Myanmar’s gas production dilemma

Construction News Myanmar
A deepwater offshore oil rig and accompanying support vessel

Myanmar’s gas production dilemma

18 October 2018

As the scramble for more power sources intensifies, focus has centered on tapping Myanmar’s gas fields to meet demand. But can the country afford its own gas?

Myanmar is under pressure to double its power production capacity to 6000 megawatts (MW) within the next two years, in order to meet rising demand. Several power generation projects, the most recent of which is the 225MW Sembcorp Myingyan combined-cycle gas plant, have commenced operations. Next month, a 40MW solar plant in Minbu is expected to come onstream.

The government is also negotiating terms for several power purchase agreements under which it will buy liquefied natural gas (LNG) to meet the bulk of Myanmar’s energy requirements. While official announcements have yet to be made on this front, insiders and analysts warn that the LNG option, which will involve costly infrastructure and complex logistical requirements, is unlikely to come cheap.

As the need to develop new sources of power becomes more urgent, focus has centered on tapping Myanmar’s own fields for gas to meet the country’s growing demand. Now, insiders say the government should take into account domestic needs when it opens up new gas fields next year.

Last month, a 40 metre column of gas was discovered at a depth of 4,820m at the Shwe Yee Htun-2 appraisal well in the A-6 gas block in southern Rakhine. The Shwe Yee Htun-2 discovery adds to the Shwe Yee Htun-1 and Pyi Thit-1 discoveries made in 2016 and 2017.

While France’s Total and Australia’s Woodside are also partners in block A-6 together with Myanmar’s MPRL E&P, “all of the gas produced at A-6 should be taken up by Myanmar for domestic use. We need to make arrangements to be able to buy the gas so that our economy can develop further,” said U Kyaw Kyaw Hlaing, chair of the Smart Group of Companies.

Myanmar is expected to produce 653,300 million standard cubic feet (MMscf) of gas from its four gas fields – Shwe, Zawtika, Yetagun and Yadana – in 2018-19, according to the Ministry of Planning and Finance. The fields are operated by international oil companies including France’s Total, South Korea’s Daewoo, Malaysia’s Petronas and PTTEP from Thailand.

However, most of the gas produced is immediately exported to Myanmar’s neighbours at an agreed price. For example, gas produced at the offshore Shwe and Zawtika fields is exported to China and Thailand under 30-year contracts.

This is because most of Myanmar’s gas contracts date back to the late 1990s, when the country was under US sanctions. At the time, cheap gas produced onshore was sufficient for domestic consumption, so the country resorted to selling the additional gas produced under long-term contracts for income.

But the country’s electricity requirements have since spiked, buoyed by demand from investors and businesses. Now, policy makers are considering channeling more Myanmar gas for domestic use.

Too costly

Yet, Myanmar lacks the funds and infrastructure needed to produce its own gas. According to the Ministry of Electricity and Energy (MOEE), each offshore drilling project is estimated to cost around K2 billion, a sum the country can ill-afford. It will also take years for gas to be commercially produced after it is discvoered.

Meanwhile, buying more of its own gas will involve complex negotiations. “The present arrangement of selling gas to foreign countries can be halted and the gas redistributed within the domestic sector. Renegotiations will of course have to be made with the contracted nations. All resources produced by our nation can be utilised. But how are we going to purchase it?” said U Zaw Aung, director general of the Department of Oil and Gas Planning, which is under the MOEE.

Moreover, gas is sold at a fixed price. If the government or private businesses want to purchase natural gas, they are obliged to pay the agreed price for the duration of the contract, failing which fines will be implemented. The length of the contract depends on the size of the field.

But that’s not the only issue. Myanmar derives a large proportion of its income from gas exports. In fact, most of the funds needed to build Nay Pyi Taw came from gas export revenues. In the future, the country will also need additional funds in areas such as education and healthcare.

“The country needs the money from gas exports. Moreover, income from other sectors is not as lucrative. If we start selling less gas to foreign countries and purchase more for domestic use, we would not have enough funds for the country,” U Zaw Aung said.

In 2017-18, Myanmar received more than US$3 billion for gas exports. During the six month interim period between April and September this year, gas export income amounted to more than US$1 billion, according to the Ministry of Commerce.

Domestic needs

Still, it is becoming increasingly obvious that Myanmar should harness more of its own gas for domestic consumption. “The international market price is fair. But domestically, the price can be reduced to some extent as there are less logistics costs involved,” said U Myat Thin Aung, chair for Hlaing Tharyar Industrial Zone.

U Than Tun, a retired director of the Myanmar Oil and Gas Enterprise (MOGE), agreed that the government should look into prioritising domestic needs. “If the current volume of electricity generated domestically cannot fulfill local demand, we need to take as much as we need from our national gas reserves,” he said, adding that exporting gas while importing other forms of energy to meet local demand is not an efficient use of state revenues.

Despite the country’s shortage of power, just a fraction of the gas produced is allocated for domestic consumption. Of the 1.7 billion cubic feet of natural gas it produces daily, Myanmar exports around 1.5 billion cubic feet, U Kyaw Thura, a geologist at MOGE, told the media in August. However, Myanmar also imports around 50,000 barrels of oil to meet demand, he said.

As such, the government should negotiate for a larger share of the gas produced when it invites international tenders for exploration and production at up to 31 new oil and gas fields next year.


Leave a Reply