PetroEdge analysis

For a brief moment in time, it seemed as if Myanmar was back on the right track. The military junta dissolved itself in 2011 after ruling since 1962. National icon Aung San Suu Kyi was released from home prison, and the first elections were held in 2015, won by a landslide by Suu Kyi’s party. The military still held a significant presence in the government, designed by constitution but a newly democratic Myanmar was embraced by the international community and investment began to flow in. But then civil unrest aimed at the country’s Muslim minority reduced Myanmar and Suu Kyi’s standing internationally and in 2021 the military junta reasserted itself in a coup after failing in the 2020 elections. Suu Kyi was charged and placed in prison and despite continued widespread protests, the junta retains power. The brief fire of freedom was blown out and now it is having major consequences, not least in the energy sector.

The prize for major energy companies was the vast natural gas (and oil) resources offshore Myanmar. For decades, this was dominated by Thailand’s PTTEP and to a lesser extent Chinese firms Sinopec and CNOOC, as well as TotalEnergies and Chevron that managed to skirt international pressure. During the dark years of the junta from the 1980s through to the 2000s, PTTEP tapped into those gas resources and designed pipelines to transport that gas to Thailand, providing valuable revenue in foreign currency to the government. When the 2012 reforms kicked in – and the first energy block auctions started – international firms locked out of Myanmar due to sanctions poured back in. Among them Shell, Woodside, ENI and even state oil players such as Petronas and PetroVietnam. Having unlocked its development potential, the people of Myanmar would need more (and regular) power to drive that growth, with vast plans for gas-fed power plants drawn up as well as inland pipelines that would transport oil and gas through the country into the interior of China, bypassing the traditional sea route through the Straits of Malacca and the South China Sea.

The 2021 coup changed that equation. Revenues from oil and gas production would now be directed to a government that was not recognised internationally. TotalEnergies in February 2021 issued a statement that it was reviewing the impact of the coup on its projects, as did other major players. In January 2022, the French supermajor and Chevron announced that the risk of remaining in Myanmar was too high, and pulled out. Malaysia’s Petronas and Japan’s Mitsubishi Corp followed, announcing their own departures. Woodside followed while Shell made a public statement that it no longer held exploration licences in the country. This exodus snuffs out the bright potential of the country’s upstream industry, but does serve the political purpose of starving the junta of funds: an estimated 50% of Myanmar’s foreign currency comes from natural gas revenues, with state energy firm Myanma Oil & Gas Enterprise (MOGE) expected to earn US$1.5 billion alone in 2022.

International expertise has powered much of the major leaps that Myanmar’s upstream industry has seen. At stake are the vast Yadana and Yetagun offshore gas projects. Yadana, shared between TotalEnergies (31.24%), Chevron (28%) with the remainder split between PTTEP and MOGe, is the country’s largest producing project covering the Yadana, Badamyar and Sein fields. Over 30% of the production from Yadana is supplied to MOGE for domestic use with the rest exported to Thailand; production is currently in the 6 billion cubic metres per year range but is approaching the end of its projected 30-year lifespan. The Yetagun project – led by Petronas (40.9%) – is newer, but not less significant in production, although all of that volume is allocated for export. Zawtika – the other headlining project – is led by PTTEP, and has not been affected by the exodus yet. In fact, PTTEP stands to gain from the departures.

The Thai state energy firm was always tipped to inherit the stakes vacated by other international firms, and confirmed that it was bidding for the Yadana assets. This makes sense, given PTTEP’s long-history and familiarity with Yadana (and Yetagun) and also because PTTEP’s own power infrastructure in Thailand is dependent on that gas. Other local firms have also reported interest, and MOGE itself is keen to increase its own stakes, but these players will run into problems: the lack of technological expertise.

Because beyond Yadana, Yetagun and Zawtika, there was a host of upcoming offshore projects that would have vastly expanded Myanmar’s production. The A-6 gas project (TotalEnergies, Woodside and MPRL) was one of the largest deepwater projects expected to be sanctioned in Southeast Asia over the next decade, with up to 330 million boe of resources. Collectively, the departing firms were expected to sanction projects covering over 500 million boe of production, most of which was already in pre-FID stage. Handing those stakes over to other local players is one thing, but questions on whether they will have the necessary expertise to move forward with such technical-demanding projects is another. PTTEP could step in, but that would increase dependence that Myanmar’s government may not be comfortable with. Chinese players are also options, but they have not yet expressed interest and are already facing public anger, as local protestors target Chinese infrastructure including the onshore pipelines that transport gas from the offshore Shwe field to Kunming in China via Myanmar’s Rakhine (Arakan) state. And MOGE itself has been sanctioned by the EU, hampering access to financing and international talent or technology.

The idea, of course, is to starve the junta of energy revenue, money that would be used to perpetuate what is seen internationally as an unjust rule (but described by China as ‘internal issues’). The exodus will not cripple Myanmar’s upstream sector, but it dims what was once looking to be a vibrant industry. During the junta’s previous rule, the country’s (former) capital Yangon suffered regular rolling blackouts from insufficient power. In recent years, this had improved tremendously. But now those lights could be giving way to the dark again, physically and metaphorically. But there is nothing much the junta can do now, since the solution is a complete antithesis of its rule.

KeyFacts Energy Industry Directory: PetroEdge