Caixin
Jun 18, 2013 07:03 PM

CNPC's Dreams of Pipelines from Myanmar All Blocked Up

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(Beijing) – The China National Petroleum Corp. (CNPC) missed a May 30 target to finish oil and natural gas pipeline projects linking Myanmar and China.

China's largest producer of oil and gas said on May 28 that it had completed work on the Myanmar section of the gas pipeline, but a small portion of work on the Myanmar side of the oil pipeline was still unfinished.

And data from the China Petroleum Pipeline Bureau (CPP), a subsidiary of CNPC, showed that just over half of the work on both pipelines in China was done by late December.

CNPC did not answer questions regarding why domestic work on pipelines is so far behind schedule. However, a source inside CNPC said the oil pipeline was supposed to start operating at the same time as refineries and chemical plants in Yunnan, but work on those projects has been halted due to public protests.

Meanwhile, political turbulence in recent years in Myanmar has slowed work there.

The projects are important to CNPC because they are part of a strategy to reduce imports brought in by sea and also to provide the southwestern province of Yunnan with a much-needed source of oil.

The delays run counter to the speed with which the public is used to seeing CNPC finish work. It took the company less than five years – from February 2008 to December 2012 – to finish work on the second phase of the 9,000 kilometer pipeline that sends gas from Turkmenistan and Kazakhstan to southern China.

Malacca Motivation

The oil pipeline starts in Kyaukpyu, in western Myanmar, enters China at Ruili, in western Yunnan Province, then heads to Chongqing. The 2,400 kilometer pipeline is intended to bring 23 million tons of Middle Eastern and African oil into the country every year.

In June 2010, a joint venture established by CNPC and Myanmar Oil & Gas Enterprise (MOGE) started work on the oil pipeline, which had estimated total investment of US$ 1.5 billion. CPP started work on the China section three months later.

The natural gas pipeline runs from Maday Island in Myanmar, also enters China at Ruili, and ends in the Guangxi region. The 2,500 kilometer pipeline is designed to handle 12 billion cubic meters of natural gas from an offshore field in Myanmar annually.

Six companies – a CNPC subsidiary, MOGE, two South Korean firms and two Indian concerns – formed a joint venture to invest a total of US$ 1 billion in the project. Work on the two parts of the gas pipeline started at the same time as that for the oil pipeline.

An analyst at CNPC said that one motivation for China to build the pipelines was energy security.

"The significance of the China-Myanmar oil and gas pipelines is that part of the oil, imported from countries in the Middle East and Africa, will not go through the U.S.-controlled Strait of Malacca," the source said. "It means less restraint from Western countries, which is important to ensuring national energy security."

Industry insiders say that before the pipelines open, 80 percent of China's imported oil went through the Strait of Malacca – an important shipping lane that links the Indian and Pacific oceans. Also, after the pipelines open, the distance the oil will have to travel by sea will be cut by 2,000 kilometers.

CNPC says the pipelines will alleviate dependency on the Strait of Malacca and reduce risks associated with sea shipping.

No Flow

Work on the portions of the pipelines in Myanmar ran into trouble over political problems and opposition from the public. In March 2011, after work started, a democratically elected government came to power, ousting a military junta in place since 1962.

Myanmar's new president, Thein Sein, is known to be concerned about the influence China has over its much smaller southern neighbor, and that extends to his country's role in providing resources to the energy-hungry giant. Soon after Thein Sein came to power, his government began seeking warmer ties with Washington, a move analysts see as a bid to offset Beijing's influence.

Lin Xixing, associate professor at Jinan University's Institute of Southeast Asian Studies, pointed out the oil and gas pipeline deals were signed between the military junta and the CNPC in 2009.

"The military government abused their power and skimped the land compensation fees to residents," he said.

In addition, poor roads, telecoms and electricity infrastructure slowed work. Residents and non-governmental organizations protested against the projects over the impact they would have on farmland and the environment, Lin said.

To get work going again, CNPC opened its wallets. In April 2011, it provided US$ 6 million through the joint-venture companies to fund health care and education programs.

CNPC also ran into problems back home. Industry insiders say it has always wanted to have its own oil refining facilities and chemical plants in southwestern China, which was why it pursued the Myanmar pipelines.

Part of the reason for this was the desire to give Yunnan more oil. The province relies on oil shipped by railroad from the east, but this is expensive. In 2010, CNPC's Yunnan branch started an oil refining project, designed to handle more than 10 million tons per year, in Kunming.

Then in May this year, protests erupted in Kunming over residents' fears that chemical plants that were part of facilities that included refineries would impact public health.

Amid these troubles, CNPC's Myanmar dreams remain just that. Caixin asked the company when the pipeline projects would be completed, but it did not answer.

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