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Assisting Myanmar wean away from its dependency on revenues from the energy sector amidst a volatile oil market has the potential to support economic stability and would fit well into India's economic capacity building through its Act East Policy.
With national security and geopolitical considerations overlaying the core plan for ensuring energy security, India's relationship with Myanmar will play a pivotal role in the years ahead.
Within the broader context of China's debt-trap “diplomacy” underpinned by infrastructure investments in developing countries in South East Asia, India has the scope to deepen ties with Myanmar in the energy space.
While the world ponders over the future of fossil fuels in the energy mix, India's structural uptrend in demand for oil and gas remains firmly in place with the share of natural gas targeted to reach 15% of total energy usage by 2030.
Within the broader context of China's debt-trap “diplomacy” underpinned by infrastructure investments in developing countries in South East Asia, India has the scope to deepen ties with Myanmar in the energy space. Considering, depending on the year, anywhere between 30-50 per cent of Myanmar's export revenues are derived from gas and is largely offset by the value of imported fuel, the decision to place 33 blocks for international bidding this year comes as a welcome step in the effort to boost gas exploration.
Assisting Myanmar wean away from its dependency on revenues from the energy sector amidst a volatile oil market (off which a majority of their gas contracts are linked), has the potential to support economic stability and would fit well into India's economic capacity building through its Act East Policy. Importantly, this runs counter to the enforced dependency on natural resources that comes with riders in Beijing's favour, in the model adopted by the Belt and Road Initiative.
As declining domestic production mounts pressure on Indian Public Sector Units (PSUs) to secure revenue from captive projects, the cabinet approved an investment of $121 million by Oil and Natural Gas Corporation of India's overseas arm, ONGC Videsh (OVL), in two blocks of the Shwe oil and gas project.
After having invested $722 million investment since 2002, when access to three fields of acreage was secured, this is an effort to maintain and grow production over the next 29 years. Other participants in the Shwe project include majority stakeholder POSCO Daewoo, Gas Authority of India Limited (GAIL), Korea Gas Corporation and Mynama Oil and Gas Enterprise, and produces approximately 630 million cubic feet (mcm) per day. The project began production in 2013 and reached a plateau in 2014.
China purchases around 80% of the volume through a pipeline project that runs through the restive Rakhine state, with the balance being consumed domestically. While GAIL and Indian Oil have minority stakes in the pipeline, control largely rests with Chinese state-owned firms. The recent investment raises India's stake in the Shwe field, deepening its foothold and embedding Indian interests in the supply chain such that, geopolitically, stakeholder interests across the board are better aligned. However, it is a consolation and remains a game of catchup after the failure of the Indian government in 2006 to secure either a bilateral or trilateral (India-Bangladesh-Myanmar) gas pipeline deal which eventually went China's way.
For India, the new blocks are coming up for bidding at a crucial time. While a drastic decline in global gas prices this year are not just a result of Covid-19 but also a function of oversupply, it would be prudent to play the long-game, much like China does.
While Myanmar, with an acute awareness of the problems posed by handing over end-to-end supply chains to authoritarian regimes, has deftly managed its upstream investments by encouraging a range of international players to participate. However, issues around transparency have been a hindrance and there is hope that the new petroleum laws around production sharing agreements (PSA) would assuage investor concerns. The PSA signed with Total at the start of the year has meant that Myanmar would host Southeast Asia's first ultra-deepwater project, pointing to new opportunities in the Bay of Bengal. India's expertise in deepwater projects could be reflected in their participation in similar projects, should they arise.
For India, the new blocks are coming up for bidding at a crucial time. While a drastic decline in global gas prices this year are not just a result of Covid-19 but also a function of oversupply, it would be prudent to play the long-game, much like China does.
Despite marginal costs sitting in the high $7s per mmbtu, the Indian involvement could be to supply energy hungry Myanmar with gas from their own fields, while also looking to build a new pipeline that connects with India's $900 million Northeast Gas Pipeline Grid, which is under construction. By 2030, it is expected that the Northeast would be running a deficit of 30% of its total gas demand and accessing gas from captive fields in the neighbourhood enhances the country's energy security matrix.
It would come as a surprise that despite being rich in fossil fuels, a new LNG and power facility in Yangon is being constructed by the Chinese, giving flexibility to import gas from third parties. Spreading the geopolitical risk has meant that a larger LNG terminal expected to cost $1.5-2 billion, this time by a Japanese consortium with a local partner, has been greenlighted. While this would make economic sense under a low gas price scenario, certain projects lend the country's finances to be increasingly controlled by foreign powers.
Under the Strategic Partnership with Japan, India can bring its low-cost engineering expertise to the table along with Japan's low-interest yen-denominated loans to assist Myanmar's economic stability and secure India's energy supplies.
India's Act East Policy would be well directed if it increasingly engages in domestic gas and power capacity building in Myanmar, leveraging the blocks that are successful in the exploration stage, to satisfy both local power needs as well the gas grid in India's Northeast. Furthermore, under the Strategic Partnership with Japan, India can bring its low-cost engineering expertise to the table along with Japan's low-interest yen-denominated loans to assist Myanmar's economic stability and secure India's energy supplies.
Surya Kanegaonkar is a commodities professional with ten years of experience in research and trading for a hedge fund, utility and miner.