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Analysis: Myanmar coup could derail billions in oil and gas investment, stall energy projects

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Analysis: Myanmar coup could derail billions in oil and gas investment, stall energy projects

Highlights

Oil, gas companies wary of reimposition of Western sanctions

Delay to economic reforms, energy sector liberalization likely

Puma Energy suspends operations to transport oil products

Singapore — The military coup in Myanmar threatens to disrupt energy investment in the country's oil, gas and power sectors as companies assess the risk of operating amid heightened political uncertainty and the potential for renewed international sanctions.

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A curtailment of energy investment would slow the pace at which Myanmar, one of Asia's poorest nations, is attempting to meet its electrification targets and jeopardize upstream projects that supply natural gas to Thailand and China.

Countries like Japan, the US, Australia and Singapore had ramped up energy and infrastructure investment after Myanmar's transition to democracy under Aung San Suu Kyi and her political party, the National League for Democracy.

US President Joe Biden hinted Feb. 1 that sanctions are possible after Myanmar's powerful military, the Tatmadaw, seized power and detained top leaders, including Suu Kyi and several cabinet ministers.

Other countries like China and Thailand were invested in Myanmar even before its transition to democracy—the country has direct oil and gas pipelines to southern China along with a deepsea port for VLCCs and tank farms for storage—and they are likely to continue, but US-allied countries are likely to be less tolerant.

Myanmar natural gas exports | S&P Global Platts

Geopolitical consultancy Eurasia Group said with or without the military coup, the trend of growing Chinese influence in Myanmar would continue.

"The military now has a firm grip on the country, though there will be a significant risk of social unrest," said Peter Mumford, Eurasia Group's practice head for Southeast and South Asia.

"Additional sanctions by US/Western countries could be deployed, especially if the military cracks down violently on protests; though sanctions are unlikely to force the military leadership to change course, especially as important trade/FDI partners of Myanmar in East Asia are unlikely to take similar action," Mumford said.

"The military is unlikely to take immediate, regressive steps on FDI, but reputational risks for Western companies involved in Myanmar will now increase further. In addition, the coup may result in a delay to planned economic reforms, including further energy and financial sector liberalization."

Exercising caution

For now, companies are exercising caution out of pure uncertainty, and big-ticket energy investors like Japan are watching with concern.

"We are aware of the developments in Myanmar and are monitoring the situation carefully," said a spokeswoman for Puma Energy, which operates the largest petroleum products import terminal in Myanmar. "Our overwhelming priority at Puma Energy is the safety and security of our colleagues during this period of uncertainty."

"There have been no incidents at our locations; however, we have temporarily suspended our operations to transport oil products," the spokeswoman added. "Due to COVID-19 restrictions, the majority of our employees and contractors were working from home and on standby."

Puma Energy, a mid-to-downstream oil company partly owned by commodity trader Trafigura, operates an oil products terminal in the Thilawa Special Economic Zone on the outskirts of Yangon, Myanmar's most-populous city. Thilawa SEZ is heavily backed by a consortium of Japanese businesses, who could see some impact from potential US or UN sanctions on Myanmar, although the nature of sanctions would matter.

An official for Marubeni, which represents a Japanese consortium with Sumitomo and Mitsui working on an LNG-to-power project in Thilawa, said the company was gathering information and monitoring the situation but declined to elaborate further.

On the upstream side, Myanmar's biggest gas fields are offshore and heavily geared toward exports via pipelines. They include the Yadana gas field, in which France's Total is the main operator, with partners Chevron, Thailand's PTTEP and Myanma Oil and Gas Enterprise; the Yetagun field, in which the main operator is Malaysia's Petronas; Zawtika operated by PTTEP; and the Shwe field operated by South Korea's POSCO. Other investors are Japan's Nippon Oil, Kogas and India's ONGC and GAIL.

Another key offshore field under development is the Shwe Yee Htun field in Block A-6, in which Australia's Woodside is the operator. Partners include Total and India's MPRL E&P.

Woodside, which has one of the largest offshore petroleum acreage holdings in Myanmar, made several discoveries in A-6 and commenced a three-well drilling campaign in January, with exploration wells planned for blocks A-7, AD-1 and AD-8.

Petronas confirmed all employees of its local subsidiary PC Myanmar (Hong Kong) Ltd were safe and said it was closely monitoring the situation with the relevant authorities. Woodside said it was monitoring the evolving situation and its main priority was the safety of its people.

"Communications are fully operational, and our people are accounted for, safe and well," a Woodside spokeswoman said. "Our employee assistance program remains available to our employees that require this support. Access to some infrastructure is limited and as a result we have postponed some logistical activities while we await further clarity."

PTTEP, Chevron, ONGC and Total did not immediately respond to queries. GAIL declined to comment.

Key oil, gas projects in Myanmar

Project: Myanmar-China Crude Oil Pipeline

Stakeholders: CNPC, Myanma Oil and Gas Enterprise
Details: 771-km pipeline from Madè Island on the west coast of Myanmar to Chinese province of Yunnan
Start date: April 10, 2017

Project: Myanmar-China Gas Pipeline

Stakeholders: CNPC, Myanma Oil and Gas Enterprise, Posco Daewoo, ONGC, GAIL and Kogas
Details: Runs parallel to Myanmar-China Crude Oil Pipeline
Start date: July 28, 2013

Project: Thaketa LNG-to-Power Plant

Stakeholders: CNTIC VPower, a JV of China National Technical Import and Export Corp & VPower Group
Details: Located in Yangon, the 477.1 MW Thaketa plant was the first LNG-based power generation project in Myanmar
Start date: June 14, 2020

Project: Thilawa LNG-to-Power Project

Stakeholders: Marubeni, Sumitomo, Mitsui and Eden Group
Details: Received a Notice To Proceed from Ministry of Electricity and Energy for the 1,250 MW LNG-fueled thermal power plant and onshore LNG receiving, storage and regasification facility
Status: Under construction

Project: Shwe Yee Htun field in Block A-6 (upstream)

Stakeholders: Woodside Energy, MRPL and Total
Details: Woodside is planning for a fourth drilling campaign offshore Myanmar commencing in late 2020 and continuing into 2021
Status: In development stage