China to Begin Construction of Sino-Burmese Oil and Gas Pipelines

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Researched by Industrial Info Resources (Sugar Land, Texas)--China National Petroleum Corporation (CNPC) (Beijing) is set to start work on oil and gas pipelines between China and Myanmar in September of this year. The new pipeline venture will provide an additional channel for oil and gas imports into China and will also reduce transportation cost and time. The pipeline system will form a part of China's terrestrial energy transport network, which at present comprises a Sino-Kazakh oil pipeline built in 2006 and another proposed pipeline to Russia, which is expected to be put into operation by the end of 2010.

The 1,100-kilometer oil and gas pipelines, which will be built alongside each other, will run from the port of Kyaukpyu located on the west coast of Myanmar, through the Chinese border city of Ruili in Yunnan, up to the provincial capital of Kunming. The natural gas pipeline, however, will traverse another 1,700 kilometers from Yunnan to reach its final destination at the Guangxi Zhuang and Guizhou provinces. The pipelines are expected to carry an estimated 20 million tons of crude and 1.2 billion cubic meters of natural gas that will be shipped from the African and Middle East regions into Myanmar, where a 600,000-cubic-meter oil-storage facility and a crude port with a capacity 300,000 dead weight tons are expected to be constructed by 2010.

CNPC will design, construct and manage the operations of the $2.5 billion venture in which the company has a 50.9% stake, with the remaining 49.1% held by Myanma Oil & Gas Enterprise. It is reported that PetroChina Company Limited (NYSE:PTR) (Beijing), a CNPC subsidiary, may be involved in the construction of the pipelines across Chinese territory. The $1.5 billion oil line and the $1 billion gas line, expected to be fully operational by 2013, will cater to about 85% of China's required energy imports.

This venture, apart from reducing the distance by 1,200 kilometers, also eliminates China's dependency on the shipping route through the straits of Malacca that are prone to pirate attacks. Though work on the pipeline had been delayed, the line is expected to be complete well ahead of the 2013 deadline. China had earlier offered to complete work on the project in 20 months, in addition to paying Myanmar a $150 million transit fee spanning a 30-year period.

Chinese gas imports are predicted to exceed 100 billion cubic meters in a few years' time. With the Sino-Kazakh oil pipeline already bringing about 10 million ton of crude into China since its inception in 2006, and Turkmen gas expected sometime in 2010, the Sino-Myanmar line further strengthens the energy security of the country. In addition to the above energy sources, the CNPC also has a 30-year gas supply commitment from a consortium led by Daewoo International Corporation (SEO:047050) (Seoul, South Korea), which is currently developing the A-1 and A-3 gas fields off the coast of Myanmar. The country is estimated to hold total reserves worth 2.54 trillion cubic meters, while the fields under exploration have combined reserves amounting to 311 billion-368 billion cubic meters.

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