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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Myanmar Oil Pipeline Could Bring Cheaper Crude To China

It’s been an on-again, off-again battle — but one of the world’s largest and most critical new energy infrastructure projects got off the ground this week.

That’s a 770-kilometer crude oil pipeline in the Southeast Asian nation of Myanmar. Owned and built by China — and giving that country unprecedented access to crude flows in the Indian Ocean.

The first-ever tanker of oil began loading to the new pipeline on Monday, according to reports from Chinese media. With this initial slug of 1 million barrels to begin transiting across Myanmar, bound for refineries in Kunming, southern China. You can see the route in the chart below.

(Click to enlarge)

China’s new crude pipeline (green line) runs 770 kilometers from the Myanmar port of Kyaukphyu all the way to Kunming

The inaugural oil shipment here comes after years of delays for this mega-project. With China having previously announced commissioning of the oil pipeline in early 2015 — a year after a twin natural gas pipeline (red line in the map above) began operating.

But oil shipments failed to launch at that time. Due to political wrangling between Myanmar and China over commercial terms for oil exports (all of the pipeline’s crude goes to China, with Myanmar simply acting as a transit route).

That caused the pipe to sit empty for two years. Until an agreement was finally hammered out this past Monday between the Chinese and Myanmar governments — opening the door for crude shipments to finally begin.

If the pipeline indeed ramps up to full capacity, this will be one of the biggest developments of the decade for global crude flows. With China now able to receive oil from key producing centers like the Middle East and Africa directly off the Indian Ocean — eliminating days of sailing through the treacherous Strait of Malacca between Indonesia and Malaysia.

That lowers the landed oil price for Chinese buyers. And should incentivize more purchases from Indian Ocean oil nations. It may also lead China’s E&Ps to a greater focus on projects in this region — such as East Africa, Iran and India. Watch for news on the pipeline’s rise to full capacity, and for knock-on shifts in Chinese energy investment.

Here’s to opening the back door.

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By Dave Forest

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