Viewing cable 07RANGOON313
Title: BURMA'S OFFSHORE WATERS BECOME MORE CROWDED

IdentifierCreatedReleasedClassificationOrigin
07RANGOON3132007-03-28 09:11:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Rangoon
VZCZCXRO1081
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0313/01 0870911
ZNY CCCCC ZZH
O 280911Z MAR 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5901
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1377
RUEHBY/AMEMBASSY CANBERRA 0237
RUEHKA/AMEMBASSY DHAKA 4511
RUEHLO/AMEMBASSY LONDON 1924
RUEHNE/AMEMBASSY NEW DELHI 3806
RUEHUL/AMEMBASSY SEOUL 7332
RUEHTC/AMEMBASSY THE HAGUE 0604
RUEHKO/AMEMBASSY TOKYO 4884
RUEHCI/AMCONSUL CALCUTTA 1087
RUEHCN/AMCONSUL CHENGDU 1102
RUDKIA/AMCONSUL CHIANG MAI 0932
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 3093
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 0734
RUEHBS/USEU BRUSSELS
C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000313 
 
SIPDIS 
 
SIPDIS 
 
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 
     ¶B. 06 RANGOON 1704 
 
RANGOON 00000313  001.6 OF 004 
 
 
Classified By: Econoff TLManlowe for Reason 1.4 (b,d) 
 
¶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 
--------------------------- 
¶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. 
 
¶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 
Council. 
 
¶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. 
 
¶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 
 
RANGOON 00000313  002.6 OF 004 
 
 
------------------------------------------ 
¶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. 
 
¶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 
------------------------------ 
¶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 
$33 million. 
 
-- 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 
gas. 
 
-- 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. 
 
¶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. 
 
 
RANGOON 00000313  003.6 OF 004 
 
 
-- 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 
and 11. 
 
-- Malaysia: Petronas has interest in blocks M-15, 16, 17 and 
¶18. 
 
-- 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? 
------------------------------- 
¶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. 
 
¶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. 
 
¶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 
off. 
 
¶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. 
 
Onshore 
------- 
¶14. (U) Recently, the GOB quietly lifted its two-year old 
decision to close the onshore sector to new foreign 
 
RANGOON 00000313  004.6 OF 004 
 
 
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. 
 
¶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. 
VILLAROSA