Liquefied natural gas supports security and diversity of Myanmar energy sources

In January 2018 the Ministry of Electricity and Energy (MoEE) authorised four major power projects using its new “notice to proceed” approval process. If brought to fruition, these projects will collectively add more than 3000 MW of generation capacity to the national grid. Three projects will make use of imported LNG and are located at Ahlone in Yangon Region, Kanbauk in Tanintharyi Region, and Mee Laung Gyaing in Ayeyarwady Region. The fourth project, meanwhile, will make use of domestic natural gas in Kyaukphyu, Rakhine State.

If all goes to plan, the government hopes to have at two of the projects operational – Ahlone and Kyaukphyu – ahead of the country’s next general elections in 2020. Thai company Toyo Thai will build the 356-MW LNG plant in Ahlone, while China’s Sinohydro and the local Supreme Group will build the 135-MW combined-cycle gas turbine project in Kyaukphyu. The two larger projects – Kanbauk and Mee Laung Gyaing – are likely to take at least four years to complete.

Mee Laung Gyaing

The 1390-MW Mee Laung Gyaing LNG project is planned on a remote stretch of coast in Pathein Township. This is the largest of the four projects and one of the largest investments ever to be approved in the power sector. The project is spearheaded by China’s Zhefu Holding Group and local conglomerate Supreme Group, at an estimated cost of $2.4bn. Construction is expected to begin in 2019 and the first phase to be completed by mid-2021.

China Energy Engineering Corporation is the main consultant for the feasibility study, while Ramboll Environ from Denmark is earmarked to conduct the environmental and social impact assessment for the project. To proceed, the consortium must negotiate with the MoEE and sign a number of project agreements, including the power purchase agreement, which will be instrumental in determining the financial viability of the project. If the government and investors are able to reach agreement on the power purchase price, the project will also need to complete environmental and social impact assessments. Provided these assessments meet international standards, the construction of the power plant, transmission lines and related facilities will then commence. The project’s success is dependent on the construction of a floating storage regasification unit 1.6km offshore, where 80,000-tonne tankers will be able to dock and offload LNG.

A sovereign guarantee would be beneficial in financing this project. As of late 2018, there was no firm indication that the government was willing to offer such a guarantee, although it had not been publicly ruled out either. In lieu of a sovereign guarantee, syndicated loans from international banks are expected to be underwritten by insurance from international export-import credit corporations and to be guaranteed by the Myanmar government through specific project agreements. Although doubts remain about the feasibility of financing such a vast project, U Htu Htu Aung, executive director of Supreme Group, reassured local media in February 2018 that once the necessary project agreements are signed, financing can be closed within a short time frame.

Kanbauk

The 1230-MW Kanbauk LNG project is targeted for completion in early 2022, led by France’s Total and Germany’s Siemens. The first phase is expected to make 615 MW of generation capacity available within 36 months. Total could potentially redeploy infrastructure from the Yadanar offshore field, whose gas resources are earmarked to decline from 2021. In addition, the Total-Siemens consortium will need to build hundreds of kilometres of high-voltage transmission lines to connect the plant to existing high-voltage lines at Payagyi in Bago Region. As of December 2018, it is unclear how the consortium will divide infrastructure costs.

While the new approval process is a sign of progress, the negotiations around power purchasing agreements – that is, the price at which the government buys power over a fixed period – will ultimately determine whether projects can be successfully financed and implemented.