Myanmar’s government is expected to announce major new bidding for natural gas exploration, including 15 offshore and 18 onshore blocks, in a bid to give the sluggish but potentially lucrative industry a much-needed capital infusion.
But while a new exploration agreement signed last month between Myanmar’s MPRL E&P Company, France’s Total and Australia’s Woodside Energy have given the sector a huge boost, investors are still wary about the industry’s policy direction.
Block A6, an Ayeyarwady Region joint venture in which Total holds 40%, Woodside 40% and MPRL E&P Co 20%, will be Myanmar’s first ultra-deepwater natural gas field project. It is also the only new gas development to be started under de facto leader Aung San Suu Kyi’s nearly four-year-old administration.
The field is estimated to contain 2-3 trillion cubic feet of natural gas, with a projected daily output of 400 million standard cubic feet. That represents more than a fifth of Myanmar’s existing daily output.
Although not expected to come on-stream until 2024 – and some analysts say even that timeline may be optimistic – the project will bolster national energy supplies and provide needed state revenues in a country known for having one of the lowest tax takes worldwide.
“The execution of these agreements, which set a new fiscal framework for Block A6 discovered resources, is a significant milestone in unlocking new gas reserves in an area close to existing gas markets,” said Javier Rielo, Total’s senior vice president for the Asia Pacific.
The project will “generate a significant long-term revenue stream for the country,” echoed Woodside Executive Vice President Meg O’Neill.
The parties have not yet reached a final investment plan and amount, but Minister for Electricity and Energy Win Khaing said the goal is to start commercial gas distribution from the project by the end of 2023.
How much of the gas will be used for local energy production and how much exported is still apparently under negotiation.
Current and retired officials from the state-owned Myanma Oil and Gas Enterprise (MOGE), the de facto industry regulator, told local media outlets that gas produced from the block will be used mainly for gas-fired power plants in Myanmar.
When asked about a supposed 25% allocation of the gas reserved for domestic consumption, as reported by some media outlets, a MPRL source denied any such agreement had been made.
The source, who is not authorized to speak to the media, said that negotiations with potential off-takers of the gas are still ongoing and that there is no domestic market obligation in the production sharing contract (PSC).
Offshore gas sales account for the most important source of government revenues in Myanmar, namely through exports to neighboring China and Thailand. In 2017-18, natural gas shipments accounted for US$3.1 billion, or roughly half of the country’s total export revenues.
The International Monetary Fund (IMF) estimates Myanmar’s economic growth hit 6.5% in 2018-19, driven largely by strong gas exports as well as garment shipments, despite global economic headwinds.
These revenues, however, came at a price. Extractive industries as well as energy investments in Myanmar are historically intertwined with ethnic conflicts, with minority groups demanding more control over and benefits from natural resources located in their areas.
The Myanmar government does not have a revenue sharing system for oil and gas exploitation or other extracted resources with states and regions, a key stumbling block to reaching a national peace accord.
Meanwhile, an energy shortfall is looming on the horizon. The output of Myanmar’s four existing offshore fields, which account for more than 90% of total gas production, is set to decline.
Gas production from these offshore fields will decrease from about 1.9 billion standard cubic feet per day in 2015 to less than 100 million in 2040, according to a 2018 study by the Economic Research Institute for ASEAN and East Asia, a Jakarta-based think tank.
This impending decline has made developing new offshore fields all the more important as domestic gas demand in Myanmar has been rising with growing power needs to fuel the economy.
The government originally planned to hold a new round of international bidding for gas concessions last year. According to industry sources, this was delayed because the ministry wanted to push through first a new Petroleum Law to govern the industry.
The bidding is expected to take place this year with the release of 15 offshore and 18 onshore blocks. It will be the inaugural bidding under Suu Kyi and the first since 2013-14, when then-president Thein Sein spurred a FDI bonanza after awarding 16 onshore and 20 offshore blocks in a 12-month period.
Whether Suu Kyi’s bidding is as successful as Thein Sein’s, however, will likely depend on her government’s willingness to reform its current tax-heavy and opaque production sharing contract (PSC) model.
Analysts in Yangon suggest that Myanmar is unlikely to attract many foreign bidders unless the commercial terms outlined in existing PSCs are substantially adjusted.
The new bidding round should rely on a revised model contract to help maximize revenues and ensure transparency, the IMF has said.
Last month’s Total-Woodside-MPRL P&E deal sent a positive signal to potential bidders, not least because of lingering concerns about possible reputation risks in Myanmar’s extractive industries.
But unresolved issues over the draft petroleum law, including over PSC terms, could still hold back foreign investor interest.
The Myanmar Petroleum Operators Club, a group comprised of existing operators and producers, expressed concern about the revised bill, warning in a letter to parliament that “a final law could result in a long period of uncertainty” that “delays” billions of dollars worth of potential investments.
Key issues raised in the letter, which was not made public, concern possible changes to existing PSCs, lack of clarity on overlapping regulatory authorities and the risk for companies of losing title to resources between exploration and actual production.
Sources told Asia Times that the government is currently consulting with the industry on the draft law, though its unclear if it will address all the concerns raised.
Moreover, the draft legislation does not separate the dual roles of MOGE as a regulator, which is authorized by the new law to “issue any necessary orders and directives”, and as a commercial player.
This, critics say, contradicts the Suu Kyi administration’s national policy – the Myanmar Sustainable Development Plan – which requires state-run economic enterprises to “operate on commercial principles, with independence, transparency and accountability.”
When in the political opposition, Suu Kyi criticized the MOGE for lacking “both transparency and accountability” and urged foreign governments to bar their companies from forming joint ventures until the state firm improved its practices and contract disclosure.
But reforms since she took power in March 2016 have been limited. In a letter to parliament, the independent Myanmar Center for Responsible Business also argues that the legislation needs to be revised to include reform of the MOGE, among other policies.
The Extractives Industries Transparency Initiative, of which Myanmar is a member, requires compulsory contract disclosure from 2021 and hence the law should be amended to align with this international obligation, according to extracts of the letter reviewed by Asia Times.
“It is essential that a clear and effective Petroleum Law is adopted, since this will underpin sustainable investment in a sector that generates 50% of Myanmar’s export revenue,” it concluded.