Myanmar’s pipeline politics

Fri, 20 April 2007

THE government of Myanmar has reportedly decided to pipe gas from its prolific offshore gasfields to China, news which has particularly disappointed India and South Korea, both of which are highly dependent on energy imports and have been seeking to diversify their energy sources. India had submitted a rival pipeline bid, while South Korea had proposed to develop facilities to export the gas by sea. The junta’s decision is likely to have been influenced by political factors, given its close economic and military ties to China.

With its permanent seat on the UN Security Council, China is clearly capable of shielding Myanmar's military regime from international censure or intervention, and the pipeline will also enhance China's interest in maintaining the political status quo in Myanmar, reducing the prospects for democratization. China has offered to build a pipeline from Myanmar's A-1 and A-3 gasfields in the Bay of Bengal to the Chinese border, a distance of around 900km. The A-1 field alone holds an estimated 4.8T cuft of gas and will produce around 635m cuft/d. Although an estimate of the capacity of the A-3 field has yet to be completed, Myanmar is expected to export around two-thirds of the fields' total production. Although Myanmar accepted China's pipeline bid rather than the proposals of India and South Korea, companies from the latter two countries already jointly own the rights to develop the fields. Daewoo of South Korea, which operates the fields, has a 60% stake, and two state-owned Indian energy companies, the Gas Authority of India Ltd (GAIL) and a subsidiary of the Oil and Natural Gas Corporation (ONGC), jointly hold a 30% stake, with the remaining 10% held by state-owned Kogas of South Korea. These companies will jointly spend an estimated $2-3bn to develop the field. In broad terms, the scramble to secure access to Myanmar's energy resources reflects a heightening of concern about energy security throughout the region. The most important bidders – China, India, and South Korea – are increasingly dependent on energy imports to fuel their economies. India had proposed to build a pipeline extending all the way to Kolkata in the state of West Bengal (although the section within Myanmar would be much shorter – at around 290km – than the pipeline to the Chinese border). The South Korean government is eager to reduce its dependence on the Middle East by diversifying its energy sources, and Myanmar's gasfields are among the largest being developed by South Korean companies overseas. In economic terms, the pipeline will increase Myanmar's dependence on energy exports. Natural gas is already by far the country's most important export, accounting for $1.4bn in 2005, or 37% of its total export revenue. (Myanmar's next-largest export, hardwood lumber, accounted for only $480 million.) The gas exports are equivalent to around 15% of the country's GDP. The pipeline will also strengthen Myanmar's economic relationship with China: in 2005 almost 30% of its imports came from China, more than from any other country. However, China bought only around 7% of Myanmar's exports, behind Thailand and India. Although Myanmar's imports from China are likely to continue to rise, the pipeline could reduce this imbalance: China is likely to import 219-365bn cuft/yr of gas from Myanmar over the next two decades, according to a report by the Research and Analysis Wing, an Indian government intelligence agency. Politically, Myanmar's prolific energy resources, and its decision to give China access to them, are likely to complicate Western efforts to encourage political reform in the country. Myanmar's energy-hungry neighbours, especially China, India, and Thailand, will continue to prioritize their own energy security above any effort to encourage democratization in Myanmar, and competition between them for access to Myanmar's substantial energy resources weakens the impact of US and EU sanctions designed to put pressure on Myanmar's military rulers. China is a perfect patron for Myanmar in many ways, possessing advantages that India and other Asian nations cannot match. China is larger, faster-growing, and more powerful than the other bidders, and its energy needs are the highest. It is also the country most capable of enabling Myanmar to defy international pressure, has military installations in Myanmar, and is the junta's biggest arms supplier. For its part, India has been willing to turn an almost-blind eye to the junta's human-rights' abuses, as it needs Myanmar's help to combat separatists in NE India and to alleviate its own energy crisis. But there is an ostensible contradiction between India's robust democracy and Myanmar's military dictatorship whereas China, itself an authoritarian state, is less uncomfortable overlooking the junta's misrule within its own borders.