Myanmar awards China pipeline rights

Myanmar has awarded China the right to manage planned pipelines that will transport crude oil and natural gas from the Bay of Bengal across Myanmar to Kunming in southwestern China.

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Nov. 20 -- Myanmar has awarded China the right to manage planned pipelines that will transport crude oil and natural gas from the Bay of Bengal across Myanmar to Kunming in southwestern China.

China National Petroleum Corp. will acquire a 50.9% stake in the firm that will build and operate the pipelines, while Myanmar players, including state-run Myanmar Oil & Gas Enterprise, will hold 49.1%.

Under the agreement, Myanmar and China will jointly construct two pipelines, one to transport oil carried by tanker from the Middle East and the other to carry gas obtained from Myanmar's A-1 and A-3 blocks offshore.

A gas collection terminal and a port for oil tankers will be constructed on an island near Kyaukpyu on the Bay of Bengal in western Myanmar.

Mandalay to Kunming
The pipelines will extend from Mandalay in central Myanmar; through Lashio in the Myanmar state of Shan and Muse, a town bordering the Chinese province of Yunnan. It will terminate in Kunming.

In addition to Yunnan, analysts said, other areas will benefit from the pipelines: Chongqing municipality, Guangxi Zhuang autonomous region, Sichuan province, and Guizhou province in southwest China.

The source of the gas, offshore Blocks A-1 and A-3 in the bay, will be developed mainly by South Korea's Daewoo Group.

Total estimated project costs amount to $1.5 billion for the oil pipeline and $1.04 billion for the gas pipeline.

Yunnan will start construction in first-half 2009 as part of its plan to spend some $10.55 billion on energy projects next year, according to Mi Dongsheng, head of the province's Provincial Development and Reform Commission.

Malacca Strait bypass
The new pipelines will give China better access to Myanmar's resources and will speed deliveries and improve China's energy security by bypassing the congested Malacca Strait, which currently ships most of China's imported crude oil.

The agreement comes amid growing concerns about the safety of shipping through the Malacca Strait, especially following the rise of hijackings and attacks on oil tankers by Somali pirates operating in and around the Gulf of Aden.

"I am sure that a lot of criminals and criminal syndicates in Asia are watching events in Somalia with great interest," said Noel Choong, head of the International Maritime Bureau's piracy reporting center in Kuala Lumpur.

"The Somali pirates are making so much money, and have been facing very low risk, said Choong. "Any time you have an activity that is low risk but with huge rewards, that will encourage criminals."

The Strait of Malacca—located between peninsular Malaysia and the island of Sumatra—is the shortest sea route between Persian Gulf suppliers and the Asian markets, notably China, Japan, South Korea, and the Pacific Rim countries.

According to the US Energy Information Administration, the Strait of Malacca is "the key chokepoint in Asia, with an estimated 15 million b/d flow in 2006."

Contact Eric Watkins at hippalus@yahoo.com.

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