China to tap into Burma with €1.9bn oil and gas pipeline

Not far from Kunming in southwest China, building work is nearing completion on a €1.9 billion pipeline which will ship oil and gas from Burma to energy- hungry China and resolve some of China's pressing energy security needs.

With a capacity of 440,000 barrels of crude a day and 12 billion cubic metres of natural gas, the pipeline will run from Yunnan province to the Indian Ocean at the Bay of Bengal in Burma.

“The pipeline will not only be a big boost to the Yunnan economy, but also to the whole Chinese economy,” said Gao Shuxun, vice-governor of Yunnan.

“We all know that China is a huge energy-importing country and that Yunnan is a big energy- importing province,” Mr Gao told local media. “Therefore, as far as the shortage of energy and resources goes, the situation will ease through the completion of China-Burma pipeline. Oil is the lifeblood of the economy. If we have one more vein, the vigour of our economy will hugely increase.”

The oil pipeline will be nearly 800km long, while the natural gas pipeline will extend farther to meet the gas needs of cities such as Kunming, Guizhou and Guangxi.

Running from Burma's west coast, through the centre of the country, the pipelines will reach China at the border crossing of Ruili in the west of Yunnan. A crude oil terminal will also be built on the west coast of Burma in Kyaukryu. The project is being built jointly by China National Petroleum Corporation and Myanmar Oil and Gas Enterprise.

It had been expected that gas would start to flow in June followed by oil in September, but government sources have said regional security concerns could cause a delay.

Recent clashes between government forces and ethnic militia fighters in Shan State, as well as fierce fighting with the Kachin Independence Army in Kachin State, a northern state that borders China, could delay the start of operations.

Geopolitical significance
The pipelines also have a broader geopolitical significance, as they are a central plank in China's efforts to reduce its dependence on the Strait of Malacca for its imported oil needs.

Most of China’s oil is currently shipped from the Middle East and Africa through the Strait of Malacca, one of the world’s busiest shipping lanes. The strait is seen as a major threat to secure energy supplies by major Asian economies dependent on crude shipments from the Middle East and Africa.

The strait near Singapore, which is 1.5 nautical miles wide, is described as the second largest “global choke point” after the Strait of Hormuz and the US navy has a powerful presence there.

Oil from the Middle East and Africa that travels through the waterway accounts for 75 per cent of the oil consumed by Japan, South Korea and Taiwan.

China produces over four million barrels a day domestically, but about 37 per cent of China’s total oil demand came through the strait last year. That percentage is expected to fall to about 30 per cent once the Burma pipeline comes on stream.

Lin Boqiang, the director of the China Centre for Energy Economics Research at Xiamen University, said the completion of the China-Burma pipeline would reduce the overreliance on the strait.

“It is beneficial to improve the multiple ways regarding the safe supply and import of energy. Currently, our southwest region doesn’t have a relevant pipeline for oil and gas.”

Other commentators do not see the so-called “Malacca dilemma” as such a major issue.

“It’s a fake topic,” said Wang Zhen, the director of the China Energy Strategy Research Centre. “If there is a major conflict, the Malacca strait will be cut off. The possibility of cutting off the China-Burma pipeline is the same, so there is no way to replace the Malacca strait. “However,” Mr Wang added, “we can say that we are adding another channel to import energy.”

Burma and China’s relations ebb and flow. Chinese officially account for 3 per cent of the Burmese population, although there are thought to be more than this. There have been periodic crackdowns and discrimination against the Chinese.

Western sanctions
During the 50 years of military rule in Burma, China played a major role in propping up the junta during difficult years of tightening western sanctions, and in return was given liberal access to Burma's natural resources.

In 2010, Sino-Burmese relations were rocked by Burma’s decision to suspend construction of a €2.75 billion dam project, the unpopular Myitsone Dam on the Irrawaddy river, which was being built by Chinese companies and would supply electricity mostly to Yunnan, displacing thousands of villagers in Burma.

The move was read as an overture to Washington, something that clearly rattled China, which does not want a resource-rich country on its borders cosying up to the US.

As well as geopolitical challenges to the pipeline, there are local problems in China with which to contend. The project is central to Beijing’s plans to push the province to new heights, lifting the city in the national league tables; it is currently in 49th place by gross domestic product.

The government plans to transform Kunming into a petrochemical refining and production base, as laid out in Beijing’s latest five-year economic development plan, which covers 2010 to 2015.

While most Kunming residents will doubtless welcome bids to boost growth and narrow the wealth gap, the environmental cost of development is raising hackles.

The local government has sought to play down plans to allow the chemical company Yunnan Yuntianhua set up a plant to produce 650,000 tonnes of p-Xylene, a chemical used in making fabrics and plastic bottles, and one million tonnes of terephthalic acid. There have been boisterous protests against the plans.

More than 2,000 people protested for a second time against plans for a petroleum refinery in Kunming earlier this month.

Public meetings
In the wake of the first protest on May 4th, local government officials and PetroChina held a series of public meetings and pledged that operations at the refinery would be environmentally sound.

Officials have assured local residents that environmental protection and safety procedures will be a priority but many worry that once construction of the oil refinery begins, the local government will be left powerless to supervise and regulate the large state enterprise.

China’s overriding need to secure its energy security is likely to prevail over local unhappiness with the project, but resolving Burma’s internal problems could prove more challenging before oil and gas start to flow down the pipeline.