Oil and gas has become a major destination for foreign investment

Under plans revealed in October 2014, state-owned energy firms in Myanmar will be able to seek foreign partnerships to improve operations and open up downstream energy operations to investment. The energy industry is set to become one of the most attractive prospects for overseas investors following a reduction in the role of the state and the launch of new power projects. As well as privatisation plans, the energy agency also said it would offer nine new offshore blocks for exploration, in a bid to bolster Myanmar’s reserves and meet rising domestic demand in the long term.

Privatisation Beckons

Speaking at a natural resources conference in October, Energy Minister U Zay Yar Aung noted that the fuel distribution and retail arm of Myanma Petroleum Products Enterprise, Myanma Oil and Gas Enterprise (MOGE) and Myanma Petrochemical Enterprise (MPE) were looking to team up with international partners. Such partnerships mark the first step in making the firms publicly owned, a process that could take up to a decade. “It is difficult to change directly from being a state-owned enterprise to being a public company but we are implementing reforms to take this step,” the minister said. Initial moves came in July 2014 when MPE put out a tender for upgrades to its ageing oil refinery at Thanlyin outside Yangon, one of three in the country. Under the terms of the tender, the successful bidder will also be permitted to import, store and distribute petroleum products.

Opening up Myanmar’s refinery operations has been on the agenda for some time: in 2012 MPE and the Ministry of Energy were said to be examining the idea of privatising several energy operations. Foreign firms, which could bring experience, capital and advanced technology to the table, were regarded the preferred option as joint venture partners. “There is immense potential for local companies operating within the oil and gas arena. They are in a position to absorb and learn from new technologies that foreign companies use,” U San Tun Aung, managing director of energy services provider Petroleum Services Consultancy, told OBG.

Driving Growth

The move comes as Myanmar’s economy continues to perform strongly. In early October, the World Bank upgraded its forecast of GDP growth to 8.5% for the fiscal year, up from 7.8% previously. The bank attributed this upward revision to strong growth, rising domestic demand and increased foreign direct investment (FDI). The oil and gas sector is a major destination for FDI, placed second behind transport and communications for capital inflows.

With the removal of international sanctions, the government has also sped up oil and gas exploration. Myanmar has already hit its investment target of $4bn-5bn for the 2014/15 fiscal year six months ahead of schedule, thanks in part to the energy sector, which attracted $800m in the first half of the fiscal year, according to the Myanmar Investment Commission. MOGE announced plans in October 2014 to auction the rights of nine offshore blocks in 2015, on top of the 20 allocated in March – though this could be delayed. Five deep-water and four shallow blocks are to be auctioned, with 65% of the latter holding proven hydrocarbons, according to U Than Tun, offshore director of MOGE. More licensing activity is expected to boost exploration, particularly in the deepwater shelf, which remains largely unexplored. According to Tun, contracts are being finalised and exploration could begin early next year.

Home & Abroad

Opening up Myanmar’s downstream energy sector to foreign investors is expected to yield significant rewards for industry players. Aside from opportunities in exports, domestic demand for energy – particularly gas – looks set to rise sharply in the coming years. The country has struggled to meet the needs of local industry for electricity generation.

Indeed, estimates from the Ministry of Electric Power put the requirements for extra capacity in 2015 at 2500 MW, with forecasts suggesting the total could rise to 14,000 MW by 2030. While proposals have been made to harness hydroelectricity or develop coal-fired power stations, offshore gas exploration is already set to bear substantial fruit in boosting power supply.