Neighborhood Rivalry ‘Puts Myanmar’s Oil and Gas Sector at Risk’

Myanmar will struggle to attract new investment in oil and gas development because of a global industry slump and new competition from neighboring countries, a report said.

Naypyidaw’s problem is compounded by the fact that Myanmar is increasingly being seen as an investment risk, Asia Oil & Gas Monitor said last week.

With Myanmar still negotiating the terms of 20 offshore exploration blocks awarded last March and planning to offer another 15 during 2015, neighbors Thailand and Cambodia are between them now trying to attract investment in more than 50 development block licenses, the Monitor reported.

“While [Myanmar], Thailand and Cambodia are talking about offering more than 70 blocks between them, the slump in global oil prices and a slowing of new capital expenditure by many exploration companies suggest that the various offers could have been better timed,” it said. “Compounding these issues is the fact that all three are seen as something of an investment risk, either because of political or legal uncertainties.”

Thailand, after a protracted period of social and political unrest which led to a military coup in May, announced in October it is offering 29 blocks. Soon after Bangkok’s energy ministry announcement, the government of Cambodia said it intended to open up the country for oil and gas exploration with an initial 24 blocks.

Myanmar’s neighbors have entered the competition for petro dollars while various Naypyidaw ministries and state agencies continue to parley with major potential investors who were nominally awarded offshore blocks in March.

“More than seven months have passed since the 10 shallow-water and 10 deep-water blocks were awarded and there is still no sign of final contract agreements,” Asia Oil & Gas Monitor noted.

“As it stands, license winners must negotiate terms and conditions on a case-by-case basis with numerous state agencies, all while many of Myanmar’s laws are being revised and modernized.

“Moreover, signs have begun to appear that Myanmar’s political reforms have stalled, with the military using its guaranteed parliamentary position to block constitutional reforms. Doubts have been raised over whether elections due in 2015 will now take place.”

There have been several warnings by international business risk assessors that a stagnation of Myanmar’s political reforms could undermine confidence in foreign investment.

US business analysts IHS said in its latest Global Insight Country Risk report that there is an “increased risk” of an election delay in Myanmar.

“The 2015 election is widely perceived as the leading barometer of stability, and failure to hold elections would also compromise investor confidence and increase the risk premium of doing business in Myanmar,” IHS said.

But Myanmar is not alone in making international markets nervous.

“While Thailand has certainly settled down in the wake of the bloodless coup in May following months of civic unrest, the economy has not recovered,” the Monitor said. “The country is reportedly heading for its second straight year of slumping exports.

“Foreign investors are understandably cautious over investing in the country’s upstream, given public opposition to exploration bid rounds in the past as well as the prospect of a civilian government returning to power, currently scheduled for before the end of 2015.”

Meanwhile, Cambodia is an “unknown prospect” in oil and gas, according to Business Monitor International (BMI).

“Not only is there a lack of understanding of Cambodia’s geology and hydrocarbons potential, it needs a hydrocarbons law to provide investor certainty and to increase its appeal vis-a-vis bigger, more established neighbors such as Vietnam, Thailand and Myanmar.”

Such is the uncertainty there that major international oil company Chevron has just given up its stake in Cambodia’s only site known to have oil, an offshore block in the Gulf of Thailand.

One of the biggest investors in Myanmar’s oil and gas sector remains the Thai government-controlled PTT Exploration and Production (PTTEP), which said in September it intended to spend US$3.3 billion in Myanmar in the five years up to the end of 2018.That represents 20 percent of company’s overall international capital spending for the period.

Pailin Chuchottaworn, the chief executive of PTTEP’s parent company PTT, said in a recent interview with the Oxford Business Group that “expansion abroad, particularly in the Asean region, will be a vital component of Thailand’s national energy strategy to meet both short-term and long-term objectives for the country.”

“Given the current political climate and the global oil industry’s risk aversion, PTT could well find itself one of the main drivers of investment in the three countries,” Asia Oil & Gas Monitor concluded.

Source: The Irrawaddy

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