Thai, South Korean diesel producers to conduct due diligence on Myanmar fuel buyers

Several Asian refiners that regularly sell diesel to Myanmar plan to raise the bar on their due diligence efforts after the US imposed new sanctions on a state-run Burmese oil and gas company, while a complete cutoff in fuel exports to the Southeast Asian nation could also be considered, according to refinery and trading sources.

The US Department of Treasury imposed new sanctions to prohibit certain financial services for the state-owned Myanma Oil and Gas Enterprise Oct. 31. In addition to the sanctions against MOGE, the Treasury Office of Foreign Assets Control targeted three entities who have assisted the military in importing arms, dual-use goods, and other materials.

Among Myanmar's regular fuel suppliers in Asia, Thailand has been consistently selling diesel to the military-controlled state over the past decade but the latest financial sanctions could put some barriers in the trade flows between the two Southeast Asian nations.

"I don't think our counterparties in Myanmar are directly hit or impacted [by the latest US financial sanctions] but since the military controls all of the key businesses there, it's possible to face some difficulties exporting oil products [to Myanmar] ... only time will tell," said a middle distillate marketer at a major Thai refiner who declined to be identified due to the sensitive nature of international trades and sanctions.

Meanwhile, oil product marketing sources at Thailand's PTT indicated that they would need to conduct thorough due diligence and undertake rigorous business risk assessments when dealing with Myanmar's importing and trading firms.

"I suspect they [Myanmar fuel importers] can get plenty of support from Chinese banks... it would be necessary to check on all legal and financial aspects before doing any trades with them," a marketing source at the state-run Thai refiner said.

Thailand exported 5,009 b/d of automotive diesel to Myanmar in September, down 33.3% from a year earlier, latest data from Thai customs department showed. In the first nine months, diesel shipments to Myanmar averaged 8,347 b/d, down 6.4% from the same period a year earlier.

Negligible market

Meanwhile, South Korean oil product suppliers indicated that they would also put in extra efforts on due diligence process before making any trades with buyers in Myanmar, but it's possibly more cost effective and efficient to completely ban exporting fuels to the Southeast Asian nation as the size of the market is too small and negligible, industry and trading sources based in Seoul said.

"It's simply a waste of time to check up on import and distribution companies in Myanmar that we previously did some business with because the market is tiny and negligible," said a middle distillate sales representative at a major South Korean refiner who declined to be identified.

South Korea sold 11,000 barrels of oil products to Myanmar over January-September, making up just 0.3% of 361 million barrels total exports during the period, latest data from state-run Korea National Oil Corp. showed.

China-Myanmar crude flows

When asked about the potential impact of the sanctions on China-Myanmar oil trades, a crude trading and inventory manager at PetroChina declined to comment.

However, PetroChina's Yunnan Petrochemical would continue to receive feedstock through the cross-border China-Myanmar crude oil pipeline without any major disruptions, according to sources with close knowledge of the matter.

The China-Myanmar pipeline, which was launched in April 2017, is seen as a strategic channel for China to meet its energy needs. It allows China to bypass the busy Straits of Melaka and transport oil from the Middle East, Europe and Africa via the Bay of Bengal, reducing the shipping time by more than a third.

The land-locked Yunnan Petrochemical, PetroChina's youngest refinery launched in August 2017, relies heavily on crude supplied through the pipeline.