Beset by delays, Myanmar-China oil pipeline nears start-up

Beset by delays, Myanmar-China oil pipeline nears start-up

Nearly a decade in the making, a project to pump oil 770 km (480 miles)
across Myanmar to southwest China is set for imminent start-up, with a
supertanker nearing the port of Kyauk Phyu, marking the opening of a new oil
trading route.

Dogged by sensitive relations between Naypyitaw and Beijing, the $1.5
billion oil pipeline has been sitting empty for two years, but the two sides
are now close to a deal, said Myanmar-based government and industry sources,
despite some last-minute tensions.

An agreement between China's PetroChina and Myanmar's government will allow
the state energy giant to import overseas oil via the Bay of Bengal and pump
it through the pipeline to supply a new 260,000-barrels-per-day (bpd)
refinery in landlocked Yunnan province.

The new oil gateway fits with China's "One Belt, One Road" ambitions,
linking it with central Asia and Europe, and will provide a more direct
alternative route to sending Middle Eastern oil via the crowded Malacca
Straits and Singapore.

It would also be a rare win for China in Myanmar after a diplomatic
offensive aimed at forging better ties with its resource-rich neighbour,
which has often been wary of Beijing's economic clout.

Aung Myat Soe, deputy director of planning under the state-owned Myanmar Oil
and Gas Enterprise (MOGE), said the project was awaiting a final sign-off by
the Minister of Electricity and Energy.

Major issues including transport tariffs and Myanmar's tax take on the oil
have been settled, but port fees have yet to be finalised, said a
Myanmar-based industry source familiar with the matter.

"The two sides are working to finalize the terms and sign the contract," the
person said, declining to be named as the information is not public.

"I can't say for sure when the deal would be sealed - it could be in a
couple of days or early April."

The pipeline will have an eventual capacity of 400,000 bpd, about 5 percent
of China's daily import demand, but the start-up of the Yunnan refinery has
been held up as PetroChina and Myanmar negotiated final terms for delivering
the oil.

PetroChina plans to start test production at the refinery in June, aiming to
expand its foothold in China's fuel-short southwest which has so far relied
largely on rival Sinopec for supplies, said two Beijing-based oil officials
familiar with the Yunnan refinery.

Before then, PetroChina is expected to purchase another 7 million barrels of
crude for the pipeline, to stock up fuel for about one month's production at
its new refinery, said one of the officials.

SQUABBLING NEIGHBOURS

While the deal is still to be finalised, oil is already on its way to supply
the pipeline, straining relations with Myanmar.

Shipping data in Thomson Reuters Eikon shows the oil tanker United Dynamic,
carrying one million barrels of Azeri crude, is currently off the coast of
southern India and expected to unload its cargo at Kyauk Phyu this week.

A Myanmar government official said there had been "a big argument with the
Chinese" over the move to ship in crude before the contract was finalised,
while a second official said the entry of the tanker was pending approval
from Myanmar's navy.

PetroChina did not respond to requests for comment.

Any delay would be costly for the oil shipper, which is carrying crude worth
over $50 million and which has a daily tanker charter cost of nearly
$20,000, excluding fuel and crew costs.

The deal is also controversial in China as it has been tainted by a graft
probe into PetroChina's ex-chairman Jiang Jiemin, a supporter of the
project.

Critics have raised conerns about the economic viability of the project,
which also includes a natural gas pipeline, which was touted as providing
"strategic new channels" for China's energy needs.

At the same time, the prolonged squabbling over key features of the deal,
first discussed back in 2004, has soured Chinese enthusiasm for the project.

"There are open questions about the economics and future cooperation with
Myanmar, given the repeated delays and under-utilization," noted a senior
PetroChina official who requested anonymity as he's not authorized to speak
to press.

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Link to Original Article:
http://markets.businessinsider.com/news/stocks/r-beset-by-delays-myanmar-chi
na-oil-pipeline-nears-start-up-2017-3-1001852782

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com