Data on Burma's oil and gas reserves and resource potential is difficult to obtain. Burma is a resource-rich country, and natural gas provides the regime with a substantial percentage of its income. In 2008 the sale of natural gas, valued at more than USD 2.5 billion, accounted for approximately half of Burma's exports. Currently, only two offshore fields - Yadana, operated by Total (with Chevron as one of several partners), and Yetagun, operated by Petronas - produce gas, with about 85 percent exported to Thailand. Despite publicized start-up dates early next decade, significant delays may be incurred at the country's two proposed new gas export projects - the Shwe fields, operated by Daewoo, and three small fields in the M9 block, operated by PTTEP. The Shwe fields are located off the coast of Rakhine State in the Bay of Bengal (Blocks A1 and A3), while the M9 block is located in the Gulf of Martaban, directly south of the Yetagun Gas fields.
Burma's onshore oil production is limited; the 18 operational oil fields produce roughly 10,000 barrels a day, all consumed locally. In addition, Petronas produces roughly 12,000 barrels a day of natural gas liquids, which also is used to satisfy domestic demand. Small independent companies - MPRL and Focus Energy - additionally produce more than 4,500 barrels a day combined. While the GOB encourages foreign investment in onshore oil blocks, companies are only allowed to invest in blocks located in remote areas. Developing these blocks is costly; MOGE relies on foreign investment because it lacks the resources to explore in remote areas.
One of the most controversial infrastructure projects in Burma is the Yadana natural gas pipeline, because of allegations that the Government of Myanmar has committed abuses, including forced labor and forced relocations, on a project which includes several international oil companies as investors. In 1982, large natural gas deposits that were to become known as the Yadana field were discovered in the Andaman Sea, approximately fifty miles south of Burma's Irrawaddy delta region. Demand for energy in neighboring Thailand and the Government of Myanmar's need for revenue led the Government of Myanmar to consider developing this resource in the late 1980s. The Government of Myanmar solicited commercial support for a proposal to run a pipeline from the underwater gas fields, under the Andaman Sea, across Burma and into Thailand.
In July 1992, the French oil company Total signed a production-sharing contract with Myanmar Oil and Gas Enterprise (MOGE), Burma's state-owned oil production company, for evaluating, developing and producing gas from the offshore Yadana field. The U.S. company Unocal joined the project as a co-venturer in January 1993, and the national oil company of Thailand, the Petroleum Authority of Thailand Exploration and Production Public Company, Ltd. (PTTEP) joined the project in early 1995.
Allegations of forced labor and other human rights abuses in the area emerged even before construction started. The oil companies have vigorously denied allegations of human rights abuses, and particularly the alleged association of forced labor with the pipeline. They have stated that all workers on the project are voluntary employees who are paid well for their work. The companies also emphasize their role in the development of local communities along the pipeline route.
In addition, reports of the U.S. Embassy in Rangoon have suggested that military operations, including pipeline security, could be facilitated by the Ye-Tavoy railway which is being built near the pipeline with forced labor. Although there is no evidence to suggest that the railway was designed to support actual construction of the pipeline, the urgency of building the railway, which at one point involved 24 hour construction by forced laborers, and the fact that the railway was scheduled to become operable at approximately the same time as the pipeline in 1998, suggest that the military placed a high priority on access to the pipeline area provided by the railway.
It is difficult to assess the actual extent of any use of forced labor, as the Government of Myanmar has denied requests by the U.S. Government, the ILO and other groups to conduct independent visits to the pipeline corridor and adjacent areas. Officials of the U.S. Embassy in Rangoon have visited the region. Since the pipeline is in a remote and inaccessible region, in all cases the trips were facilitated by the oil companies which provided the necessary helicopter transportation. Embassy officers were not permitted to set their own itineraries or travel freely.
On December 24, 2008, China National Petroleum Corp. (CNPC) announced the signing of a gas sales and purchase agreement with the Government of Burma. The 30-year agreement allows the Chinese corporation to buy natural gas from Burma's Block A-1 (Shwe field), Block A-3 (Mya field), and Block AD-7, all of which are located along the Rakhine coast on the Bay of Bengal. In November 2009, work started on the development phase of Blocks A-1 and A-3; this phase was estimated to be completed by 2013. Ownership for Blocks A-1 and A-3 consisted of Daewoo (operator, 51%), ONGC Videsh Ltd. (OVL) of India (17%), Myanma Oil and Gas Enterprise (MOGE) (a state-owned company) (15%), GAIL India Ltd. (8.5%), and Korea Gas Corp. of the Republic of Korea (8.5%). Block AD-7 was fully owned and operated by Daewoo (100%). Daewoo and its consortium were committed to invest an estimated $5.6 billion to develop the gasfields; when completed, the consortium would supply China with an estimated 500 million cubic feet per day of gas for 30 years after the project is commissioned in 2013.
In addition to the gas sales and purchase agreement, the Governments of Burma and China signed an agreement during the first quarter of 2009 that awarded China the right to build and manage parallel pipelines that will transport crude oil and natural gas from the Bay of Bengal across Burma to southwest China. The Burma-China pipeline offers China an alternative direct route to the sea, and will potentially reduce its dependence on oil imports through the Straits of Malacca. The construction and operation of the Burma-China pipeline was proposed to be constructed by a subsidiary consortium made up of CNPC (50.9%) and state-owned MOGE (49.1%). The project will require the construction of railways, roads, and waterways, and will include a gas collection terminal.
By 2009 Burma's offshore waters were becoming more crowded, as foreign companies from China, Korea, Russia, India, Malaysia, and Vietnam secure contracts to explore and develop offshore natural gas blocks. To attract additional investment and capitalize on the recent gas discoveries in the A1, A3, and M9 blocks, the Government of Myanmar in 2008 opened eighteen new deepwater blocks, most of which are located in disputed territorial waters in the Bay of Bengal. Currently, only two gas projects -- the Yadana field managed by Total and the Yetagun field controlled by Petronas -- produce and export gas, earning the regime more than USD 2 billion in annual revenues. Korean-owned Daewoo, which was developing the A1 and A3 blocks, expects to produce and export gas to China by 2013, while Thailand's PTTEP plans to export gas from the M9 block to Thailand by 2013. When these two projects come online, the regime could earn an additional USD 2 billion in revenues annually.
Burma is a resource-rich country; the Ministry of Energy estimates that recoverable reserves of natural gas total 21 trillion cubic feet (tcf). Most of Burma's natural gas production occurs offshore, although several Chinese companies have discovered (but are not developing) gas sources onshore. In 2008, the Government of Myanmar opened 18 additional deepwater blocks in the Bay of Bengal and Andaman Sea, bringing the total number of blocks to 53. Currently, 11 foreign and 3 Burmese companies have production sharing contracts (PSCs) with state-owned Myanmar Oil and Gas Enterprise (MOGE) for 29 blocks, with the remaining blocks available for investment. According to Total General Manager Nicolas Terraz, because of U.S. and EU sanctions on Burma, western companies cannot invest in Burma, allowing Asian companies to control 90 percent of Burma's offshore blocks.
Foreign companies have found significant natural gas reserves in eight offshore blocks. As of 2009, only two offshore fields -- Yadana in the M5 and M6 blocks, operated by French company Total (with U.S.-based Chevron as one of several partners; although U.S. sanctions prohibited investment in Burma, Chevron/UNOCAL was grandfathered in) and Yetagun in the M12, M13, and M14 blocks, operated by Malaysian-owned Petronas -- produce gas. In 2008, these two projects produced approximately 459 billion cubic feet of gas, exporting approximately 85 percent to Thailand. According to Terraz, the 2008 average price of natural gas sold to Thailand was USD 4.41 per 1000 cubic feet. The regime reported that it earned approximately USD 2.5 billion from natural gas exports in 2008, down from USD 2.7 billion in 2007.
The Government of Myanmar has lauded two discoveries of natural gas in its territorial waters, in Daewoo's Shwe gas fields in A1 and A3 and in PTTEP's M9 block. Daewoo officials stated that both discoveries should be online by 2013. However, while production of gas was not a problem for Daewoo, delivery of the gas could prove more challenging. Daewoo signed a contract with the Chinese National Petroleum Company (CNPC) in December 2008 for the sale of Shwe gas, which was to be shipped to Yunnan Province from the Bay of Bengal via a 900-mile pipeline. In April 2009, CNPC signed a Memorandum of Understanding with MOGE for the rights to build two pipelines - for oil and gas -- and a 50.9 percent stake in the pipeline's operation. Thomas intimated that Shwe gas had already been delayed a year due to negotiations over delivery. CNPC estimated the total cost of both pipelines at USD 2.5 billion, although others predicted that CNPC's total cost could top USD 5 billion.
In 2008, PTTEP, which reported it had between 1.8 and 2.5 tcf in certified reserves in its M9 block, signed an agreement to sell 240 million cubic feet of gas a day to the Government of Thailand. PTTEP did not find one large field, but rather many small fields that it can tap for production. While PTTEP may have enough reserves to make production commercially viable, it will likely defer production for at least one year due to the decline in the world price of natural gas and investment limitations caused by the world financial crisis. Although PTTEP planned to start building the 67 kilometer pipeline to Thailand in 2008, it has yet to begin construction.
As of 2009 at least 14 local and foreign companies were investing in Burma's offshore natural gas fields, albeit at different levels. Total, Petronas, Daewoo, PTTEP, MPRL, and Chinese National Offshore Oil Company (CNOOC) are actively either producing or exploring their respective blocks; the other companies are doing little with their blocks. MPRL Owner U Moe Myint opined that CNPC and Indian companies Essar and Oil and Natural Gas Corporation Videsh Ltd. (ONGC) secured their blocks, which are located adjacent to the Shwe gas fields, only after Daewoo found large gas reserves. Many within the oil and gas industry believe that because of the financial crisis, those companies may choose to relinquish rights to the blocks for a relatively small fee (up to USD 5 million, depending on the contract) rather than conduct expensive seismic testing and drilling exploratory wells, which can cost more than USD 25 million each.
The following is a snapshot of oil and gas companies' operations in Burma's offshore blocks as of 2009:
- CNPC: This Chinese company had production sharing contracts (PSCs) for deep sea blocks AD1, AD6, and AD8. CNPC was conducting two and three dimensional (2D and 3D) seismic testing on these blocks, but has not made any discoveries. The company will make a decision about exploration after interpreting the seismic results. Although CNPC had rights to deep water blocks, Lei explained that his company had limited experience in deep sea drilling.
- CNOOC: In 2004, this Chinese company, partnering with Steven Law's Golden Aaron Pte (both Law and his company are listed on the U.S. targeted sanctions list) acquired a contract for the M2, M10, and A4 blocks. According to CNOOC President Li Mingde, the company relinquished the M2 block in 2008 due to inactivity. While CNOOC had yet to drill any wells or conduct seismic studies of A4, it had spent more than USD 50 million to drill two exploratory wells in M10. CNOOC will spend more than USD 100 million to drill four additional wells in M10 in 2009/2010. CNOOC had no plans to conduct 3D seismic studies in either block.
- Danford Equities: Australian-owned Danford signed a PSC for the Yetagun East block in the Andaman Sea in early 2008. Danford was conducting 2D studies, which show potential reserves. Danford General Manager Chris Drew had stated publicly his company's planned to invest up to USD 40 million in seismic testing and exploration through 2010.
- Daewoo: This Korean company, partnering with MOGE and Indian companies Gail and ONGC, had PSCs for A1, A3, and AD7. In 2004, Daewoo discovered 4.5 tcf of proven reserves in the Shwe gas fields. The company continues to do 2D and 3D seismic studies in AD7, but was forced to stop exploratory drilling in late 2008 because it allegedly was drilling in Bangladeshi territorial waters. By 2009, Daewoo had spent more than USD 600 million to develop the fields - more than the company planned to spend. Daewoo agreed to sell the gas to China for $4.279/million British Thermal Units (BTU), although the gas price may change every three months based on the world gas prices. The company expects to earn profits of USD 25 billion over 25 years from the Shwe gas fields. Because the sale of Shwe gas had been delayed nearly two years and Daewoo continues to spend money on the project, some predicted that Daewoo might be forced to sell its shares in the Shwe gas fields to CNPC in the next five years due to financial concerns.
- Essar: This Indian company had the rights to A2, as well as several onshore blocks. According to industry sources, Essar had yet to conduct offshore exploration.
- Ngwe: This Burmese company, partnering with Russian-owned Zarubezhneft, controls the M8 block in the Andaman Sea. In March/April 2008, Ngwe conducted limited 2D seismic studies, but had yet to drill any exploratory wells.
- MPRL: This Burmese company was actively exploring its A6 block in the Rakhine Basin. MPRL conducted 2D seismic studies of the shallow part of A6, which shows high potential for reserves. MPRL will invest up to USD 60 million over the next two years through 2011 to conduct deep water 2D studies in the rest of the block. MPRL was bidding on the A5 block.
- Petronas: Malaysian-owned Petronas, partnering with Japanese company Nippon, plus PTTEP and MOGE, began producing and exporting gas from the Yetagun gas fields in M12, M13, and M14 to Thailand in 2000. Approximately 15 percent of gas produced was sold to MOGE. Petronas and its partners have spent more than USD 800 million to develop the Yetagun project.
- Petrovietnam: A new investor in Burma, Vietnamese company Petrovietnam, partnering with U Chit Khaing of Eden Group, signed a PSC in October 2008 for the M2 block off the Irrawaddy Delta. According to MOGE investment records, Petrovietnam spent USD 20 million in 2008, although the company had yet to conduct seismic testing or exploratory drilling.
- PTTEP: Thai company PTTEP currently had PSCs with MOGE for five blocks - M3, M4, M7, M9, and M11. In 2008, PTTEP planned to swap the M3 and M4 blocks with CNOOC for A4 and C1 (onshore), but MOGE refused to approve the deal. We cannot confirm why. PTTEP had conducted 2D seismic in all blocks and spent USD 50 million on two exploratory wells in M3 and M7, which came up dry. PTTEP expected to spend approximately USD 1 billion to explore and develop the M9 block over the next four years.
- ONGC: This Indian company controls AD2, AD3 and AD9, located south of the Shwe gas fields in the Bay of Bengal. According to Total GM Terraz, ONGC was conducting 2D seismic studies in all three blocks, spending approximately USD 2.4 million.
- Rimbunan Petrogas/IGE: Malaysian-owned Rimbunan Petrogas and Burmese-owned IGE signed two 30-year PSCs with MOGE for the M1 and A5 blocks in March 2007. In 2008, they relinquished control over the A5 blocks. Rimbunan Petrogas was conducting 2D seismic testing in the M1 block, but had yet to drill an exploratory well.
- Silverwave: This Burmese company, which was owned by regime crony Tay Za, recently signed a contract for the A7 block and one onshore oil block. This company, which was bidding for the A5 block, had yet to conduct any exploration in the block, due to financial limitations.
- Total: This French company, partnering with U.S. company Chevron (Unocal), PTTEP, and MOGE, had produced and exported gas from the Yadana gas fields in M5 and M6 since 1998. Total and its partners have spent more than USD 1.2 billion developing the Yadana fields. According to Nicolas Terraz, Yadana provides MOGE with 110 million cubic feet of gas a day, approximately 50 percent of Burma's gas consumption, and had built 7 platforms and 16 wells. Eighty percent of gas produced was sold to Thailand, with the remainder going to MOGE.
The regime earns substantial revenues from natural gas development and sales. In addition to contractual earnings on export profits, which average USD 2.5 billion annually, MOGE procures 20 percent of the daily natural gas production from Yadana and Yetagun for below market prices and resells the gas on the domestic market at a higher price. MOGE also earns a signing bonus of up to USD 7.5 million for each PSC. Additionally, should a company relinquish its contract without meeting the exploration standards, it must pay MOGE an average of USD 5 million in penalties. MOGE also earns hundreds of millions annually in taxes and fees for the Yadana and Yetagun pipelines, and was set to earn substantially more once the gas from M9 and the Shwe fields was exported to Thailand and China.
Burma's oil and gas sector was one of the few that receives annual foreign direct investment. According to local consulting firm Business Investment Group (BIG), foreign companies invested USD 114 million in 2008, USD 474 million in 2007, and USD 187 million in 2006. The Government of Myanmar expects oil and gas investment to increase in 2009, as MOGE plans to announce a winner for the A5 block later this year and companies including Daewoo, MRPL, and CNPC continue to explore their blocks.
Although Burma likely had substantial undiscovered reserves off its coast, most investors lack the technical understanding, experience, and financial wherewithal to tap these resources. Some of the more serious investors such as MPRL recognize that drilling along Burma's coast, particularly in deep water, will cost several hundred million dollars. We heard from several companies, including Petronas, CNPC, Daewoo, and CNOOC, that the world financial crisis was affecting their ability to sustain costly investments in exploration, let alone to allow them to invest in new offshore blocks. Many companies, particularly those which have blocks adjacent to the Shwe gas fields, might relinquish their blocks rather than spend tens of millions in exploration costs.
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