Focus on exploration segment in Myanmar-

The global oil and gas industry is going through tough times. One reason for this is low global crude oil prices, which has resulted in oil and gas explorers holding back their investments. The low price regime has also changed the market dynamics, which has undergone significant alteration after a surge in supplies from the US (a net importer earlier). Besides, the visible impact of climate change in many parts of the world as well as growing preference for non-fossil fuels has paved the way for even tougher times ahead for the petroleum industry. However, until renewables take centre stage, natural gas, for instance, is expected to play the role of a transitory fuel. Oil too is a better option than coal, which is the backbone of energy production in many countries, especially in Asia.

Hence, the search for new oil and gas finds will continue until renewables become the new normal. Myanmar is one of the countries that are pursuing their plans to revive the hydrocarbon sector. Being one of the oldest oil and gas exporting countries (Myanmar exported its first barrel of crude in 1853), its upstream sector is still in its infancy. Factors such as sanctions (imposed by the US and European Union until 2012), and an opaque regulatory and policy framework have led to poor investment flows that have hindered efforts to realise its oil and gas potential.

Current scenario

The country has a total of 20 sizable sedimentary basins. Onshore, the proven tertiary hydrocarbon basins include the Central Zone, Chindwin, Pyay Embayment, Ayeyarwady, Bago Yoma and Rakhine Coastal. Offshore areas include Rakhine, Moattama and Tanintharyi. Thus far, 36 tertiary hydrocarbon discoveries (25 for oil and 11 for gas) have been made. Of these, 10 were discovered by foreign oil companies and the rest were discovered by the country’s geoscientists.

There are currently four offshore areas in operation. The oldest is Yadana, run by a consortium led by Total from France. Yetagun is operated by Malaysia’s Petronas, Shwe by Daewoo International from South Korea, and Zawtika by Thai firm PTTEP. Of these four, Yadana, Yetagun and Zawtika export large amounts of gas to Thailand.

Myanmar has held bidding rounds in the past three-four years to have some international players on board for oil and gas exploration. The bidding rounds (during 2013-14)  brought some of the world’s biggest oil and gas companies. A number of companies, including Shell, the BG Group and Ophir Energy, secured onshore and offshore exploration licences in the 2013 offshore round.

Plummeting prices of the crude in the last two to three years failed to affect exploration activity in the country. According to officials, petroleum production remained steady at Myanmar’s existing offshore gas fields – Yadana, Yetagun, Shwe and Zawtika. International players continued their drilling and surveying activities in the offshore waters during the period marked by falling crude prices.

The potential

While there are four hydrocarbon areas operating in Myanmar’s offshore areas, there remains huge untapped potential under the country’s coastal waters. A number of upstream companies are conducting their initial assessments and beginning survey work. Thus, significant investment is likely to flow into Myanmar in the coming years.

Besides, a number of foreign firms have partnered with some of their local counterparts to carry out operations particularly in shallow water blocks. Such collaborations are expected to benefit Myanmar’s domestic companies through the exchange of skills and expertise.

In keeping with the rapid growth of the oil and gas industry, the government is also planning to expand support services for the offshore industry. Initially, the offshore gas industry was developed with an export focus. However, domestic electricity consumption is growing rapidly, and in the future, gas-fired generation is likely to be an important part of the country’s energy generation mix. Progress is being made in the offshore industry, but there is still much to be done.

Challenges

While reserves are in place, there are challenges that stand in the way of converting these reserves into production. The problems include the lack of a framework for financing from the domestic and foreign private sectors, non-existent/inefficient corporate structure in the energy industry, the insufficient fiscal management capacity of the government, budget constraints, shortage of systematic technical training (of personnel), a weak indigenous energy industry, and poor statistical information for investment planning. Besides, outdated laws and regulations also continue to be an area of concern.

Outlook – Lucrative investment opportunities

According to the Directorate of Investment and Company Administration, foreign direct investment (FDI) in Myanmar’s oil and gas sector peaked at $22.41 billion as of end-April 2017 (highest since 1988), accounting for over 31 per cent of the total FDI received by the country during the year 2016-17, which clearly reflects the attractiveness of the sector to international investors.

It is anticipated that the coming years will be the busiest period yet for Myanmar’s offshore petroleum industry, as companies in existing projects and awarded blocks carry out exploration activities, and are slated to commence production.

However, much needs to be done to overcome present challenges. The time is opportune to shape the energy policy (including oil and gas) to suit both the domestic and potential export markets. If the issues are addressed, the country can regain its status of a major oil exporter.