China and Myanmar: The Great Game of the Gas Pipeline
30 Aug, 2013 · 4102
Teshu Singh explores the potential benefits for both China and Myanmar
Teshu SinghSenior Research Officer
The first phase of a China-Myanmar-South Korea-India gas pipeline venture was started in July 2013. Together, they will explore the resources of ‘Shwe Fields’. The pipeline will start from Kyaukryu port in Rakhine State on the west coast of Myanmar and enter China at Yunnan’s border city of Ruili. In addition to the gas pipeline, for almost the entire distance across Myanmar, a crude oil pipeline will run parallel to the gas pipeline. This pipeline is designed to transport the 22 million tons of oil per year (440,000 barrels per day) that China imports from the Middle East and Africa to Southwest China. The commencement of the pipeline raises some questions; what is the significance of the pipeline for China? What are the larger interests of China in the region vis-à-vis the pipeline? How will Maynmar benefit?
The pipeline is of immense importance to China as it caters to its domestic energy needs, ensures a smooth supply of gas and oil, and also a viable alternative to the Strait of Malacca. China is expecting 12 bcm of natural gas from this pipeline every year. Once fully operational, the crude oil will be shipped from the Middle East via the Indian Ocean through this route. The consortium expects to extract 500 million cubic feet of natural gas per day.
Related to the pipeline’s construction are other infrastructure developments by China in Myanmar. It is constructing river, road and rail transport infrastructure across Myanmar to connect the landlocked Yunnan province as a bridge with the Andaman Sea, Bangladesh and the Bay of Bengal. Two routes have been envisaged in this regard; one route will be created by constructing road/railways to connect Ruili (Yunnan), Kyaukphyu (Rakhine State) and a deep sea port near Kyauphyu. The second route will be created by constructing a river port on Bhamo in Kachin State, from which the Irrawady River will lead to Yangon and Thilawa Port.
These infrastructure projects will add to the economic restructuring of the south western region of China. The pipeline is a key element in governmental plans to transform Kunming into a petro-chemical refining and production base as stated in the 12th five year plan. The project will be a major part of China’s plans to promote inland economic development in the south western provinces of Yunnan, Tibet, Guizhou, and Guangxi as well as Chongqing Municipality. These are the areas in China which have had difficulties receiving stable fuel supplies from the refining centres at Lanzhou and Guangzhou.
Today, almost eighty per cent of China’s oil tankers pass through the Strait of Malacca. The pipeline will help in significantly reducing the distance from Middle East and Africa through the Strait; thus changing the energy map of the region. Thus this route is the first alternative route to the Strait of Malacca for China. This is a major breakthrough in China's strategy for energy diversification and in further reducing the cost of transportation of oil and gas. In fact this will be the fourth corridor to supply oil and gas.
Strategically, Myanmar is important for China’s two-ocean strategy to gain access to both the Pacific and Indian Oceans. With its naval ambition of transforming into a ‘Blue Water Navy’ by 2030, the Indian Ocean Region remains its primary focus of interest. In the long-term, the region is important as a ‘land bridge’ for the People’s Liberation Army Navy (PLAN) to reach the Indian Ocean via the Myanmar-controlled Coco Islands. The PLAN would be able to shorten the distance by 3000 km, reducing the voyage by five to six days by not passing through the Strait of Malacca to reach the Bay of Bengal. It has now emerged as a potential target of China’s long-term strategic ambition, which involves transforming the whole region as part of a golden ‘quadrangle’ regional trade zone with Yunnan, Myanmar, Thailand and Laos.
Myanmar will get twenty per cent of the gas from the pipeline. In addition, CNPC may pay an annual transit fee of USD 150 million to Myanmar per year for the use of the pipeline in Myanmar. The pipelines contract is expected to run over 20-30 years, with CNPC paying as much as USD 4.5 billion in transit fees to the Myanmarese government. It will benefit Myanmar with other foreign investments and shares. The pipeline will benefit the local communities as well.
This development has come at a very critical time, with Myanmar set to chair the ASEAN Summit in 2014. It will help act as a bridge between China and ASEAN. It can be gleaned that the project is linked to the logistical arrangement between China and Myanmar which will eventually give a boost to their economic ties. The project serves as a logistical supply station for the IOR shipping grounds. Once fully operational, it will become a prosperous economic corridor. Forging of stated bilateral ties will therefore have implications for India, which demand closer inspection.