Myanmar Oil Discovery Could Be Huge

Brian Hicks

Written By Brian Hicks

Posted March 12, 2013

Myanmar is the latest country to seek riches in the form of shale investment.

The country expects to put up some 20 offshore oil and gas shale blocks for auction by April as it gears up to invite serious foreign investment that can help it overcome a growing energy shortfall.

Right now, Myanmar produces natural gas in quantities sufficient to meet domestic demand. After biomass, natural gas is the country’s major fuel, as U.S. News reports. However, due to contracts signed under Myanmar’s historical military rulers, some 80 percent of the natural gas produced (1.2-1.4 billion cubic feet per day) is shipped off to Thailand.

Now, Myanmar is planning a new pipeline connecting to China, which would export an initial 400 million cubic feet per day and go up to 1.2 billion cubic feet per day in later years, reports U.S. News.

Myanmar’s domestic energy needs are around 471 million cubic feet per day now, expected to rise to about 918 million cubic feet over the next fiscal year. Much of Myanmar’s natural gas policy was established during a different era, in many ways a worse one economically, and its legacy has been tough to overcome.

The offshore shale blocks in question, which will be up for auction by April, are intended to boost domestic supply. No terms have been fixed up yet, however.

After nearly fifty years of military rule, Myanmar is only just beginning to loosen up and approach something resembling an open market in which foreign investors can participate. It should be noted that this isn’t the country’s first foray into block auctions. A 2011 auction went less successfully than anticipated, with nine of 18 for-auction blocks finally getting allocated.

From RigZone:

“We are now recommending our local companies to participate in onshore and shallow water blocks,” Deputy Energy Minister Htin Aung said. “For the deepwater, it’s very risky and highly capital intensive so our people may not have the financial or technical capabilities.”

However, the country still bears traces of its authoritarian past. For example, there are still close ties between the new government and the earlier military junta. Transparency isn’t nearly what it could be.

And regarding the portending Myanmar shale development, famed opposition leader and revolutionary icon Aung San Suu Kyi has already issued warnings to foreign investors and governments about investing with the government-operated Myanmar Oil and Gas Enterprise, as RigZone reports.

However, the country has tried to establish its credentials and offer reassurances of open intent. It has joined the Norway-based Extraction Industries Transparency Initiative, which is specifically targeted toward such ‘troubled’ developing countries.

Right now, Myanmar produces some 20,000 barrels of oil per day at most, and according to RigZone, the majority of all output comes from the offshore fields Yadana, jointly operated by Total SA (NYSE: TOT) and Chevron (NYSE: CVX), and Yetagun, operated by Malaysian company Petronas.

Two new offshore projects, Shwe and Zawtika, operated by Daewoo International and PTT Exploration and Production, are scheduled to come online at some point this year. That would result in an increase in Myanmar’s gas production to 2.2 billion cubic feet per day by 2015.

As far as the shale block auctions go, BP (NYSE: BP), Woodside (ASX: WPL), Shell (NYSE: RDS.A), Chevron, and other international oil majors appear to already be quite interested, reports the Global Post. Myanmar’s push toward shale development has certainly seen a lot of companies perk up, since the country has ample reserves and is ripe for exploration and development.

However, an earlier offering of onshore oil blocks in January didn’t go very well, since it included a stipulation that foreign companies necessarily had to partner with the domestic Myanmar Oil and Gas Enterprise.

That is something the forthcoming auction program seeks to redress, since this time around, foreign firms will be allowed to exert full ownership. However, there will likely be a restriction of three blocks per company, as the Global Post reports. Myanmar’s present offshore oil and gas sector has approximately a dozen international companies partnered with local firms and involves around 27 offshore blocks.

Since the civilian government took over in 2011, Myanmar has certainly made sincere efforts to dissuade international skepticism regarding ease of business operations, transparency, and corruption. It remains to be seen how successful its efforts have been.

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