BUILDING A COMMUNITY
After almost 50 years in existence, the Association of Southeast Asian Nations (ASEAN) is now undergoing significant change. Many are undeniably positive: the opening up of Myanmar, increasing economic prosperity and the shift towards urbanization are all making the region more successful and stable for the long term.

Another very positive milestone will come next year when the ASEAN Community is properly established under three main pillars: the ASEAN Political-Security Community, the ASEAN Socio-Cultural Community and the ASEAN Economic Community (AEC). The formation of the AEC, the blueprint which member states adopted in 2007, will be particularly important as it strives to create a single market and production base across the region, as well as improve competitiveness, create equitable development and support the region’s integration into the global economy.

A FOCUS ON ENERGY SECURITY
Given the ASEAN region’s expected rates of growth – both economically and in terms of population, which is expected to rise by 25 percent over the next 20 years – it is perhaps not surprising that the AEC is keenly focused on creating energy security within the region.

For the most part, this is expected to be achieved through regional collaboration in the ASEAN Power Grid (APG) and the Trans- ASEAN Gas Pipeline (TAGP) projects, by developing renewable energy in the AEC and by pursuing opportunities for private sector involvement in financing and technology transfer. Already, the APG is involved in 14 electricity interconnection projects within the region, while the TAGP has seven similar projects ongoing in the gas sector and boasts 11 existing bilateral connections for a total of 3,020 kilometers of existing pipeline and an additional 4,500 kilometers in the works.

ALL EYES ON MYANMAR
While the ASEAN countries (with the exception of Thailand and Singapore) are collectively net exporters of gas, part of the region’s future energy security will depend on the development of the energy market and economy in Myanmar. According to analysis by KPMG and the International Energy Agency (IEA), Myanmar’s overall demand for gas is forecasted to almost triple over the next 20 years as electrification rates ramp up and economic growth expands, buoyed by new foreign investment.

The country has already identified 7.8 trillion cubic feet in proven natural gas reserves – a number many in the sector believe to be a gross underestimation – and (through the Myanmar Oil and Gas Enterprise (MOGE)) has conducted several rounds of auctions of onshore blocks which have drawn participation from a number of international players.

Yet auctions and tenders do not necessarily mean that the country is on the road to energy self-sufficiency. International players still seem somewhat shy to bid for work in Myanmar, a fact clearly illustrated by MOGE’s recent awarding of offshore oil and gas tenders. Of the blocks originally offered almost a year ago, only 10 of the 11 shallow water blocks and 10 of the 19 deep water blocks were awarded to 13 international firms and a handful of local firms as their joint-venture partners in March 2014.

BUILDING NATIONAL CAPACITY
Many also worry that Myanmar has little national capability to properly capture the value of their energy wealth. “Some experts predict that investments from the bidding round could be as huge as US$6 billion over their exploration periods. That’s 10 percent of our Gross Domestic Product (GDP),” noted Ken Tun, CEO of Parami Energy in Myanmar. “The question is how local service companies and MOGE will capture the value-added segment of the market.”

For its part, MOGE has been entering into Production Sharing Contracts (PSC) or Improved Petroleum Recovery Contracts (IPR) with international players since the Foreign Investment Law first came into place in 1988 which, in turn, has helped improve the organization’s own capabilities. The government has also required international developers to join up with a local partner if they plan on bidding for the development of any of Myanmar’s onshore or shallow water blocks.

Parami Energy is one example of the entrepreneurial spirit of Myanmar’s fledgling energy industry. Over the past decade, the company worked hard to position itself as a provider of a wide spectrum of services to the oil and gas industry, from upstream exploration to downstream distribution. Today, Parami Energy holds a minority stake in an onshore block awarded to India’s Jubilant Energy and, in the recently concluded round of bidding, won the rights to the AD-3 offshore block in partnership with UK-based Ophir Energy, even though this block did not require a local partner.

DEMAND, SUPPLY AND INFRASTRUCTURE
Other major challenges are impeding Myanmar’s ability to capitalize on its energy wealth. Infrastructure is a critical one: today, the country has no existing or planned gas importing infrastructure to speak of, and plans for a Liquefied Natural Gas receiving terminal seem to have stalled. At the same time, demand is rising – particularly in the industrial segment where demand for gas is expected to grow six-fold over the next two decades.

Likely the biggest challenge facing domestic growth and energy security, however, is that Myanmar is currently exporting what little gas it produces under long-term export contracts. Two pipelines – both of which were built to export gas from fields in Myanmar to Thailand under a 30-year sale agreement – were built between 1999 and 2000; a newly-built pipeline exports gas from the Shwe gas field to China’s Yunnan province. “Myanmar is the largest exporter of gas in Southeast Asia, yet we import about EUR1.17 billion in fuel and our refining capacity is less than 5 percent of Thailand’s,” added Mr. Tun.

AN EVOLVING MARKET EMERGES
Whether Myanmar can produce enough gas to meet its past export obligations and build infrastructure to transport feedstock, petroleum products and power to fuel growth in its domestic markets remains to be seen. What is clear is that the shortage of gas in Myanmar will remain an issue for ASEAN energy trade and security until new gas fields come on stream, though the timing and quantities involved remain uncertain.

It is also clear that Myanmar will require significant foreign investment and participation if it hopes to quickly bridge the energy and infrastructure gap. The country is certainly demonstrating that it is open for business (see Frontier Markets on page 54 for more). As Mr. Tun says, “Myanmar has great potential for investment in energy as well as in transport, labor-intensive industries and services. But we also need partners that can transfer knowledge, respect the environment, train our people and help Myanmar’s businesses grow regionally.”

Source: INSIGHT – The Global Infrastructure magazine (Issue No. 6/ 2014)