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The Niger Delta Oil Wars Are Unlikely To End Soon

The Niger Delta Oil Wars Are Unlikely To End Soon

While the Nigerian government announced…

Can This Frontier Venue For NatGas Reel In Serious Investment?

After five decades of oil and gas exploration stagnation and mismanagement of natural resources under military rule, Myanmar (formerly Burma) in March elected its first non-military president since the 1962 coup, and if it all plays out right, it could open the floodgates for investment in this strategically vital oil and gas venue.

On 15 March, Htin Kyaw—a close advisor and friend to long-time opposition National League for Democracy leader Aung San Suu Kyi—was elected Myanmar’s president in a historic parliamentary vote. But at the end of the day, even though a military constitution has banned her from running for president, Aung San Suu Kyi will effectively lead the country, using Kyaw as her presidential proxy.

Will this new political setup actually be able to reverse what has been a long-running problem of technological incapacity, limited investment, government apathy, miles of red tape and almost complete international isolation?

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Many believe so. And at stake are very rich hydrocarbon reserves that remain relatively unexplored—but it’s more complicated that “reform”.

The window of opportunity inched open in 2012, when both the European Union and the U.S. lifted sanctions on Myanmar’s military junta. This led to a fair increase in interest in oil and gas exploration both by domestic and international companies, which were then granted licenses for onshore and offshore activities. But removing the sanctions did nothing to overcome the myriad of other problems of diving into Myanmar’s oil and gas sector.

At stake is what the U.S. Energy Information Administration (EIA) says are 10 trillion cubic feet of proven gas reserves and 50 million barrels of proven oil reserves—all of which is now being targeted by an array of international oil companies, including Malaysia’s state-run Petronas, Chevron, French Total S.A. and China’s Sinopec, among others, are now exploring offshore Myanmar.

And these proven reserves are likely just the tip of the country’s oil and gas iceberg.

Recent gas discoveries by South Korean Daewoo and Australia’s Woodside are encouraging, indeed, for future exploration and point to some potentially promising days for commercial gas production.

Nevertheless, the newly discovered gas reserves will take at least a decade to reach commercial production.

Myanmar’s new leadership believes that new stability will bring new investment, and that things are about to change.

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Myanmar Investment Commission (MIC) secretary Aung Naing Oo expects more foreign investment to flow into the country. “The present government is politically strong as it is elected by the people in accordance with their desires,” he noted, expressing his optimism for a rebirth of the oil and gas sector.

The oil and natural gas sector received $5.8 billion and the industrial sector $4.7 billion during the government of outgoing President Thein Sein. Between October 2013 and March 2014, Myanmar awarded 36 block licenses to oil companies, most of them working with local partners.

During the 2014-2015 financial year, international investors injected over $8 billion into the country. Out of that, 35 percent went into Myanmar’s rapidly expanding energy sector.

But with investors starting to finally queue up, the country will have to make haste with the introduction of regulatory and administrative reforms, or it will all fall flat.

Oil deposits are found mainly in the middle and upper regions of Myanmar, like in Sagaing, Magwe and Irrawaddy. Several oil projects have started in these regions in recent years, but most are at the stage of environmental and sustainability impact assessment.

Out of the total 51 offshore blocks, exploration is being carried out in 18 blocks right now. An additional 20 blocks have been auctioned off and pre-exploration activities are underway. The newly discovered Shwe Yee Tun block—for one—seems to be a favorite in terms of prospective promise.

Winners of exploration rights must start drilling in shallow-water blocks by next year and in deep-water blocks by 2018.

A number of important pipeline projects have been commissioned over the past 12 months. During the first quarter of 2015, the Sino-Myanmar pipeline was officially commissioned--both for natural gas and oil. The construction of the 771-kilometer pipeline stretches from the offshore oilfields off the west coast of Myanmar to the southern Chinese city of Kunming.

Related: Shocking IEA Data Points to Flat CO2 Emissions in 2015

Politics or no, low oil prices necessarily dampen the excitement here, and even with a new leadership in town, we can’t expect a run on Myanmar right now.

According to Than Tun, an adviser to Myanmar Oil and Gas Enterprises under the Ministry of Energy, Myanmar may face an energy crisis after 2020 as oil and gas production has declined and the newly discovered sites are not ready to fill the gap.

But Myanmar has even more to worry about. Security issues crowd the horizon, as they have for decades, regardless of any changes in power. Some 15 ethnic militia groups continually threaten the country’s stability and they have no qualms about taking on the central government. There are too many ceasefire agreements to try to negotiate. Some of them work for a time, but most collapse. It’s chaos once you step outside of the capital in most cases. It’s hard to get too far in places where oil and gas are in territories controlled by ethnic militias.

And there is also a broader geopolitical battle going on here that will dictate the future of investment in Myanmar’s oil and gas. The U.S. and China are in the middle of a quiet proxy war over this place (it’s not quite in Myanmar, but no one else pays much attention). Myanmar is a highly strategic venue in that China needs it for oil and pipeline links, which would lessen its dependence on U.S.-controlled shipping routes through Southeast Asia—routes that bring it oil and gas from the Middle East and Africa. As such, Myanmar is a key piece of the “Asia Pivot” puzzle and the tug of war between China and the U.S. over this gemstone gets messy when we start involving the myriad ethnic militias that can be used to meet various ends.

By Charles Kennedy of Oilprice.com

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