Myanmar to pump oil and gas to energy-hungry China

A huge project to transport oil and gas from the former Burma to the world's second-biggest economy promises to improve energy security in the face of China's burgeoning fuel demand.

Bulldozers and excavators on the Myanmar-China pipeline project near the northern Shan state in Myanmar. Nyein Chan Naing / EPA
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An hour's drive outside the Yunnan provincial capital Kunming, at a vast construction site, building work is nearing completion on a Dh7.35 billion pipeline that will ship oil and gas from Myanmar to energy-hungry China.

With a capacity of 440,000 barrels of crude a day and 12 billion cubic metres of natural gas, the pipelines, which will run from this construction site in south-western China all the way to the Indian Ocean at the Bay of Bengal in Myanmar, are central to Chinese efforts to improve energy security as its economy continues to expand.

"The pipeline will not only be a big boost to the Yunnan economy but also to the whole Chinese economy," Gao Shuxun, the vice-governor of Yunnan province, told local media recently.

"We all know that China is a huge energy-importing country and that Yunnan is a big energy-importing province.

"Therefore, as far as the shortage of energy and resources goes, the situation will ease through the completion of China-Myanmar pipeline," said Mr Gao.

"Oil is the lifeblood of the economy. If we have one more vein, the vigour of our economy will hugely increase."

The oil pipeline will be nearly 800km long, while the natural gas pipeline will extend further to meet the gas needs of cities including Kunming, Guizhou and Guangxi in south-western China.

Running from Myanmar's west coast through the centre of the country, the pipelines will reach China at the border crossing of Ruili in the west of Yunnan. A crude-oil terminal will also be built on the west coast of Myanmar in Kyaukryu.

The project is being built jointly by China National Petroleum Corporation and Myanmar Oil and Gas Enterprise.

There are varying estimates of when the project will be fully completed, although construction is expected to be finished within the next couple of weeks.

Previously, it had been expected that gas would start flowing next month followed by oil in September but government sources have said regional security concerns could cause a delay.

Recent clashes between Myanmar government forces and ethnic militia fighters in the country's Shan State, as well as fierce fighting with the Kachin Independence Army in Kachin State in the north that borders China, could delay the start of operations.

There was a stark reminder of how delicately balanced the situation is earlier this month when Shan State guerrillas in Myanmar attacked an energy company compound, killing two people and wounding three.

The pipelines also have a broader geopolitical significance as they are a central plank in China's efforts to reduce its dependence on the Strait of Malacca for its imported oil needs, a problem energy security experts call China's "Malacca Dilemma".

Most of China's oil is currently shipped from the Middle East and Africa through the Straits of Malacca, one of the world's busiest shipping lanes. The strait is seen as a major threat to secure energy supplies by large Asian economies dependent on crude shipments from the Middle East and Africa.

The strait, which ends near Singapore on the the southern end, is described as the second largest "global choke point", after the Strait of Hormuz, and the US navy has a powerful presence here. Crude from the Middle East and Africa that travels through the waterway accounts for 75 per cent of the oil consumed by Japan, South Korea and Taiwan.

China produces more than four million barrels a day domestically, but about 37 per cent of its total oil used came through the strait last year. That percentage is expected to fall to about 30 per cent once the Myanmar pipeline comes on stream.

Lin Boqiang, the director of the China centre for energy economics research at Xiamen University, says the completion of the China-Myanmar pipeline would reduce the over-reliance on the Malacca Strait.

It is beneficial to improve the multiple ways regarding the safe supply and import of energy.

"Currently, our south-west region doesn't have a relevant pipeline for oil and gas," he says.

"After the completion of the China-Myanmar pipeline, oil and gas resources from the Middle East, Africa and Myanmar can be directly transported to provinces like Yunnan and Guangxi, among others, which are short of energy."

Other commentators do not see the Malacca Dilemma as such a major issue.

"It's a fake topic," says Wang Zhen, the director of the China energy strategy research centre.

"If there is a major conflict, the Malacca Strait will be cut off. The possibility of cutting off the China-Myanmar pipeline is the same. So there is no way to replace the Malacca Strait. However, we can say that we are adding another channel to import energy."

Myanmar and China's relations ebb and flow. Chinese officially account for 3 per cent of the population in Myanmar, although there are generally thought to be more than this, and there have been periodic crackdowns and discrimination against the Chinese.

During 50 years of military rule, China played a central role in propping up the government in Myanmar during difficult periods of tightening western sanctions and China was given access to Myanmar's natural resources in return for this goodwill.

In 2010, relations were rocked by Myanmar's decision to suspend construction of a Dh13bn dam project, the unpopular Myitsone Dam on the Irrawaddy River, which was being built by Chinese companies to supply electricity mostly to Yunnan, that would displace thousands of villagers in Myanmar.

The move was read as an overture to Washington, something that clearly rattled China, which does not want a resource-rich country on its borders cosying up to the United States.

The People's Liberation Army Colonel Dai Xu, one of China's most influential military strategists and the director of China's research institute of maritime security and cooperation, wrote recently "the unrest signs are increasing regarding the China-Myanmar pipeline".

For him, there are three big strategic projects. First is the Myitsone Dam, second is the Letpadaung mine, a joint venture between China's Wan Bao mining company and a Myanmar military-owned company and where they have been protests.

And now, he says, the pipeline is facing a "complicated situation".

China has been busy constructing pipelines to gain access to the energy it needs to fuel its economic growth.

In 2009, a new pipeline from Russia began pumping Siberian crude oil into northern China and in March this year, the Chinese president Xi Jinping and the Russian president Vladimir Putin discussed a potentially enormous gas deal which could eventually result in almost 70 billion cubic metres of gas being pumped to China annually for the next 30 years.

In late 2009, a pipeline stretching 4,000km across central Asia began delivering natural gas from Turkmenistan to Xinjiang in western China. The pipeline has capacity of 30 billion cubic metres of gas a year.

Meanwhile, a pipeline from the Caspian Sea in neighbouring Kazakhstan began shipping oil in 2005 and the two countries are set to double to 400,000 barrels a day when expansion plans are completed next year.

Han Xiaoping, an online commentator on energy issues in China, wrote that the best way to resolve China's energy safety was to improve efficiency.

"To solve the energy safety issue, it has to come back to China to improve efficiency," he posted.

"Our gas resources are very abundant. But because of the monopoly, the exploitation and usage of gas only make up a small amount of energy consumption.

"We must speed up the restructuring of the energy sector."