Over the last year, Myanmar’s energy sector stumbles in right direction

Home to one of the world’s oldest oil and gas industries, oil exploration in Myanmar began in the early Bagan era. During the reign of King Anawrahta in the Bagan Era, evidence shows that the Buddha’s Three Teachings were coated with oil to prevent damage. With the nationalisation of the oil industry in 1963, the newly formed state oil company, called the Myanma Oil and Gas Enterprise (MOGE) undertook all operations of the industry. In 1988, in an effort to revive the struggling industry, the government opened it to foreign firms.

Myanmar’s proven natural gas reserves are about 1,820 billions of cubic feet (BCF) and its crude oil reserves are estimated to top 139 million barrels. With Myanmar now open to international exploration, major firms are making substantial investments in the country, using updated technology to discover new deposits.

Being a sector with great potential to contribute to the country’s development, it’s worth bearing in mind that it is only in recent years that Myanmar’s oil and gas industry has made strides towards providing a reliable energy supply. The last year, in particular, has seen developments in some areas and setbacks in others.

Reshuffle of MOEE portfolio

The National League for Democracy-led government has been criticised for being slow in developing clear economic policies. Its energy policies are no exception.

Beginning from its inauguration, the Ministry of Energy and Electricity (MOEE) was headed by U Pe Zin Tun, the permanent secretary of the Ministry of Energy under the former government. He resigned less than two years later with little achieved in terms of resolving the country’s energy crisis, even though this is the ministry’s major responsibility. As of July 2017, Union Minister for the Ministry of Construction, U Win Khaing, officially took over the ministerial position.

While the energy sector is one that has not been living up to expectations, there are still a few key activities to note.

A period of low oil prices coincided with the development of Myanmar’s offshore fields, where exploration has proved to be very risky and pricey – a single deep-water well can cost upwards of US$50 million. In fact, 11 blocks were relinquished by foreign investors on the grounds that they wanted to invest in other businesses following the warning from MOGE to drop or drill in late 2017.

These include India’s Reliance Industries, which dropped blocks M-17 and M-18, and Australia’s Tap Oil, which made an exit from block M-7. In addition, Shell has dropped some deep-water assets and extended the study periods for others. Despite the potential existence of energy reserves, Myanmar has been unable to meet its growing demand for power over the course of time.

Offshore supply bases

An important development in 2017 has been the Myanmar Investment Commission’s (MIC’s) approval of offshore supply bases (OSB). A big hurdle for international oil and gas companies operating in the country comes from the lack of an offshore supply base. There is only one supply base owned by MOGE in Yangon, and the nearest platforms are in Singapore and Thailand. Oil and gas companies in Myanmar use supply bases in those two countries, which are at least 4-5 days away by boat. The day rate of a drill ship is over $350,000 per day and vessels require 10 days for a roundtrip to and from Singapore.

The cost is enormous for oil and gas companies to operate off the coast of Myanmar – which means that Myanmar is deprived of an important economic activity while other countries benefit from operations in its waters.

The right to build and operate the supply bases that would make the country’s oil and gas industry more profitable has long been recognised as a lucrative opportunity.

A domestic offshore supply base would make supplies for drilling activities cheaper, available within a shorter time, and quicker, in terms of assuring an easier customs clearance – thereby successfully addressing the needs of its own offshore operators. While previously it was projected that Myanmar would need two or three offshore supply bases, last year, the MIC provided a series of permits for up to six OSB projects, some of which are likely to become operational as early as 2020.

Importing LNG for domestic power production

Following the start of 2018, we have begun to see an exciting phase unfold in the country’s energy landscape, after the reshuffling of the head of the MOEE and the resultant period of silence on the country’s energy plans. Recently, Myanmar’s government has announced that LNG imports will be used to address energy gaps before new domestic gas comes online.

According to an MOEE official, domestic gas will continue to be an export item used to secure foreign exchange, while liquefied natural gas will help meet the growing electricity needs in the country, reversing what was earlier reiterated by the ministry: that local needs must be prioritised in new field developments.

In the short term and medium term, Myanmar has to rely on its gas power plants to meet the growing electricity demand. Securing gas for electricity generation has been a formidable challenge that could possibly be solved by the recent establishment of LNG import schemes.

Meanwhile, a long-term energy plan should focus on a well-balanced mix of sustainable energy by optimising the use of a combination of energy sources, based on a concrete projection of how much energy will be needed to ensure economic development and national electrification.

In mid-March, a geological forum was held by the MOGE – the state-owned oil and gas company, operator, service provider and regulator of the oil and gas sector in Myanmar, which is under the auspice of the Ministry of Energy and Electricity.

The forum, focusing on the upstream sector, gathered together officials, international oil and gas companies, academics, and energy professionals, with an aim to encourage knowledge-sharing on new concepts and technologies that might help resolve the challenges posed by the complex geological composition of Myanmar’s petroleum systems. Only when this challenge is managed will the discovery of more oil and gas proceed, onshore and offshore in Myanmar. One hopes that the forum will assist the ministry to show the way forward.

Another bidding round with better rules

Currently, Myanmar has 51 offshore blocks for natural gas production; 38 were tendered during former president U Thein Sein’s term, according to the MOEE. Hence, 13 blocks are available for tendering.

In early April, there was news that another bidding round will come around this year. This is expected to take place after a review of the current terms and conditions of the oil and gas contracts is made. Key areas that industry experts have identified as in need of improvement include the fiscal terms of the current Production Sharing Contracts (PSCs) – which were created before the 2014 drop in oil prices – and the accountability of the MOEE.

For example, according to the standards of the country’s PSCs, the government, which is the resource owner, is fully protected from all risks involved in oil and gas exploration and production – risks to which private investors are exposed as they have to undertake all the investment and work programmes associated with finding, developing, and producing natural gas.

At the same time, the lion’s share of the produced oil and gas – at least 60 percent of the total production – goes into the government’s pocket. Many other petroleum-producing countries around the world use such mechanisms, with different terms and conditions.

Presently, the ministry has reportedly been reviewing the terms and conditions of its contracts ahead of its plan for carrying out another bidding round this year. One hopes that more players would be involved in the process, leading the ministry to produce an outcome that provides a level playing field, as well as one that boosts investors’ confidence in the industry.

What’s in the pipeline?

In mid- and late-2018, we are likely to see activity from the toughest in the industry.

PTT Exploration and Production (PTTEP) has reaffirmed its commitment to the oil and gas sector in Myanmar, although it conceded that there are challenges related to exploration in the frontier.

PTTEP is expected to begin exploration work at M-9 and M-11 offshore fields this year. The company said that there are challenges associated with the identification of an economical and efficient method to bring the gas online, and that it can only be done through an effective combination of innovative technologies and people. Another foreign entity, Malaysian state-owned oil company Petronas, said that it will commence drilling wells in M-12, M-13 and M-14 in Tanintharyi Region during the last quarter of this year.

MPRL E&P, a local independent oil and gas company, has also introduced three options for its A-6 block, having made successive discoveries over the last few years. The company stated that if all sandy channels of the block are gas-bearing, economics may well justify an LNG project which includes tie-back options to either Total’s Yadana gas field or Posco Daewoo’s Shwe gas field, either for local power generation or for export to Thailand or China. The company is planning to drill a new appraisal well and, in parallel, will carry out studies for developing the gas from the block.

In conclusion, the oil crisis that began in 2014 saw oil prices slump to less than $30 a barrel over the course of the ensuing years. Today, thanks to aggressive cost-cutting exercises and oil prices making a return to $60 a barrel, many national and international oil and gas companies in the upstream sector are ready to resume their exploration and production activities again.

It is likely that Myanmar’s oil and gas industry will improve the way it works by reflecting such changes in the wider industry, thus remaining competitive. In this regard, we have to identify lessons learned and apply best practices that carefully address our own challenges.

Thal Sandy Tun works for the corporate social responsibility and communications department of MPRL E&P Pte Ltd in Yangon. She graduated from Yangon University of Foreign Languages. This article was originally published on Tea Circle, a forum for new perspectives on Myanmar.

Source: Myanmar Times

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