yunnan has raised doubts about security.

A report by Natural Gas Daily, produced by the Russian news agency Interfax, quotes a security consultant saying it could be highly dangerous.

“Running an over-ground gas pipeline in a location where an armed conflict is taking place is absolutely unadvisable. An explosion could easily be caused by a stray bullet. If the pipeline is penetrated it will explode, causing it and the surrounding area significant damage,” Michael Oxlade, senior security consultant at Westminster International, was quoted by Interfax as warning.

Westminster International is a UK company run by ex-British Army officers which provides advice on security for all kinds of installations, including energy infrastructure.

Natural gas exports are becoming an increasingly important source of income for the Thein Sein government to finance its economic reforms and also reportedly to directly take part in new oil and gas explorations.

Income from gas exports in the 2012-13 financial year ended March 31 were expected to reach almost US $4 billion, according to the Ministry of Commerce, although official figures have yet to be published.

Next year, this source of income will be further boosted by the Shwe gas sales to China—if there are no pipeline mishaps—and also from gas bought by Thailand from a new field in the Gulf of Martaban to the east.