Long-term policy focused on electrification and grid improvements in Myanmar

Myanmar has one of the most diverse, high-potential energy sectors in the ASEAN region. Home to vast natural gas and hydropower reserves, and with hydrocarbons production dating as far back as the 10th century, the country is well positioned to remain a significant regional energy supplier, even as stakeholders continue to grapple with infrastructure gaps and a refined fuel shortfall necessitating costly imports to meet rising domestic demand. Less than 40% of the population has access to electricity, and wood and charcoal products continue to dominate the domestic energy mix, with limited fuel storage capacity and an underdeveloped national grid exacerbating current challenges.

External headwinds and shifting government policy are expected to weigh on growth in 2018. Although the oil and gas sector has been the second-largest recipient of approved foreign direct investment (FDI) inflows since 1988, investment has dropped off in recent years, and a number of upstream players have recently cancelled exploration plans in the wake of sustained low oil prices, an unfavourable fiscal regime, and an internal conflict that has drawn international condemnation and heightened the risk of new economic sanctions.

At the same time, a shift in government strategy towards liquefied natural gas (LNG) power generation and small-scale plants could see the country make major strides in meeting its ambitious universal electrification targets. Rising private participation in new power plant projects is expected to improve installed capacity, dovetailing ongoing efforts to upgrade the national grid and transmission lines.

The downstream oil and gas sector also holds significant potential for future growth, as evidenced by a number of recent investments in new pipelines, fuel stations and storage terminals, with surging domestic energy consumption expected to stimulate investment in refineries in the medium to long term.

Oversight

The Ministry of Electricity and Energy (MoEE) is the primary government agency responsible for overseeing Myanmar’s energy sector. It was formed in March 2016, when the Ministry of Electric Power and the Ministry of Energy merged. The MoEE is responsible for establishing and implementing policies related to electrification, oil and gas development, and foreign investment across the breadth of segments of the energy industry.

There are seven electricity-related entities operating under the MoEE’s umbrella, consisting of the following: the Department of Electric Power, the Department of Hydropower Implementation, the Hydropower Generation Enterprise, the Department of Hydropower Planning, the Yangon City Electricity Supply Board, the Electricity Supply Enterprise and the Myanmar Electric Power Enterprise.

Important oil and gas entities operating under the MoEE include the Myanma Oil and Gas Enterprise (MOGE), which acts as the oil industry’s operator, service provider, and oil and gas regulator. MOGE oversees 24 offshore gas blocks, with 11 in the Gulf of Martaban, seven off the western Rakhine coast and six off the southern Tanintharyi Coast. Myanma Petrochemical Enterprise (MPE) operates under MOGE and is responsible for oil and gas exploration and production, as well as domestic gas transmission, while the Myanma Petroleum Products Enterprise (MPPE), also under MOGE, manages retail and wholesale distribution of petroleum products. According to the US Department of Commerce’s International Trade Administration (ITA), MPPE’s portfolio includes four main fuel terminals, 24 fuel storage facilities and 12 oil stations. MOGE, MPE and MPPE are all institutions responsible for issuing tenders to foreign companies.

Energy Mix

Myanmar holds significant natural gas and hydropower reserves, with the Asian Development Bank (ADB) estimating the country’s hydropower potential at more than 100,000 MW of installed capacity, while natural gas reserves at its four principal offshore facilities – Yadana, Yetagun, Shwe and Zawtika – are estimated at a combined total of 18.3trn standard cu feet (scf).

Primary energy production has risen considerably in recent years; according to ADB’s December 2016 “Energy Sector Assessment, Strategy and Roadmap” report, Myanmar’s total primary energy production stood at 22.5m tonnes of oil equivalent (toe) in 2013, while the International Energy Agency (IEA) reports that total primary energy production hit 26.71m toe in 2015, an 18.7% increase over 2013 levels. Biomass, including wood and charcoal, accounts for 46% of total primary energy production, followed by natural gas at 43%, and hydropower, oil and coal at 11%. Gas production more than doubled between 2000 and 2007 as several offshore gas fields began production, while biomass production rose by 26% between 2000 and 2013. Although hydropower production remains a relatively minor component of the energy mix, it has nonetheless expanded more than four-fold over the same period.

Energy Policy

Since economic liberalisation commenced in 2011 a handful of long-term energy policies have been drafted with the support of various international agencies and bilateral partners. Notable among these are the Myanmar Energy Master Plan (MEMP), drafted with support from the ADB; the National Electricity Master Plan (NEMP), drafted in partnership with the Japan International Cooperation Agency; and the World Bank-supported National Electrification Plan (NEP).

Although a clear overall energy strategy has yet to be defined, the MEMP aims to boost coal’s share of the energy mix from less than 2% in 2015 to more than 30% by 2030, while the NEP emphasises grid extensions using a $400m World Bank facility. The World Bank has said it will not finance new coal or hydro projects, however, and the MoEE reported in July 2017 that the NEP’s target of universal electrification by 2030 will, as a result of these actions, require a significant amount of investment in small-scale solar and mini-grid projects.

Strategic Moves

The NEMP is currently being updated to align its objectives with the NEP to help the plan meet its electrification targets, improving the strength and stability of the country’s power system, and delivering cost-effective energy solutions. Small-scale projects are set to play a more prominent role in Myanmar’s energy policy. This shift in the MoEE’s direction followed the November 2017 announcement that the ministry will likely abandon major planned projects including the $3.6bn Myitsone dam, which was scheduled to export the bulk of its electricity to China, in favour of LNG imports for gas-fired power plants, as well as small-scale hydro projects aimed at augmenting the national grid and boosting rural electrification.

According to U Win Khaing, minister of electricity and energy, Chinese demand for Myanmar’s hydropower has waned in recent years, and the government is now moving to focus on completing smaller projects that are already under way, as well as negotiating supply contracts with major LNG players. Myanmar’s offshore gas production is forecast to decline after 2020, and the country currently lacks any domestic LNG refining capacity.

As part of the plan to increase gas-fired power generation, France’s Total is currently negotiating with the government to build a floating LNG import terminal (see analysis). The government is also mulling plans to construct a regasification plant and new LNG pipelines. Although U Win Khaing has not specified how the new strategy will impact Myanmar’s future energy mix, he told international media that coal will be included in future plans.

In July 2017 the MoEE also reported that a Renewable Energy Policy is currently being drafted by the Ministry of Education, Scientific Research and Technology’s Department of Research and Innovation.

Pricate Sector Participation

Myanmar’s oil and gas sector has benefitted from robust private sector participation since the sector was re-opened to foreign investment in 1988. Taken together, the power and oil and gas sectors accounted for $40.53bn of approved FDI between 1988 and October 2017, or 56.4% of the approved FDI total of $71.9bn, according to official statistics.

The US ITA noted in July 2017 that there are around 150 local firms and subsidiaries of international companies active in Myanmar’s oil and gas sector, such as MOGE, GE Oil & Gas, Total E&P Myanmar and United Engineering. Major private companies active in onshore exploration and production include Goldpetrol, a Myanmar subsidiary of Singapore-based Interra Resources, Malaysian national oil company Petronas, Brunei National Petroleum Company and Eni Myanmar, while major offshore players include South Korea’s Daewoo International, Australia’s Woodside Energy, PetroVietnam, Yangon-based MPRL E&P, Oil India, Royal Dutch Shell, Norway’s Statoil and Mumbai-headquartered Reliance.

In the power sector, private entrepreneurs have been permitted to engage in power production as independent power producers (IPPs) since 2012.

Public-Private Partnerships

Although specific legislation for public-private partnerships (PPPs) has not yet been passed in Myanmar, PPPs have been deployed extensively in the energy sector. In late 2016 the World Bank reported that out of eight PPP projects to have reached financial close since 1990, six were in the energy sector, with four of those power plants and two gas pipelines. The combined value of energy PPPs stood at $1.76bn, or 91.2% of the total. Major PPP projects include the $414.1m Shweli River Cascade hydropower station, which reached financial close in 2006; the $394m Yadana gas pipeline to Thailand, one of the earliest PPP projects in the country, which reached financial close in 1995; and the $325m Yetagun gas pipeline, which reached financial close in 1997.

Smaller PPPs also under way in the sector include the $142m Nanli 1-2 Hydropower Station and the $170m Ahlone Power Plant, which reached financial close in 2006 and 2013, respectively.

Private investment in the power sector is forecast to accelerate in the coming years, after the government signed executive power purchase agreements (PPAs) for five planned gas-fired plants, operating as IPPs, in March 2016. In April 2017 legal consortium VDB Loi reported that the new PPAs represented a “significant improvement in commercial and legal terms compared to prior Myanmar precedents”, praising reforms including take-or-pay offtake commitment regulations, force majeure provisions, tariff adjustments and termination payments. The $315m Myingyan gas-fired power plant was one such example of a project that signed a PPA with the government, and its initial phase came on-line in January 2018, marking a significant milestone for private energy investment in Myanmar’s power industry (see analysis).

Hydrocarbons History

A September 2015 report published by Ecopetrol America dates oil and gas production in Myanmar to the 10th century, when wells were dug by hand and used to produce lamp oil for export to the Indian subcontinent.

Mechanical drilling commenced in 1887 under British colonial rule and modern exploration began in 1961, when the Union Oil Company and General Exploration Company obtained a lease for most of the Central Myanmar Basin, stretching across north and central Myanmar parallel to converging continental and marine plate boundaries.

Myanmar’s oil industry was nationalised in 1963, followed soon after by a newly formed national oil company, which would eventually become MOGE. It assumed oilfield development responsibilities, moving to delineate older fields and locate new, smaller fields. Oil and gas exploration was reopened to foreign oil companies in 1988, with the then California-based petroleum explorer Unocal acquiring a large block in the Central Burma Basin. Modern-day oil and gas development began in 1992, when Total partnered with MOGE to begin developing offshore block 3DA, the Yadana gas field, located in the Ayeyarwaddy Delta. The site remains one of the largest producing gas fields in the country, with its satellite field Badamyar commencing production in mid-2017.

Exploration

In July 2017 the ITA reported that despite a large degree of uncertainty, Myanmar’s oil and gas sector maintains considerable potential for future exploration and production, with an estimated 18.3trn scf of proved natural gas reserves and 3.2bn barrels of recoverable crude oil reserves. The ADB notes, however, that no major oil discoveries have been made in Myanmar in over 20 years.

Future exploration could unveil far more substantial reserves, with ongoing economic liberalisation expected to attract new investment and technology in the coming years. According to the ITA, 17 of Myanmar’s 53 onshore blocks are operated by 12 companies, following rounds of bidding carried out in 2011 and January 2013. The 2013 round of onshore bidding saw 18 blocks launched and 16 awarded to international companies.

There are more than 50 offshore blocks in Myanmar, of which 18 are operational. In April 2013 the government launched an auction for 30 offshore blocks, comprising 19 deepwater and 11 shallow water. Of those, 20 blocks – 10 each of deep and shallow water – were awarded to winners Chevron, ConcocoPhillips, Shell, BG Group, Statoil and Total in a second round of bidding in 2014.

Production

In July 2017 research consultancy Wood Mackenzie reported that while the country’s oil and gas industry was historically dominated by MOGE-managed onshore oil production, gas now accounts for more than 90% of total output since offshore production began in the late 1990s.

Gas production in Myanmar is concentrated in the Yadana, Yetagun, Shwe and Zawtika gas fields. The largest producer is Yadana, at 910m scf per day (scfd), according to the ITA, followed by Shwe, at 500m scfd; Zawtika, with 360m scfd; and Yetagun, at over 250m scfd. Yadana is operated by a consortium led by Total, Yetagun is operated by Petronas, the Shwe field is controlled by Daewoo International, and Zawtika is operated by Thailand’s PTT Exploration and Production. Yadana was the first to begin production, in 1998, followed by Yetagun in 2000, Shwe in 2013 and Zawtika in 2014.

The ITA reports that six deep rigs, nine medium rigs and 11 shallow rigs are active in offshore production, and the natural gas is distributed to Yangon, China and Thailand via 4100 km of pipeline.

Output

In November 2016 the European Chamber of Commerce (ECC) reported that Myanmar produced 24.7m barrels of petroleum and 2m scf of natural gas between 2011 and 2015, while ITA figures show total gas production, including pipeline and compressed natural gas, rising from 650bn scf during FY 2014/15 to hit 700bn scf in FY 2015/16. In January 2016 MOGE reported that gas production averaged around 2bn scfd, of which 400m scfd is consumed domestically. In June of the same year MOGE forecast Myanmar would produce 689.8bn scf of gas during FY 2016/17: 14.2bn scf of onshore production and 675.6bn scf offshore.

Oil production estimates do vary, however, with the ECC reporting that while official data shows Myanmar produced an average of 6m barrels of crude oil per year between 1994 and 2017, daily production estimates as of February 2017 stood at 15,000 barrels per day, a figure that remains unchanged from end-2015 and 2016 figures.

Export Challenges

Since 1988 oil and gas exploration, production and exports have played a critical role in Myanmar’s economic growth, although subdued global oil markets, internal conflict and low prospectivity of recently awarded exploration blocks have dampened the growth outlook. While recent trade policies have intensified efforts to boost manufactured and value-added exports, hydrocarbons continue to account for the largest share of Myanmar’s exports.

According to the Observatory of Economic Complexity, petroleum gas comprised 27% of total exports in 2016, or $3.17bn out of $11.7bn of export receipts. This easily surpassed the $1.39bn of dried legume exports, $1.07bn of raw sugar and $577m of non-knit men’s suits. However, gas exports have dropped sharply since the mid-2014 oil price crash brought benchmark crude prices from $115 per barrel to around $60 per barrel as of December 2017, making crude oil imports a more financially viable option for many net energy importers. Gas prices have also been affected, with international media stating that LNG spot prices in Asia dropped by 70% between 2014 and July 2017.

In December 2016 the Ministry of Commerce announced that Myanmar’s natural gas export earnings fell by 40% y-o-y in the April-December period of FY 2016/17 to $1.82bn, against $3bn during the same period in FY 2015/16. Estimates do vary, however, with the Central Statistical Organisation, meanwhile, reporting that natural gas export revenues dropped from $5.18bn during FY 2014/15 to $4.34bn during FY 2015/16, before falling again to $3bn for the duration of FY 2016/17.

Exports could contract further in the coming years as a result of declining offshore production. In July 2015 BMI Research showed that the country’s gas production is forecast to decline by an average of 2% annually between 2018 and 2024, as the output of maturing fields drops. Yetagun’s production of 250m scfd in mid-2017, was down from 330m scfd in 2014, while Zawtika’s production fell from 343m to 330m scfd over the same period, according to local media reports. Although Total’s recent move to begin production at the Badamyar field, a satellite field to Yadana, will help offset declining production, MOGE stated in January 2016 that cumulative oil and gas production will decline after 2020 if new discoveries are not made in the interim.

FDI Falling

A decrease in output poses a challenge given prevailing global oil market conditions, as well as internal conflicts that have dampened upstream investor sentiment. The Directorate of Investment and Company Administration (DICA) reports that cumulative approved FDI in oil and gas reached $19.81bn between 1988 and October 2017, against $20.72bn in the power sector. In March 2017, however, the directorate announced that FDI inflows into the country were down by an estimated 30% year-on-year at the end of March, largely owing to the absence of new oil and gas projects. Citing DICA data, it was reported that oil and gas investment did not account for any of the $6bn of realised FDI inflows during the 11 months up to February 2017, because no new gas or oilfields had been offered for development since April 2016. Indeed, DICA highlighted that approved foreign investment in the oil and gas sector dropped to zero in both FY 2016/17 and the first half of FY 2017/18, although it had been the largest sector for approved investment previously, at $4.82bn in FY 2015/16. Total approved FDI dropped from $9.48bn in FY 2015/16 to $6.65bn in FY 2016/17 as a result of these trends.

Recent government trade policies, including the National Export Strategy, are now focusing on boosting investment in labour- and capital-intensive, value-added manufacturing activities, particularly in agriculture (see Trade & Investment chapter). This could mean that investment in the oil and gas sector, particularly in the upstream segment, may remain subdued in the near to medium term.

Upstream Slowdown

A less-than-attractive fiscal regime, poor early exploration results and internal conflict could also weigh on future upstream oil and gas investment. Petroleum-sharing contracts (PSCs) awarded by the state in 2014 carried very stringent taxation terms, and while the higher oil prices of that year allowed private companies to still earn a handsome margin, that was no longer the case in 2017. Further, the 2016 Law on Special Goods Tax (SGT) applies excise tax on the import, export and manufacture of petroleum products, among other goods, representing another mechanism that erodes already tight margins. Depending on the conditions of their PSCs, contractors may also have to bear SGT costs for the export of natural gas.

In addition, in November 2017 S&P Global Platts, a provider of energy and commodities data, reported that the low prospectivity of several newly awarded on- and offshore blocks and international reports of unrest in Rakhine State in the latter part of 2017 was compounding risk for international oil and gas companies operating in the country. Industry sources told Platts that Myanmar’s upstream oil and gas segment had lost momentum, particularly given the potential for new Western sanctions. Lobbying pressure has also intensified, with human rights organisations, Malaysian politicians and wealthy energy investors urging companies to reconsider their business in Myanmar in light of the reports of violence in Rakhine State.

Several companies cancelled drilling plans in 2017 for various reasons, according to S&P Global Platts. In October 2017 India’s Reliance Industries announced it would relinquish blocks M-17 and M-18, and in November 2017 Shell announced it had relinquished block MD-5 in the Tanintharyi Basin, as well as block AD-9 and block AD-11 in the Bay of Bengal’s Rakhine Basin. Oil India and Tap Oil also reportedly relinquished blocks late in the year.

At least one company is forging ahead with exploration plans, however. Australia’s Woodside Energy drilled five offshore appraisal wells in Myanmar during 2017, and will launch a new exploration drilling campaign in the second quarter of 2018. The company is also continuing to carry out stakeholder engagement activities after a temporary suspension due to unrest in Rakhine State.

Yadana & Badamyar

Despite challenges, Myanmar’s offshore gas continues to offer new opportunities to upstream investors, as evidenced by recent developments at the Yadana gas field. Located 60 km offshore in the Andaman Sea, the field was first discovered by MOGE in 1982, when the industry was still closed to foreign investment. Lacking the technical and financial resources to develop the field, MOGE partnered with Total in July 1992 to develop Yadana in phases. Production at Yadana commenced in 1998, with the majority of the field’s output exported to Thailand, meeting 15% of the country’s annual gas requirements. Around 25%, or 2bn cu metres annually, is transported to Yangon via pipeline and used for domestic consumption.

Exploration of Yadana and its surrounding areas is ongoing, with Total beginning large-scale work on Yadana’s blocks M-5 and M-6 in 2014, installing an additional compression platform in an effort to maintain plateau production of 8bn cu metres annually in the years following 2020 by tapping into new reserves in the adjacent Badamyar gas field.

In May 2017 Total announced it had begun production at Badamyar. In addition to a new compression platform, the project involved installing a new wellhead platform connected to Yadana’s production facilities, as well as drilling four new horizontal wells to develop Badamyar as a satellite of Yadana. Total highlights that the project was completed on schedule and 20% below budget.

Downstream Developments

Although the upstream segment’s near-term outlook is mixed at best, Myanmar’s downstream is set to benefit from several new projects, including a recently launched 771-km crude pipeline with capacity for 442,000 barrels per day (bpd), connecting Made Island on the west coast to a PetroChina-built refinery in China’s southern Yunnan Province, as well as a new fuel storage and import terminal, which launched in the Thilawa Special Economic Zone (SEZ) in April 2017, according to international media.

Plans are also under way to construct the country’s first LNG import terminal. In July 2017 international media reported that Total was negotiating a $2bn deal with the government of Myanmar, which would see it build a floating LNG import terminal and an LNG-powered plant supplying the country’s economic capital of Yangon. Although the Chinese pipeline’s benefits will be limited, with Myanmar scheduled to offtake just 2m tonnes of crude oil from the pipeline annually, these developments highlight the country’s potential to become a leading player in energy supply for the region.

However, Myanmar is nonetheless likely to remain dependent on refined fuel imports for its own domestic consumption in the near term, following the cancellation of a major refinery project originally anticipated for construction in the Dawei SEZ, as well as declining output at the country’s three existing refineries (see analysis).

Fuel Supply

While dependence on refined fuel imports presents numerous challenges as the country seeks to improve its energy self-sufficiency and meet long-term electrification targets, it has also presented new opportunities for fuel import, storage and distribution investors.

The ADB reports that the government has allowed private companies to import fuel and operate petrol retail outlets since June 2010, with the total number of fuel retail outlets quadrupling from 269 in June 2010 to 1281 in July 2014. However, lack of available fuel storage and distribution facilities, a long-standing local monopoly on fuel supply and distribution, and illegal fuel smuggling have posed a major challenge to downstream investment. At the same time, broader economic growth and rising vehicle ownership has exacerbated the problem (see Transport & Logistics chapter).

“Illicit border trade is flooding the market with low-quality lubricants and other counterfeit goods. Surging demand for new vehicles, particularly in Yangon Region, has aggravated this problem. Myanmar needs to strengthen border control to tackle this issue and boost fiscal revenue,” Daw Yi Mon Aye, executive director of MJL & AKT Petroleum, told OBG.

Puma Distribution

Recent developments indicate the situation is set for improvement. In July 2015 Singapore-based fuel supply and distribution company Puma Energy signed an agreement with the government of Myanmar to be the sole foreign company responsible for jet fuel distribution in the country, under a joint venture (JV) with the MPPE.

The JV National Energy Puma Aviation Service supplies jet fuel to the country at 12 separate airports. Puma invested $75m into upgrading the MPPE’s aviation fuel supply network, including staff training. In mid-2017 Puma officials told local media sources that decades of global isolation had negatively affected the government’s ability to deliver jet fuel meeting international standards, with old storage tanks, small storage tanks, old pipelines and outdated working practices creating urgent demand for new infrastructure in the sector.

The company’s original licence covered only storage activities, leaving it well positioned to store products on behalf of other independent companies seeking to import and distribute fuel. When the new Myanmar Investment Law came into effect in April 2017, Puma was also able to expand its licence to cover import, storage, sales and distribution.

In May 2017 Puma also announced plans to expand its operations across Myanmar, following the commissioning of a $92m storage facility located in the Thilawa SEZ in late 2016. Offering 91m cu metres of storage capacity, the new terminal and associated jetty will allow the company to import fuel from larger vessels, reducing costs and supply chain challenges while supporting Myanmar’s transformation into a regional supply hub. The new facilities will handle a broad selection of products including jet fuel; commercial fuels such as Mogas 95 and 92 and low-sulphur diesel; heavy fuel oil used for power generation; and products for farm machinery. Puma also launched 24,000 cu metres of bitumen storage at the Thilawa SEZ, under a JV with domestic firm Asia Sun Energy. Both fuel and bitumen demand are set to rise significantly in the coming years, as the country moves forward on highway construction projects and fuel consumption increases.

Rob Jones, Puma Energy’s COO for Asia-Pacific and the Middle East, told international media in May 2017 that the country is now looking to further expand its business and supply chains into lubricants and liquefied petroleum gas (LPG), with the goal of using Yangon as a “centrepiece for regional flow”. The company also plans to invest an additional $30m in a LPG plant at the Thilawa SEZ, with domestic demand forecast to rise considerably over the medium term. In November 2017, the Indian Oil Company (IOC) announced it would begin exporting between 12,000 and 14,000 tonnes of aviation turbine fuel to the Puma JV each month.

Liberalisation Prospects

Puma Energy’s market entry is instructive for other foreign companies considering investing in the downstream market, and both the aviation fuel and storage terminal deals are significant, in that they marked the first time a foreign company was able to break a longstanding domestic monopoly on the distribution market.

In June 2017 David Holden, Puma’s country manager, told local press that the company sees significant potential in Myanmar, since the downstream energy infrastructure requires major upgrades, as well as new terminals, tankage, and storage facilities. Holden also added that the Myanmar Investment Commission (MIC) applied for a permit from the MoEE on behalf of Puma, stressing that the company had already invested millions of dollars during it’s three years operating in the country prior to the terminal’s opening, an important lesson for other potential first-movers in the downstream sector.

Next up, Puma will turn its attention to MPPE’s network tender, which includes 29 terminals, 12 retail sites, 130 trucks, and 1300 employees. Similar investments are expected in the future, with Puma’s licence approval viewed as a signal that the country’s energy market is open to international investment, despite ongoing opposition from the Myanmar Petroleum Trade Association.

Upcoming Projects

Investment in fuel storage and distribution has indeed accelerated in the months since the Puma deal. In July 2017, for example, Total announced it was seeking MIC and MoEE approval for a similar deal with Denko Trading Company, a local enterprise which had already been granted MIC approval to build an oil depot across 24 ha of the Thilawa SEZ in February 2014. In November 2017 the IOC announced that the government of Myanmar had approved its application to open an office in former capital Yangon, and the company is now looking to obtain a comprehensive licence for end-to-end LPG distribution.

IOC officials reported that Myanmar’s Parami Energy Group, which is currently negotiating a JV with India’s Numaligarh Refinery to source petroleum products from India at the More-Tamu border, has also expressed interest in forming a partnership for supplying LPG after being awarded an LPG import and distribution licence.

Demand

New deals in this market should help Myanmar meet rising domestic energy demand, with the country’s limited refining capacity continuing to necessitate significant refined fuel imports (see analysis). The MPE reported that as of late 2017 Myanmar produced around 10,000 tonnes of LPG annually, importing an additional 50,000 tonnes. However, this is still insufficient, with current levels of LPG imports only covering 5% of the population. Low levels of electrification and insufficient amounts of LPG imports have left an estimated 80% of the population reliant on firewood, charcoal and fuel bars for cooking and heating demands, though Parami is reportedly considering importing up to 400,000 tonnes of LPG annually.

Fuel imports are to play an important role in boosting electrification and improving the domestic power supply, as the state focuses more attention on LNG imports to meet rising domestic demand.

Renewable Sources

With peak electricity demand set to rise from 3075 MW as of May 2017 to between 9100 MW and 14,542 MW in 2030, renewable energy sources will play a critical role in Myanmar’s energy strategy (see analysis).

The renewable energy segment is dominated by hydropower, which accounted for over half of the country’s total energy mix as of mid-2018, according to the EEC. Myanmar’s rich hydro energy potential is derived from four large river basins – the Ayeyarwaddy, Chindwin, Thanlwin and Sittaung – which offer more than 100,000 MW of combined installed capacity potential. According to the ADB, the government of Myanmar has identified 92 large-scale hydro projects with the potential to add 46,000 MW of installed capacity to the grid. According to the ECC’s “Energy Guide”, the country’s 62 hydro-power plants currently offer 3033 MW of installed capacity, representing 61% of the country’s energy mix, with the chamber of commerce also matching ADB estimates for potential additional capacity.

Policy Shift

Although recent government energy policy had focused on developing large-scale hydropower projects, as well as building new coal-fired power plants, in November 2017 the MoEE announced plans to shift the country’s long-term energy strategy towards gas-fired plants and small-scale hydro projects in an effort to reduce environmental impacts and expedite delivery of new capacity, as large-scale hydro projects have faced growing local opposition in recent years (see analysis). There are as many as 210 possible sites for small- and medium-sized hydro projects in Myanmar, with each offering less than 10 MW of a total combined capacity of 230 MW.

The government has already successfully rolled out a number of small-scale hydro projects; the ADB reported in December 2016 that 26 micro- and nine mini-hydro projects have been implemented in the country, offering installed capacity ranging from 24 KW to 5000 KW. Small-scale hydro projects are an effective method of connecting remote border areas, and a further five micro-hydro projects are reportedly planned for the Shan and Kachin states.

Solar

Solar is another high-potential source of renewable energy. At more than 6.5 KWh per sq metre, Myanmar’s solar radiation levels are considered strong, offering the possibility of collecting up to 1.9 MWh annually per sq metre, according to reports released by the ADB.

Maximum solar power potential is estimated at 40 TWh annually, with mountainous terrain and protected areas limiting generation beyond that figure. Importantly, solar power could help offset declining hydropower production during Myanmar’s dry season, which is set to be an important consideration for energy stakeholders.

The government of Myanmar has identified 92 large-scale hydro projects with the potential to add 46,000 MW of installed capacity to the grid Although solar power development remains in its nascent stages, small-scale and individual solar power systems are becoming increasingly popular in Myanmar’s rural areas, where an estimated 40,000 villages currently lack connections to the country’s national power grid, according to UN data.

According to a March 2017 report in international media sources, the NEP would see nearly 500,000 households benefit from subsidised solar home systems and mini-grids, which mean that small-scale solar projects could become a viable alternative to costly grid connections in the near future.

The same report showed that an estimated 4.5m households in the country currently spend more than $200m annually on candles, kerosene, batteries and diesel, brightening the potential prospects for commercial solar device investors.

Outlook

Myanmar’s energy sector is set to remain on a steady growth trajectory overall in 2018, with rising domestic electricity and fuel consumption, abundant renewable resources, and a strategic geographic location at the crossroads of India and China continuing to offer opportunities to foreign investors. Although the upstream oil and gas segment’s near-term outlook is subdued given current global oil market conditions, internal conflict and an unattractive fiscal regime, downstream opportunities are plentiful, supported by limited domestic refining capacity, rising vehicle ownership, lack of available imports, storage and distribution infrastructure, and ongoing economic liberalisation measures.

Private sector participation has been strong in the power industry, and should remain this way as the government continues to deploy PPPs to boost installed capacity, with IPPs set to play a major role in meeting the country’s electricity shortfall.

Although grid upgrades and tariff reforms will be critical in attracting new power infrastructure investment (see analysis), the outlook for the development of new gas-fired and small-scale renewable projects remains optimistic, especially given the recent refocuses of the national energy policy, which look to place an added importance on these segments in the hope of augmenting the country’s national grid and boosting rural electrification.

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The Report: Myanmar 2018

Energy chapter from The Report: Myanmar 2018

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