Deep in the heart of Myanmar is the town of Yenangyaung, which is famous for two things: it produces the best onions in the country, and it is the site of one of the world’s oldest producing oil fields. With this historical backdrop, Myanma Oil and Gas Enterprise (MOGE), the national oil company, has signed more than 100 production contracts so far.
While Myanmar has good fundamentals in place for its oil and gas sector to flourish, the country was isolated from the global community for over 20 years. That said, it did manage to attract a few international players, such as PTT Exploration and Production, Total, Daewoo, PETRONAS and some Chinese firms. However, access to new technology and capital for development projects and field operations remains limited. As such, the technologies and practices of national and private firms are outdated by international standards.
With three open bidding rounds, the new government has sent out the message that Myanmar is now open for business. Thus far, the country has attracted several oil majors, national oil companies and independent players – more than any other country in the region could hope to achieve in two years. The decision to join the Extractive Industries Transparency Initiative is also promising, with Myanmar accepted as a candidate country in July 2014. It is now on its way to becoming a South-east Asian centre for high-intensity exploration activities in 2015 and beyond.
However, Myanmar’s aging infrastructure is becoming increasingly costly to operate and maintain, such as its 2000 km of aging domestic pipelines, ranging from 6 to 24 inches, and three outdated and inefficient refineries, with total refining capacity of just 54,000 barrels per day. Indeed, the cost of producing oil from the onshore fields operated by MOGE stands at $60-70 per barrel, whereas international crude prices had fallen to around $50 as of January 2014.
While 100,000 MW of hydropower could be generated from four large rivers in the country, 70% of the population still lacks basic access to electricity, and Myanmar continues to depend on petrol imports – this despite its role as a large gas exporter, supplying around 30% of Thailand’s energy needs and 1% of China’s.
The trick is finding the right recipe for reform to help Myanmar achieve success and support capacity development for sustainable growth in local economies. Most importantly, the country must strike while the iron is hot. Unlocking its potential as a strategic centre for regional cooperation is key, as is its role in the regional energy supply chain, with Myanmar acting as the connector between markets totalling over 3bn people.
Internally, all the enabling factors are in place. Billions are to be spent on petroleum exploration from 2015 onwards, buoyed by unprecedented domestic demand for electricity and petroleum products, a sounder political system with diversity in political leadership, and a young and active population.
However, persistent inefficiencies and infrastructure gaps could threaten economic growth, which is key to attracting foreign direct investment. Myanmar can modernise existing infrastructure and undertake new projects with funding from international financial institutions, such as the International Finance Corporation and the newly created Asian Infrastructure Investment Bank. These new projects should focus on deep-sea ports, offshore marine bases, refineries, and production, transport and processing infrastructure.
Indeed, energy security has never been more important. Under the current plan, over 7m households will be electrified by 2030 – or 500,000 per year. The best way to achieve this goal is by expanding the national grids while simultaneously deploying grid-ready minigrids. The Electrification Law offers hope for greener, more efficient and less costly options, as regional governments have greater involvement in power projects.
In the short run, gas will be the most viable option. However, effective use of this resource will require a great deal of inter-ministerial coordination, big-picture thinking, long-term vision, the development of sound institutions and cooperation with the private sector.
Author: Ken Tun is the CEO of Parami Energy Group
Source: Oxford Business Group