Offshore Gas Hunt Will Not Yield Swift Energy Relief for Burma

By William Boot 3 July 2013

The imminent awarding of licenses to explore for oil and gas in 30 sea blocks off Burma’s coast will not immediately solve the country’s energy crisis and could embroil investors in escalating sectarian violence, industry analysts warn.

That’s the view of foreign observers who also warn that despite progressive changes in Burma over the last 24 months, the rule of law remains plagued by corruption and interference by military interests that could hamper investors.

Bids for the 30 blocks, 19 in deep water and 11 in near-shore shallow locations, closed in mid-June and winners are due to be announced within days, according to the Ministry of Energy.

While little interest was shown earlier by big foreign oil companies in a batch onshore blocks, the likes of BP, Shell, Chevron, Petronas of Malaysia Thailand’s PTTEP and China National Offshore Oil Corporation are understood to being among those bidding for the offshore stakes.

The territorial waters of Burma are where all the country’s big natural gas discoveries have been made—from the Bay of Bengal close to Bangladesh in the west to the Gulf of Martaban on Burma’s east coast.

“It is perhaps significant that Burma’s offer of 18 onshore blocks in January failed to attract the interest of any large oil companies,” independent energy industries analyst Collin Reynolds told The Irrawaddy on Tuesday.

“Taking up an offshore block is going to be much more expensive because of the highly specialized equipment needed and the more precarious conditions of operation. On the other hand, there are zero complications over land access and ownership, issues which I think have been causing numerous problems since the liberalization.”

The potential prizes are big for both developers and Burma, which desperately needs access to energy resources to fuel a massive expansion of electricity production upon which the country’s economic growth will depend.

The Naypidaw government has made clear that future gas and oil finds must first be used for Burma’s benefit before any new energy exports can be allowed. At present, almost all of the natural gas produced or soon to be produced from offshore fields is piped abroad under long-term contracts.

“The Energy Ministry has recently implied that the allocation of the new offshore blocks to new investors will quickly help solve Burma’s energy requirements, but that it certainly not going to happen,” said Reynolds, who is based in Bangkok.

“Offshore E&P [exploration and production] is a long process. The Shwe field, which is soon to go onstream to feed the Chinese pipeline through Burma into Yunnan [province], has been under development for more than 10 years. I believe the first contracts were signed with Daewoo [International, of South Korea] in about mid-2000,” Reynolds said.

The chairman of Burma’s Energy and Renewable Energy Committee, Thaung Win, told a South Korean investors conference on June 24 that natural gas would soon play a “vital role” in Burma’s growth, and predicted a 70 percent increase in gas production. He provided no information to back up this figure.

Daewoo’s development partners include two Indian state oil firms, ONGC Videsh and GAIL. Almost all the Shwe gas found in two blocks—totaling more than 200 billion cubic meters so far—has been bought by China under a long-term contract.

Land confiscation and compensation claims continue to bedevil the area of Kyaukphyu on the Arakan State coast, where the transhipment point for Shwe gas to the onshore pipeline just completed by the China National Petroleum Corporation is located, as well as other Chinese oil installations.

Land rights issues and the rule of law are both highlighted in a new study as significant problems facing foreign companies planning to invest in major infrastructure projects in Burma.

“Political reforms have yet to bring notable improvements to the rule of law, with a continued absence of judicial independence, corruption at all levels of government, and widespread discrimination against ethnic minorities,” said the 70-page study seen by The Irrawaddy this week.

The study, “Human Rights and Societal Risk Report – Myanmar,” was compiled by Maplecroft, an international business risk assessor based in Britain.

“In the medium term, the one element of governance that may witness some improvement is corruption, particularly within the extractives sector. This is because of [Burma’s] agreement to work under the Extractive Industries Transparency Initiative [EITI], under international pressure,” the Maplecroft report said. “However … the extremely weak judicial structures are continuing to undermine enforcement of many of [Burma’s] decades-old business and security regulations.”

Maplecroft says the success of any investment is “heavily reliant on good relationships with government officials, who regularly demand bribes, resulting in unfair competition and exposing investors to allegations of corrupt practices.”

A large proportion of the offshore blocks offered for development are off the coast of Arakan State, where violence between Muslims and Buddhists has led to more than 100,000 internally displaced persons (IDPs) and a heightened military presence—a combination that often leads to abuse, human rights NGOs have noted.

“While [Burma] is currently adapting its regulatory framework to improve the country’s attractiveness for investors, the process is marked by a near-complete lack of transparency or consultation with stakeholders,” the Maplecroft study said.

“In particular, land acquisition for commercial operations continues to be associated with extreme social risks. Discretionary power vested with government agencies in land transactions and dispute resolution leads to high prevalence of involuntary displacement as a result of land grabs.”