C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000313
STATE FOR EAP/MLS;
PACOM FOR FPA,
TREASURY FOR OASIA:AJEWELL
E.O. 12958: DECL: 09/21/2016
TAGS: ECON ENRG PGOV EPET PGOVM BM
SUBJECT: BURMA'S OFFSHORE WATERS BECOME MORE CROWDED
REF: A. 06 RANGOON 1818
Â¶B. 06 RANGOON 1704
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Classified By: Econoff TLManlowe for Reason 1.4 (b,d)
Â¶1. (U) Summary: Despite inconsistent results from new test
wells, Burma's oil and gas potential continues to draw
significant interest and investment from China, Russia,
India, Thailand, Malaysia, Korea, and Japan. The regime has
granted exploration rights to all remaining blocks just
offshore Burma's coast. China appears to be the leader in a
hotly contested campaign to win rights to natural gas from
the Shwe Fields in the Bay of Bengal, which should be the
first of several new fields to begin production. Other
competitors, however, have not given up. End summary.
Shwe Fields Seeking a Buyer
Â¶2. (SBU) A consortium lead by Daewoo, together with partners
Korean Gas Corporation, India's ONGC Videsh, and GAIL India,
continue to develop resources found in three gas fields in
blocks A-1 and A-3, in the Bay of Bengal off Burma's Rakhine
coast (ref B). Ten companies from China, India, Thailand,
Korea, and Japan have expressed interest in gas deliveries
from the Shwe fields. Unsatisfied with the initial prices
offered, the Myanmar Gas and Oil Enterprise (MOGE) called for
more bids in December. Myint Kyi of the Myanmar Oil and Gas
Enterprise said the GOB sought bids above the price Thailand
currently pays for its natural gas from Burma ($6.60 to $6.75
per million BTUs). Kogas of Korea and Marubeni of Japan
reportedly were the highest bidders at $7.00 per mm BTUs, but
the GOB did not accept the bids.
Â¶3. (C) GOB officials stated that they would decide on the
market for gas from the Shwe fields only in May, after they
receive results of exploration of A-3. However, on March 21,
international press reported that MOGE had signaled its
intent to sell the gas to PetroChina if it offered a good
price. Reportedly, MOGE called consortium partners to
Rangoon the week of March 26 to discuss the sale to China.
Korean and India press expressed frustration at the GOB
decision. The Korean Charge, Kwang Ju Choi, told econoff he
believed the announcement was a GOB negotiating ploy, and
that the final winner would still be the company that offered
the best deal. Rajendra Khanna, Commercial Counselor from
the Indian Embassy, told us that he believed MOGE gave the
deal to China on Senior General Than Shwe's orders just after
China's veto of the Burma resolution in the UN Security
Â¶4. (SBU) About 40% of the production from A-1, two trillion
cubic feet (tcf), is intended for domestic use, according to
Soe Myint, Director of the General Energy Planning Division
in the Ministry of Energy, with the remainder to be exported.
He told the press, "We will give first priority to domestic
use." Contacts at the Korean Embassy tell us that the GOB
has pressured Daewoo to move the delivery date up to 2010.
Â¶5. (SBU) Indian sources tell us that the estimates of
reserves in the Shwe fields do not show enough volume for
exports to both India and China. If India won the bid to
import gas from Shwe fields, it planned to build a pipeline
to Northeast India bypassing Bangladesh. Bangladesh
reportedly has begun to reconsider its earlier refusal to
allow a pipeline through its territorial waters absent
significant Indian concessions in other areas, but Indian
Embassy sources tell us it is too late for that option.
Thailand Strikes Gas, Malaysia Strikes Out
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Â¶6. (U) This year, PTTEP of Thailand discovered natural gas
reserves in three wells in block M-9. The first, in Zawtika
field, is estimated to hold 3.2 tcf, but estimated reserves
in the Gawthaka and Kakonna wells were not announced. PTTEP
spokesman Sitthichai Jayant characterized the finds as "very
promising." He told the press that the company planned to
drill one exploration well and up to five appraisal wells to
confirm the reserves, and hoped to start production in 2011
or 2012. PTTEP is in partnership with Myanmar Oil and Gas
Enterprise in block M-9.
Â¶7. (C) A contact from the Malaysian firm Petronas told us
that the company spent $130 million to drill seven undersea
wells to the east, west and south of the operating Yetagun
field, but found nothing. He expressed doubts that Petronas
would finance further exploration in the area.
Take A Number and Wait in Line
Â¶8. (C) GOB offered new blocks for exploration to boost
reserve estimates, to make a pipeline or an LNG plant more
economically viable and to generate fast cash. Moe Myint,
CEO of MPRL, Ltd., one of the companies that recently signed
an exploration agreement, said that the gas discoveries in
the Shwe fields prompted a general reassessment of the
geology off Burma's coast, which boosted estimates of the
volume and configuration of potential reserves. Despite the
cost of digging an exploration well in Burma - up to $20
million according to another oil company source - many
companies have expressed interest in exploiting this
potential. Between January and March 2007, the GOB signed
numerous deals for the remaining available blocks along
Burma's coast and further offshore. The GOB signed
agreements with companies from:
-- South Korea: In February, Daewoo and MOGE signed a
production sharing agreement for exploration, drilling and
production in block AD-7, west of the Shwe field.
-- Burma: MPRL Ltd., based in the British Virgin Islands with
offices in Singapore and Burma, signed an agreement to
explore in block A-6. MPRL is the only company in the sector
that is run by a Burmese CEO, Moe Myint. MPRL has operated
onshore since 1997. MPRL reportedly has a six-month period
to review studies and will pay the GOB $2 million if it
decides to go ahead with exploration, estimated to cost up to
-- China: China National Petroleum Corporation signed a
contract with MOGE to explore deepwater blocks AD-1, AD-6 and
AD-8. These blocks cover 10,000 square kilometers and border
the Shwe fields to the north, south and west. Total operated
AD-6 from 1974-76, and drilled one well, but found no oil or
-- Singapore/Malaysia: UNOG of Singapore, together with
Rimbunan Petrogas, based in the British Virgin Islands and
run by a Malaysian businessman, signed an agreement to
explore blocks M-1 and A-5 off the Rakhine coast. Total had
drilled wells also in block A-5 in the mid-1970s, but found
no oil or gas.
Â¶9. (U) These deals join other recent and existing agreements
with companies from:
-- Russia/India: Zarubezhneft Itera from Russia and Sun Group
of India partnered with MOGE for exploration in block M-8.
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-- India/Singapore: GAIL India and Silver Wave Energy from
Singapore/Russia will develop block A-7.
-- Thailand: PTTEP has rights to explore blocks M-3, 4, 7, 9
-- Malaysia: Petronas has interest in blocks M-15, 16, 17 and
-- France/US/Thailand: Total, Unocal and PTTEP are partners
in a consortium with MOGE in the successful Yadana field in
M-5 and M-6.
-- Malaysia/Thailand/Japan: Petronas, PTTEP and Nippon Oil
produce gas and condensates from the Yetegun field in M-12,
13 and 14.
A Pipeline or a Floating Plant?
Â¶10. (SBU) The decision on whether an LNG plant or pipeline
will be built depends on results from exploration efforts.
The GOB sees an LNG plant as more attractive, because they
would be able to get higher prices from a larger market.
Reserves of at least 6 tcf are necessary to make construction
of a LNG plant profitable, according to oil industry sources.
Our contact said that the plant could be fixed to the sea
floor or float on the surface. The floating technology is
cheaper, he said, and with the unpredictable political
environment, would be more attractive to investors because
they could tow the plant away if problems arose. Korean and
Japanese firms have submitted bids for LNG plants, but would
likely demand long-term contracts.
Â¶11. (U) China is interested only in pipelines. China
National Petroleum Corp. announced in January that it had
launched a feasibility study with MOGE for a gas pipeline to
Kunming and a shipping terminal at Kyauk Phyu on the Rakhine
coast. CNPC will evaluate adding a crude oil pipeline on the
same route. Khanna said that China was not concerned about
the volume of gas from the Shwe fields, because it was more
interested in the second pipeline, which would create an
alternate access route for crude oil imports from the Middle
East, avoiding the Straits of Malacca. A Vice President of
PetroChina Planning and Engineering Institute said China
would build a refinery near Kunming to process the crude.
According to one source, a PetroChina deal includes a $160
million soft loan to the GOB if the Burmese regime allows the
pipeline to China.
Â¶12. (SBU) In February, the Indian press reported that the GOB
had approved Indian development of the port at Sittwe, the
terminus of the Kaladan multi-modal project to give greater
access to northeastern Indian states. Contacts told us that
early estimates came in at costs ten times greater than the
projected amount of $103 million, and the GoI had begun to
rethink the plan. Other sources tell us that, if gas from
the Shwe fields were sent to China, the deal would be called
Â¶13. (U) The MOGE announced that it will conduct a feasibility
study on a pipeline from Kyauk Phyu to an existing pipeline
in Pyay in Bago Division for domestic use. GOB officials
hope to pipe gas from 2010 if Daewoo can advance development
of Shwe Field.
Â¶14. (U) Recently, the GOB quietly lifted its two-year old
decision to close the onshore sector to new foreign
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investment. On March 16, Silver Wave Sputnik Petroleum and
Silver Wave Energy, two Singapore-based Russian companies,
signed an agreement for onshore oil and gas exploration with
MOGE. The production-sharing contracts cover exploration,
drilling, and production of oil and gas in block B-2. The
MOGE Managing Director, the Minister for Energy of the
Republic of Kalmykia in the Russian Federation, and the
Chairman of Silver Wave Energy signed the contract in Nay Pyi
Taw. Russian press stated that Silver Wave Sputnik Petroleum
acted on behalf of Kalmykia, and that another Kalmykia
company would manage the project. In January, a new well in
Burma's largest producing onshore field in northern Rangoon
Division yielded 600,000 cubic feet of gas over nine hours,
and prompted MOGE to raise production targets. Seven foreign
firms currently operate in 19 onshore fields.
Â¶15. (SBU) Comment: Burma has opened the door to anyone who
wants to sign an agreement and pay a bonus, and found
numerous takers. Future payoff for these companies, and for
the government, however, is anything but guaranteed. With
exploration equipment in short supply and unproven reserves,
it could be some time before investors would see any returns.
Pipeline construction will have to clear the hurdles of
distance, difficult terrain, displaced populations, and
environmental damage. The latter two issues would not
trouble the GOB or partners like the Chinese or Indians. LNG
plants would require huge capital investment in a nation with
an unreliable ruling regime. End comment.