Myanmar-China Oil and Gas Pipelines: Rebirth of an Ancient Trade Passage

October 1, 2014

The Myanmar-China crude oil and natural gas pipelines are significant in a way that they epitomize a reincarnation of the ancient southwestern silk trading route. Mary Ching explains.

One of the construction sites of the Myanmar-China oil and gas pipelines. According to the Shwe Gas Movement, local workers were treated unfairly with low wages and poor working conditions.  
Photo from Shwe Gas Movement.

 

More than two thousand years ago, the southwestern Silk Road was the great link between China and other South Asian regions including India, depicting a flourishing route for trade and cultural exchanges from one civilization to another. Likened to a modern day adaptation of the ancient south western Silk Road, the Myanmar-China crude oil and natural gas pipelines are not just modes of transporting resources for export and import, they are the catalysts that bring waves of political, economic and social transformations in the newly emerging Myanmar and rising capitalist China. The pipelines stretch from the Kyaukphyu port in the Bay of Bengal, Myanmar to Kunming in the Yunnan Province of China.

According to China National Petroleum Corp. (CNPC) and Xinhua News Agency, the Myanmar-China Pipelines project has contributed many positive elements to the lives of Myanmar population. They have provided employment for more than a thousand Myanmar employees, which accounts for more than half of their project staff. The project companies have also donated millions of dollars to Myanmar communities to develop educational programs and medical treatment facilities. CNPC has also agreed to reimburse the Myanmar government US$13.6 million/yr in the form of rent for the crude oil pipeline, along with US$1 for every ton that flows through it, assuming the oil pipeline operates at full capacity.

In the beginning

Early discussions on the pipelines started between the two nations in 2004. Subsequently, China’s interest in purchasing natural gas was cemented in long-term contracts spanning three decades, which PetroChina and the government of Myanmar signed in 2005. This was the basis for the agreement signed by CNPC (the parent company of PetroChina) and the Daewoo International consortium in 2008, to purchase the natural gas produced from the offshore Shwe gas field in the Andaman Sea.

The Daewoo International consortium is comprised Myanma Oil and Gas Enterprise, India’s Oil and Natural Gas Corp. (ONGC), GAIL, and Korea Gas Corp., with Daewoo leading the gas field operation.

The Shwe natural gas field has a total proven reserve of approximately 9.1 trillion cubic feet (tcf). It was discovered in 2004 by Daewoo and has an estimated production rate of 700 million cubic feet/day (mcf/d).

China eyes to revive the ‘Southwestern Silk Route’ for its economic and trade sustainability. Photo by Rob Parciasepe.
 

Dual construction

In 2009, Myanmar and China brought their plans further by signing an agreement to construct a crude oil pipeline and a gas pipeline that run parallel, starting at Kyaukphyu and passing through Mandalay, Lashio and Muse in Myanmar, and continues through the Chinese border city of Ruili the in Yunnan Province. The pipelines then continue to Kunming, in southwestern Yunnan, where the oil pipeline then terminates.

The gas pipeline extends further—an additional 2035km—reaching Guizhou Province and the Guangxi region of China. Overall, the oil pipeline measures 771km in length, while the gas pipeline is 2806km long. Construction costs for the oil pipeline and the gas pipeline were reported to be US$1.5 billion and US$1.04 billion, respectively.

In 2013, construction of the gas pipeline concluded and the line became fully operational.

However, construction of the oil pipeline has evidently due to various obstacles and challenges. Although the oil pipeline was scheduled to commence operations early this year, internal conflicts, protests from both Chinese and Myanmar locals, China’s overcapacity and economic slow-down have caused the oil pipeline project to be postponed.

Oil pipeline as a channel to avoid sea traffic

Local students traverse to and from school along trails which have been destroyed during the pipelines construction.
Photo from Shwe Gas Movement.

 

The onshore crude oil pipeline was primarily designed as a plan for alternative trading route for oil imports from the Middle East and Africa, which transits through the Strait of Malacca. This 800km waterway stretches between Indonesia, Malaysia and Singapore. It connects the Andaman Sea (Indian Ocean) with the South China Sea (Pacific Ocean). This important shipping lane offers the shortest distance by sea for Persian Gulf exporters to reach China, Japan, South Korea and the Pacific countries. Almost 80% of China’s crude oil imports navigate through the Strait of Malacca, which is teeming with more than 60,000 vessels every year. The Strait of Malacca had about 15.2 million b/d of crude oil flow in 2011.These factors indicate the bustling waterway is a potential choke point with possibilities of collisions, grounding/stranding and oil spills. Apart from that, ships traversing through the Strait of Malacca are at risk of attempted theft and hijackings from pirates.

China solidifies its goal as gas pipeline operates

The Myanmar-China gas pipeline has a capacity of 424 bcf/yr. Since 4Q 2013, Myanmar has been exporting gas to China through the pipeline. It began to export its first production at 182 bcf/yr, which exceeded China’s expectation of receiving 146 bcf/yr. Now, Myanmar has secured a new business portfolio in exporting gas to the world’s greatest trading nation.

As for China, the gas pipeline is an additional avenue for the country to source for more gas and diversify its gas supply to ensure sustainability in the future. It is also anticipated that the pipeline will deliver up to its maximum capacity when more gas fields in Myanmar are developed. Hence, China’s gas imports through pipelines are soaring as Myanmar and other countries including Central Asia increase production to appease the growing demand for gas in China.

The loading jetty at the Pluto infrastructure which has a single processing train with production capacity of 4.3 million tonne/yr. Photo from Woodside Energy Ltd.  
 

Controversy-laden projects

Despite rendering economic benefits to both China and Myanmar while forging political ties, the reputation of the Myanmar-China oil and gas pipelines project has often been slated as a controversial operation. Charges of exploitation, unfair treatment, environmental hazards, politics, and safety issues have caused numerous protests and resistance amongst these two nations.

Resistance from the Chinese public regarding the construction of the Anning refinery in Kunming is one of the hurdles faced by the the oil pipeline planners. With a maximum capacity of 440,000 b/d, the crude oil pipeline is designed to supply oil to the proposed Anning refinery which requires 200,000 b/d to produce gasoline and diesel efficiently while feeding a nearby petrochemicals plant. Thousands of Kunming residents protested CNPC’s construction of the refinery on the grounds of environmental pollution with emission of carcinogenic chemicals.

Women from the Arakan State, where the gas that supplies the pipeline originates, still need to collect firewood as a source of cooking fuel.
Photo from Shwe Gas Movement.

 

Moreover, the Chinese economy is experiencing decline and overcapacity resulting in a hold back in energy development. The construction delay at the Anning refinery follows a number of other massive refineries and petrochemical projects being postponed.

Equally controversial is the resistance from the Myanmar public on the oil pipeline construction which also has been delaying the project completion. The people of Myanmar and human rights activists have staged protests against the oil and gas pipelines by voicing complaints over unfair compensations for land confiscation. The local Myanmar residents complained that they had to abandon their homes and lands without proper compensations in order to give way to the project. Complaints on environmental and safety issues were also aggressively raised. Some protestors have stated that it is not justifiable for Myanmar to export gas while a majority of its population is stranded in poor living conditions without electricity.

Furthermore, there is a growing resentment against China amongst the Myanmar nationalities, many who believe that the Chinese are exploiting their land and natural resources while infringing upon their local interests. It is a common perception among Myanmar locals and critics that profits reaped by the Chinese from oil and gas projects outweigh the benefits obtained by the people of Myanmar. These sentiments, stemmed from past political, economic and social issues with China, continue to permeate through Myanmar communities. Under all these circumstances, it has been reported that the oil pipeline is presently being scheduled for completion in 2016.

Repeating history

In light of the southwestern Silk Road, China has been fostering ties with Myanmar to access the ports at the Bay of Bengal, a strategic trade starting point for immeasurable amount of Chinese goods to be shipped to Europe and a gateway for oil import from the Middle East to reach China.

China will achieve a milestone in resurrecting a southwestern ancient passage that once prospered with trade and cultural diffusions. Once again, China is attempting to conduct more trading activities with India, the Middle East and Europe across this history-filled route. The Myanmar-China oil and gas pipelines project is an illustration of these visions. So, will history repeat itself? Many are of the opinion that China always seems to have the prerogative in trading business.



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