September 25, 2017

India eyes Myanmar’s oil, gas in pursuit of expanding beyond borders

By Sambit Mohanty
Myanmar’s dramatic growth in consumption of refined oil products and the inability of its aging refineries to meet that incremental demand have whetted the appetite of Indian oil companies to play a bigger role in the Southeast Asian nation’s oil and gas sector — from upstream to retail.
Myanmar, one of the oldest oil and gas industries in the region and a country which exported its first crude oil centuries ago, is again emerging as a bright spot for overseas investors after sanctions, which were imposed on the country during a long period of military rule and political unrest, were lifted in 2012.
To deepen ties, India’s oil minister Dharmendra Pradhan led a delegation to Myanmar late February looking for opportunities to supply refined oil products to the country, as well as highlight the interest of Indian upstream companies to take part in the forthcoming bid round in Myanmar’s oil and gas blocks.
“They invited India to invest in all stream in oil and gas,” Pradhan said in a message following the visit.
Myanmar’s demand for oil products has been steadily rising. But its production of oil and gas is expected to be more or less stagnant.
While there have been some upgrades at the refineries in recent years through foreign assistance, including help from India, in the short term rising oil products demand is most likely to be met through higher imports.
“The prospect of deepening Myanmar-India ties are very interesting and could potentially be quite wide,” said Michal Meidan, Asia Energy Policy Analyst at Energy Aspects.
“Indian refiners are increasingly looking to sell products to Myanmar in order to tap a growing market. This makes sense both on the geopolitical level where India is increasingly seeking regional influence — and Myanmar will be pleased to hedge against China — and in terms of Indian refiners’ corporate needs to deepen their presence in new markets,” she added.
AGING REFINERIES
Following the lifting of the sanctions, Myanmar, which lacks advanced road infrastructure, is witnessing a dramatic surge in vehicle imports, triggering massive traffic jams — similar to the ones seen in Jakarta or Bangkok.
Myanmar’s three aging state-owned refineries with a total capacity of around 50,000 b/d, are all running substantially below capacity and are only able to supply a part of the country’s daily fuel requirements. According to sources, state-owned Myanma Petrochemical Enterprise, which runs the refineries, has operating rates of around 20,000 b/d.
Among other things, the Indian delegation’s agenda during the recent visit to Myanmar included exploring markets for Indian downstream companies for supplying petroleum products, LPG, wax and petrochemicals.
B. Ashok, chairman of state-run Indian Oil Corp. has said that the company was exploring options of fuel retailing in Myanmar. In addition, the Numaligarh refinery of India’s state-run Bharat Petroleum Corp. Ltd. is also looking out for opportunities to supply gasoil into Myanmar.
Myanmar imported about 75,000 mt of gasoline per month in 2015, with the main suppliers being Singapore, Thailand and China, according to sources. Domestic demand and import data on Myanmar are sketchy and are still not available for 2016.
Myanmar’s crude and liquids output was estimated to be around 12,600 b/d in 2016, and production is expected to remain more or less flat over the next five years, according to BMI Research, a Fitch Group company. Refined products production was estimated to be around 7,000 b/d in 2016, and is expected to grow to nearly 9,000 b/d by 2021.
“The downstream sector is in dire need of further investment, and we expect the government to pursue positive reforms to attract greater foreign direct investment,” BMI Research said.
“The country offers some of the strongest consumption growth potential in the region for both refined fuels and natural gas, on the back of positive economic performance and rapid growth in several energy intensive sectors, such as power, transportation, manufacturing and agriculture,” it added.
Nomura has said in an earlier report that it expects Myanmar’s oil products demand to reach 200,000 b/d by 2025 and could cross 350,000 b/d by 2035.
GAS OUTLOOK
Wood Mackenzie recently said that Myanmar, which holds some of the last remaining frontier acreage in an otherwise mature region and accounts for the bulk of frontier exploration drilling, would be the brightest spot in Asia-Pacific in 2017.
During the visit to Myanmar, Pradhan met U Pe Zin Tun, Myanmar’s energy minister, and noted Indian upstream companies’ interest to take part in the forthcoming bid round in Myanmar’s oil and gas blocks.
Indian state-owned companies, such as ONGC Videsh and GAIL, have invested in offshore gas producing blocks A1 and A3 in Myanmar. These blocks produce about 16 million cu m/d, with 80% of the output exported to China via a pipeline network in which the two Indian companies are partners in a consortium.
“Indian companies are already engaged in upstream gas developments in Myanmar and may now look to tap those resources to supply India,” Meidan of Energy Aspects said.
BMI Research said that despite a healthy pipeline of exploration plays, exploration and production activity in Myanmar would remain muted in the short term as volatile oil prices, limited seismic data and a significant deficiency of oil and gas-related infrastructure drive up project costs.
Firms would also shift attention to focus on lower-cost, shorter-cycle projects, hitting prospects for frontier areas such as Myanmar.
Myanmar exports about 80% of its gas production as per some contracts signed by the previous government with overseas buyers, BMI Research said. Its domestic gas production was estimated at around 18.8 Bcm in 2016, which could fall to around 17.3 Bcm by 2021. But gas consumption is expected to rise from 4.4 Bcm in 2016 to 6.1 Bcm by 2021.
“The country’s net gas exports will remain on a structural downtrend, as the need to set aside gas for exports, in light of rising demand, increases the risk of a gas shortfall in Myanmar. This will require the country to resort to LNG imports to meet export obligations and offset rising domestic demand,” it added.
Nomura has said previously that a number of factors stand in the way — management constraints, lower competitiveness of domestic products as against imported cargoes, an inefficient distribution system and doubts around safe and reliable operations.
But analysts are hopeful that the oil and gas sector in Myanmar would see rising inflows of foreign investment in the near to medium term.
“The government remains highly open to attracting greater foreign capital into its oil and gas sector,” BMI Research said.
“The passing of the Myanmar Investment Law in November 2016 will support greater private and foreign investment inflow into several energy intensive sectors, including manufacturing, infrastructure and agriculture, posing upside risk to our already optimistic fuels consumption growth outlook,” it added.

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