Ditching Clunkers, Car Imports Drive Burmese Demand for Oil
BURMA

Ditching Clunkers, Car Imports Drive Burmese Demand for Oil

oil, imports, cars, economy, reform

A worker operates an engine to lower a drill into an oil well at Bandau Pen village in Thayet Township, Magway Division. Burma produces some oil of its own, but most is imported. (Photo: Vincenzo Floramo / The Irrawaddy)

SINGAPORE / RANGOON — Burmese businessman Lay has doubled the number of cars he owns to six in just three years, as reforms in Southeast Asia’s poorest country unleash a wave of consumer spending.

The opening up of the economy, with a loosening of military rule ending decades of isolation, has meant a surge in ownership of second-hand Japanese cars that are replacing rusting, reconditioned British-era vehicles and boosting demand and imports of fuel.

Oil demand may have soared by as much as a quarter in the last financial year to March, giving oil traders a new market at a time when Asia is awash with fuel supplies due to a jump in refining capacity and cooling demand in top buyers China and India.

Two of Burma’s three small refineries barely function, meaning the country relies on imports.

Burma has attracted a host of new suppliers from small, obscure oil traders to global trading giants such as Trafigura and Vitol, which are nipping at the heels of leading suppliers Chinaoil, PetroChina’s trading arm, and Singapore’s Hin Leong.

Fuel demand is also being boosted by more factories and as a mining boom lifts demand for diesel for machines and trucks.

The Southeast Asian nation remains, however, a tough market to crack given obstacles ranging from poor infrastructure to buyers being particular about the color of fuel they receive, traders say. Fuel is often sold in glass bottles next to the road and may be rejected by drivers unless it is clear, irrespective of performance.

To cater for higher demand, companies are planning to build new oil storage facilities and invest in petrol stations.

Under military rule, businessman Lay had to wait for hours at government-owned fuel stations to fill up, but now the queues are in the choking traffic snarling Rangoon’s pot-holed streets.

“Oil used to be rationed so we only have a limited amount allocated to us, but now it is easily available,” said Lay, who did not want to use his full name.

Fuel demand rose more than 5 percent to about 40,700 barrels per day in the fiscal year to March, data from Burma’s Energy Ministry showed. But traders say undocumented fuel flows, particularly oil smuggled from nearby Thailand, may have made the rise more like 20-25 percent.

Between 10 and 15 trucks, or about 6,000 tonnes (44,700 barrels), of diesel come from Thailand each month, a trader said. The energy ministry declined to comment on smuggled oil.

Reconditioned Cars

Like businessman Lay, many of his compatriots are also replacing decades-old cars that have limped along after being reconditioned numerous times with imported cars and jeeps, mostly from Japan under a trade deal between the two countries.

Passenger car imports jumped by a quarter to 331,468 in fiscal 2012/2013 (April-March), while the number of imported trucks rose 10 percent to 74,546, government data shows.

Oil imports into Burma jumped after local private firms were allowed in after Cyclone Nargis disrupted supplies in 2008, but tough requirements from importers and bad infrastructure have helped Chinaoil and Hin Leong, which have more than half the market between them, entrench their leading position.

Other sellers include PTT, Thai Oil and Malaysia’s Petronas, as well as Korea’s Daewoo International, Swiss Singapore, Trafigura and Vitol .

Caution Against Rushing In

Yet, despite the recent surge in oil imports, some caution against rushing into a market which remains small.

“Even by 2020-2030, it’s still going to be a very small market in the big scheme of things,” said Alex Yap, analyst at consultancy FGE, contrasting it with Southeast Asia’s top fuel consumer Indonesia, which imported 325,000 bpd of gasoline and 115,000 bpd of diesel last year.

Hin Leong is the largest supplier to private local importers as it can deploy its own tankers operated by shipping arm Ocean Tankers, traders said.

Only smaller tankers, carrying about 6,000-10,000 tonnes of oil, can enter the shallow Rangoon River estuary to reach Rangoon and Thilawa ports designated to receive oil.

There are currently no oil pipelines in Burma.

Beyond infrastructure headaches, suppliers can also be penalized with a 5 percent price cut from buyers if they deliver a day late, traders say. That’s enough to wipe out a margin of 1-2 percent they might hope to make from a sale.

“Not every company can deal with Myanmar [Burma],” a Singapore-based trader said. “They can go into Myanmar feeling very gung ho, but when they get there it’s a logistical nightmare.”


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