India's ONGC Videsh and GAIL Part of Myanmar Consortium to Supply Gas to China

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian public sector undertakings ONGC Videsh Limited (New Delhi), a wholly owned subsidiary of Oil & Natural Gas Corporation Limited (ONGC) (BSE:500312) (Dehradun, Uttarakhand), and GAIL India Limited (BSE:532155) (New Delhi), are part of a Myanmar government-led consortium that will export compressed natural gas from the government's offshore fields to state-owned China National Petroleum Corporation (CNPC) (Beijing) for a period of 30 years starting in 2012. In addition to ONGC and GAIL, the consortium comprises Daewoo International Corporation (SEO:047050) (Seoul, South Korea), Myanma Oil & Gas Enterprise (MOGE) (Yangon, Myanmar) and Korea Gas Corporation (SEO:036460) (KGC) (Gyeonggi-Do, South Korea).

In December 2008, CNPC made an announcement pertaining to its plans of laying oil and gas pipelines connecting Myanmar to Yunnan province in southwestern China. The project is one among five oil pipeline projects to be taken up by CNPC between 2009 and 2020. Construction of the Yunnan-Myanmar gas pipeline is scheduled to commence in the first half of this year. The cost of the project is estimated to be $1.5 billion for the oil pipeline and $1.04 billion for the gas pipeline.

According to the deal, the price of gas supplied would come under negotiation on a quarterly basis and would be revised to reflect global market conditions. Myanmar will supply gas to China from the Shwe fields located in the offshore A-1 block in the coastal region of Rakhine with reserves of 4 trillion cubic feet (tcf) to 6 tcf. The supply of gas to China is expected to commence in 2013. Daewoo holds a controlling share of 51% in the Shwe field, MOGE holds a 15% stake and ONGC holds a 17% stake while GAIL and KGC hold an 8.5% stake each in the gas field.

The consortium also owns gas reserves estimated at 5 tcf in the Shwe-Phyu field located in the offshore A-1 block and additional reserves of 2 tcf in the Mya field located in the offshore A-3 block. Daewoo owns a 60% stake in these fields, ONGC Videsh owns a 20% stake, while GAIL and KGC own a 10% stake each in these fields.

Two groups have been shortlisted for front-end engineering and design (FEED) contracts for the gas development project. These include a team of Hyundai Heavy Industries Company Limited (SEO:009540) (Ulsan, South Korea) and Doris Engineering (Paris, France) pitted against a consortium of Technip (EPA:TEC) (Paris) and Samsung Heavy Industries Company Limited (SEO:010140) (Seoul). The FEED work is slated for completion by April 2009 and the final contracts for engineering, procurement, construction, installation and commissioning, are expected to be awarded in mid-2009.

The deal is of strategic significance for China that always comes up against serious competition with India, Japan, South Korea and Thailand for gas from Myanmar. CNPC is now poised to make plans for large-scale investments in this sector on the basis of an assured, long-term supply of gas. The deal also fits into China's efforts to determine an alternate route for crude imports from Africa and the Middle East and to reduce the transportation of energy through the Straits of Malacca because of pirate activity in the region. Myanmar has estimated reserves of 89.72 tcf of onshore and offshore gas, of which 18.01 tcf is proven recoverable reserves. The country is also estimated to have recoverable reserves of 3.2 billion barrels of crude oil.

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