We saw one of the most significant shifts in a long while for energy markets last week. With a key pipeline opening that will radically change global flows of crude oil.
The project in question is the China-Myanmar oil pipeline. Which Chinese state media said on Thursday has now opened for test runs.
The pipeline is one of the most ambitious constructions the global energy sector has seen. Running 771 kilometres from Myanmar’s western coastal port of Kyaukphyu, across the entire length of that country, and into the Chinese city of Kunming. The diagram below from Stratfor shows the route. Related: Russia And China’s Growing Energy Relationship
The line has been an ongoing project for years now. With construction having begun in 2010, and been completed in May 2014. A twin natural gas pipeline that’s also part of the development was put into operation last year.
The size of the pipeline is notable. But its location is even more significant when it comes to the worldwide movement of oil.
The pipe provides the first overland access between China and shipments of crude sailing from the Middle East.
Up until now, Middle East tankers were forced to sail through the Straits of Malacca between Indonesia and Malaysia in order to reach Asian buyers. A route that’s noted to be treacherous, and which adds almost two weeks to the journey for an average Saudi Arabia-to-Shanghai shipment.
Such crude can now be offloaded on the Myanmar coast and sent straight into the heart of China. Giving buyers here a major cost saving–and giving China a huge leg up over other Asian consumers like Japan and Korea when it comes to securing supply. Related: How The Economy Is Tied To Energy
The capacity on the new line is significant–able to move 160 million barrels yearly, or about 440,000 barrels per day. Equivalent to just under 0.5% of total global oil demand.
That might just be enough to change prices for some crude blends. Watch for increasing competition amongst other Asian oil buyers, and increased shipments coming into this region from suppliers outside the Middle East.
Here’s to strategic assets,
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