Why Burma is of Growing Importance to China

By William Boot 27 November 2012

Burma’s strategic importance to China will grow as Beijing’s dependency on the Middle East increases and the United States’ declines. That’s the message in a new assessment of trends in oil production and consumption over the next two decades by the International Energy Agency (IEA).

Iraq supplied only five percent of China’s oil imports in 2011—around 275,000 barrels per day—but this will increase to more than eight million barrels per day by 2035, IEA Chief Economist Fatih Birol forecast in a study on consumption trends. This will come on top of rising Chinese imports from Saudi Arabia.

Burma’s significance in this is as a conduit for Middle East oil bound for Chinese refineries.

One oil pipeline now being built through Burma into neighboring China’s southwest Yunnan Province by China National Petroleum Corporation (CNPC) will begin pumping Middle East oil from around the middle of next year.

When it reaches full capacity the pipeline will carry up to 23 million metric tons per year, Beijing’s Global Times newspaper reported. That’s not a huge amount per se but could be the vanguard of much bigger transshipments of Middle East crude through Burma in the future.

CNPC is spending a total of US $4.7 billion on the current pipeline and a dedicated transshipment terminal at Kyaukphyu, Arakan (Rakhine) State, to handle oil tankers from the Middle East.

“If the Burma pipeline scheme isn’t undermined by armed turmoil by militias operating in some of Burma’s northern regions then it is quite likely that the Chinese NOCs [National Oil Companies] will want to build more pipelines through the country,” regional independent energy industries analyst Collin Reynolds told The Irrawaddy.

“If China is going to increase its imports of oil from Mideast countries it also is going to want to take whatever steps it can to limit the risks of using the sea route through the Malacca [Melaka] Strait. That’s why the Chinese have invested in Burma as an alternative and they are also going to want to protect that route also.”

India has also been expressing concerns about the increased presence of Chinese Navy vessels in the Indian Ocean.

The CNPC and the China National Offshore Oil Corporation are investing billions of dollars in Iraqi oil fields, said the IEA, leading Iraq to soon emerge as the world’s biggest oil producer after Saudi Arabia—with China its biggest customer.

“Increasing oil imports from Iraq is very possible and beneficial for China. Compared with other countries in the Middle East, Iraq is relatively stable at present, but we still should be aware of the risks,” Lin Boqiang, the director of the China Center for Energy Economic Research at Xiamen University, told the China Daily.

China’s domestic oil production is expected to peak at 220 million tons per year by 2020, but if China’s economy continues to expand at seven percent or more a year its oil consumption would then reach over 650 million tons a year, the Sinopec’s Economics and Development Research Institute has forecast.

The IEA report said China’s growing emphasis in Middle East oil will force it and other countries of the region to “focus on the security of the strategic routes” those tankers take.

Beijing is especially concerned with the narrow bottleneck of the Malacca Strait between Malaysia and Indonesia through which all its vessels must navigate via Singapore en route to East Asia. The Chinese are worried that the Strait could easily be blocked in a political crisis.

Beijing’s emerging geopolitical reliance on Burma is becoming a concern as anger grows within the Southeast Asian nation over a perceived view of Chinese firms riding roughshod over local interests.

In the case of the oil pipeline, Burma would receive a maximum of $36.8 million a year in transit fees, according to CNPC’s partners Myanmar Oil & Gas Enterprise (MOGE) and the Ministry of Energy. A flat right-of-way fee of $13.8 million will be supplemented by $1 per ton of oil pumped—a deal criticized by human rights groups as far too cheap.

NGOs allege numerous cases of social disruption, forced community relocations and land theft along the pipeline route which runs in tandem with a separate natural gas pipeline.

CNPC claims to have donated $6 million to “help the locals improve education and healthcare standards,” Global Times reported. CNPC has also agreed to contribute $2 million per year of the pipeline’s life to “further help develop villages along the pipeline.”

However, Chinese firms—mostly NOCs—have not endeared themselves to Burmese communities where they operate on contracts agreed secretly with the likes of MOGE or front firms belonging to the Burmese military leadership.

These are contracts which could cost Burma dearly in compensation if they are canceled, Burma’s President’s Office Minister Aung Min admitted this week during meetings with objectors to an expansion of the Monya copper mine in Saigaing Division.

The mine is jointly owned by Wanbao Company of China and the Union of Myanmar Economic Holdings.

Aung Min was seen telling protestors that the Burmese government was “afraid” to upset Chinese businesses because of the possible financial consequences. This applied in particular to the Myitsone hydroelectric dam, construction of which has been officially suspended by President Thein Sein on environmental grounds.

“It would need a stronger Burmese government to take on CNPC and its oil shipments strategy,” said Reynolds.