China’s Game Plan for Burma

China’s ability to elbow out other contenders for the Shwe gas—from Thailand, Japan and South Korea, as well as India—underlines Beijing’s rising influence within the Burmese regime

There was always going to be a buyer for the huge stock of gas in the Shwe field off Burma’s west coast, but the fact that China won out against higher and earlier bidders has sent a shiver down the international natural gas industry’s spine.

A section of the Yadana gas pipline from Burma to Thailand [Photo: The Irrawaddy]

South Korea’s Daewoo International and India’s two state energy companies, who are developing the field, are clearly rattled that the Burmese regime rode roughshod over them to award the gas to the Chinese.

The question now is: Will Beijing stalk Thailand’s development of another large gas discovery off the east coast and eventually use its influence to grab that too?

The M-9 field in the Gulf of Martaban, being developed by Bangkok’s state-controlled oil and gas explorer PTTEP, is intended to have a significant role in stoking Thailand’s power plants after 2011—if the gas doesn’t get diverted to China’s Yunnan Province, like the Shwe reserve.

Latest estimates on exploratory drillings in M-9 put the minimum quantity of gas there at 1.8 trillion cubic feet (50 billion cubic meters), and PTTEP said in November it had so far probed only one-third of the site.

However, just two blocks of the Shwe field contain about 6 trillion cubic feet (200 billion cubic meters) of recoverable gas.

There have already been reports in Bangkok that China’s state energy conglomerate PetroChina—the beneficiary of the Shwe gas—is seeking talks with PTTEP’s parent company PTT.

At the end of the day—whoever secures the gas deal—the Burmese military regime is the winner.

Two independent reports on Burma’s economy underline the fact that gas is propping up the regime financially. The International Monetary Fund says gas sales abroad have allowed the regime to build up its foreign exchange reserves to US $2 billion at a time when inward investment is generally dropping.

Foreign investment in Burma is being hit by Western sanctions and a lack of confidence due to political instability, except where energy is concerned.

“Even if every Western company pulled out there would be other takers. Asia is hungry for energy, and it will get hungrier,” said energy commodities consultant Jeff Mead in Hong Kong.

The IMF’s December report said that apart from gas sales the Burmese junta had pursued disastrously inept economic policies with inflation now running at 35 percent a year.

This is a view shared by a new report on Burma by the British Economist Intelligence Unit, part of The Economist business news magazine.

“The junta’s management of the economy remains poor, and major changes in policy continue to contribute to economic instability,” says the EIU report for 2008. “Gas exports will keep the current account in surplus in 2008-09, but the import bill will rise, partly driven by the rising cost of imports of petroleum products.”

China’s ability to elbow out other contenders for the Shwe gas—from Thailand, Japan and South Korea, as well as India—underlines Beijing’s rising influence within the Burmese regime, say analysts.

“The Chinese government doesn’t just want some stability on its southwest border and a bonus gas source; it needs to use Burma as a conduit, as part of its wider global strategy for energy security,” said an economic analyst with a Western embassy in Bangkok, who spoke to The Irrawaddy on condition of anonymity. “Much of China’s foreign policy now is geared to energy security. The country’s growth requires more and more oil and, increasingly, gas.”

China will build a gas pipeline through Burma and into bordering Yunnan Province, which is desperate for energy, especially after the central government ordered a cutback in the number of hydro dam developments on some of the region’s most sensitive rivers.

The Chinese will also use Burma as a conduit to transfer Middle Eastern and North African crude oil via another pipeline into Yunnan, where some of it will be processed at a new refinery and the rest piped on farther north as far as the large industrial center of Chongqing in Sichuan Province, according to the official Chinese news agency Xinhua.

These gas and oil pipelines will cost China several billion dollars, but these days that’s cheap for Beijing.