Country Focus: Substantial investment in Myanmar energy sector

Substantial investment is planned for Myanmar, much of it energy sector related.

A combination of factors is behind this capital spending rise. The US recently extended its exemption on the financing of trade through Myanmar ports, which was initially established last year, temporarily, for six months. Political changes in Myanmar have also helped, including the first democratic elections in 2015 and the lifting of Western sanctions in 2012, which was preceded by the ending of 15 years of military rule in 2010.

The government now has ambitious plans to construct new oil storage facilities and port terminals, mostly near former capital Yangon. This is because its three small and outdated refineries cannot keep up with rising demand for refined products resulting from the growing number of cars in the country.

It also has plans to construct a network of dry ports at eight locations: Yangon, Mandalay, Muse, Tamu, Mawlamyine, Monywar, Bago and Pyay. These are intended to improve transport logistics across road, rail, sea and waterways and are part of a United Nations initiative. It will in future be possible to complete many administrative processes, including custom checks, in advance at the dry ports in Yangon and Mandalay, obviating the need to do so at the sea port.

The first related contract, covering the ports in Yangon and Mandalay, was awarded in early January 2016 to Hong Kong-based company Kerry Logistics, which will be working with Myanmar company Resources Group Logistics. Development of the other six dry port sites is planned by 2020.

Meantime administrative procedure at Myanmar’s sea ports should be greatly improved by ongoing work by Hitachi of Japan to install an electronic data system, which it is hoped will be operational by 2017. In many cases ports now still rely on paper-based record-keeping.

In January 2016 the government awarded two contracts to a consortium led by China’s CITIC group, for construction of a deep sea port on the Bay of Bengal and construction of an industrial area at the very recently approved Kyaukpyu Special Economic Zone. This zone is in Rakhine state, to the west of Myanmar, bordering Bangladesh to the north and the Bay of Bengal to the west.

Refining sector overhaul

Myanmar’s refineries are run by Myanma Petrochemical Enterprise (MPE), which is a state-owned company and part of the Ministry of Energy, and they are believed currently to be running at around 20,000 b/d when their capacity is intended to be more than 50,000 b/d. This has led to increasing volumes of fuel imports.

Because of this, the MPE in July 2015 called for bids to establish an oil products joint venture that would be responsible for import, storage, distribution and sales of oil products. It would also upgrade MPE’s existing storage facilities and expand its oil business. MPE would have a 50% stake in the venture. The new oil storage facility is planned for Thilawa port, 23 km southeast of Yangon, and both local and foreign companies will be involved.

A new state of the art petroleum products storage facility was opened at Thilawa  in 2015, part of a project by Puma Energy, whose partners are trader Trafigura and state company Sonangol of Angola. It has 91,000 cu m storage capacity for bitumen, diesel, gasoline, fuel oil, jet fuel and LPG and a jetty that can unload vessels of 50,00 dwt.

In 2013 Puma was the first foreign company to be awarded a permit to build oil storage facilities in Myanmar. In 2015 it branched out into aviation operations, as a joint venture with the Myanmar Petroleum Products Enterprise. During 2016 it will extend its service to the remaining airports in Myanmar.

Offshore activity upswing

The offshore industry has also seen a huge boost following the country’s first formal offshore licensing round in 2014. And despite the fall in oil prices, exploration is continuing into 2016. The government announced at end-April 2016 that international companies were now surveying almost half of the blocks awarded in the first round.

During 2015 there had been a marked upturn in offshore activity, with foreign companies and international oil majors beginning to shoot seismic on the production-sharing contracts that were signed following the first round.

Both BG of the UK and Australia’s Woodside – which partnered in two groups, one operated by BG and the other by Woodside – had begun their seismic data acquisition. Anglo Dutch Shell also started shooting seismic during Q4 2015.

Before the first formal round, more than 20 onshore and offshore licence blocks had already been awarded, mainly to Asian companies, through less formal processes. From these, according to Myanmar Oil and Gas Enterprise, the country’s output was 16,500 b/d of crude oil and condensates and 1.9 Bcf/day of gas in 2013.

The successful bidders for the first official round, consisting of 11 blocks in shallow water and 19 in deep water, were announced in 2014. Those awarded deepwater blocks included, besides the three majors listed above, Eni of Italy, Total of France, Norway’s Statoil together with ConocoPhillips of the US and London-listed Ophir Energy.

For the shallow water blocks, foreign bidders were expected to include local partners. This was designed to introduce local companies into the offshore in some less technically challenging areas. The result was a mix of companies, with India well represented. Those successful were: US major Chevron; OIL India with Mercator Petroleum; ROC Oil and Top Oil; Berlanga Holding; Transcontinental Group; India’s Reliance Industries; and Oilmax Energy.

2016 solar boost planned

Myanmar is planning to extend electricity access with a big boost in 2016 for solar power, both large-scale and micro-generation. At present as many as 84% of households in rural areas currently have no electricity connection, according to the World Bank.

Thai-based Vintage Engineering says it plans to start construction by mid-2016 on the first, 50MW capacity, phase of what the developers claim is southeast Asia’s largest solar power plant. Located in Minbu, in the Magway region of Myanmar, the 220MW solar farm is being developed by Thai developer Green Earth Power, with US-based engineering major Black & Veatch awarded the design and consultancy services contract for the project.

Ric O’Connell, international renewable energy director, Black & Veatch, said: “Electricity is an urgent priority in Myanmar and has serious implications on economic and social progress. As solar facilities can be built rapidly, it is an excellent alternative to quickly add power to the grid.”

In contrasting scale, under the terms of a contract announced around the same time as the Minbu solar plant award, Laos-based renewable energy developer Sunlabob Renewable Energy will provide turnkey implementation of eleven solar-powered micro-grids in remote communities of Myanmar. The battery-backed solar power systems will use sustainable international-standard solar technology.

The micro-grids will deliver “reliable, clean energy access at the household level in 11 villages throughout Shan state and Chin state, Myanmar,” the company said. “All signs point to decentralized renewable energy, such as solar micro-grids, being an important ingredient to the electrification of rural communities and businesses in Myanmar for years to come,” said Andy Schroeter, Sunlabob CEO.