In addition to being crucial to economic activity, Myanmar’s energy and power sector continues to be one of the main drivers of foreign investment as the country looks to develop its national electricity grid. As of October 2019 the amount of foreign direct investment (FDI) approved by the government in the energy sector for that year stood at $43.6bn, representing just over of half of total FDI.
As demand for electricity continues to rise, the authorities are pursuing new avenues to boost supply. Average household energy consumption is around 435 KWh per month in urban areas, compared to roughly 300 KWh per month in rural areas. Yangon alone accounted for some 42% of electricity consumed in Myanmar in October 2018, down from 50% in 2013. The Ministry of Electricity and Energy (MoEE) announced that 50% of the population was covered by the electricity network in December 2019, up from 43% in 2018.
Finding effective ways of to meet rising demand and electrifying rural regions without incurring unsustainable debt or pricing consumers out of the market is a key challenge for the authorities responsible for the sector. This will involve further diversifying the country’s sources of energy.
As of 2018 Myanmar’s energy mix was made up of hydropower (57%), natural gas (36%), coal (6.7%) and non-hydropower renewables (0.3%), according to credit ratings agency Fitch. Additionally, more work is needed to make Myanmar’s untapped upstream oil and natural gas assets attractive for exploration and production (E&P) projects.
Structure & Oversight
There are a number of government ministries and departments that oversee various areas of the sector. The MoEE is the primary authority responsible for the management of the energy sector in Myanmar. The Oil and Gas Planning Department of the MoEE compiles sector data and is responsible for negotiating production-sharing contracts (PSCs) with foreign investors. The Myanma Oil and Gas Enterprise (MOGE), which reports to the MoEE, is the national oil and gas operator and helps regulate the sector. Myanmar Petrochemical Enterprise (MPE) is responsible for oil and gas exploration and production, as well as gas transmission. The Electric Power Generation Enterprise is the national electricity provider and is responsible for putting out power tenders. There are several other electricity-related entities that operate under the MoEE, including the Electricity Supply Enterprise, the Department of Electric Power and Planning, the Department of Hydropower Implementation, and the Yangon City Electricity Supply Corporation.
The Myanmar Petroleum Products Enterprise, for its part, manages the retail and wholesale distribution of petroleum products in the country. Other important authorities include the Ministry of Planning, Finance and Industry, the Myanmar Investment Commission, the Ministry of Natural Resources and Environmental Conservation, and the National Commission for Environmental Affairs.
Power Supply
The total primary energy supply in Myanmar increased from 10.4m tonnes of oil equivalent (toe) in 2000 to some 14.5m toe in 2016, representing an average annual growth rate of approximately 3.7%. This is slated to continue growing apace, with the government’s national Myanmar Energy Master Plan (MEMP), which was published in December 2015, forecasting that the total primary energy supply would reach 25m toe by 2030.
As in many developing markets in the region, coal recorded the highest growth from 2000 to 2016, expanding by an average of 12.8% per year, even though its production has reduced significantly since 2012. Hydropower grew at a similar rate, with an annual average of 12.3% over the period, while natural gas supply grew by 6.4% and oil supply by 6%.
With more people entering the country’s growing middle class, demand for energy has begun to outstrip supply. While Myanmar’s nameplate installed generation capacity stands at around 5 GW, operational capacity is lower, at somewhere between 2.9 GW and 3.1 GW. The government expects that demand will require another 1.5 GW per day of functional capacity as soon as 2020, and the World Bank estimates that consumption will continue to grow at an annual rate of 11% until 2030.
Peak demand is expected to reach 8.6 GW by 2025 and 12.6 GW by 2030. In order to meet this level of demand, some 5 GW of new generation capacity will need to be added in the years to 2025. Although installed capacity has increased in recent years, the overall electricity supply in the country remains insufficient. In its “Myanmar Economic Monitor” report published in June 2019, the World Bank estimated that Myanmar needs to essentially double its investment in generation capacity from its historic levels to $2bn per year, and implement capacity-expansion projects three times faster.
Government Reaction
The government has already taken a series of steps to meet rising energy demand. In the 2019 budget, some MMK8trn ($5.2bn) was earmarked for electricity and energy, up 28% from the year before and more than the entire budget allocated for the defence, education, agriculture, transport and communication sectors combined. The government also announced a plan to add 1040 MW of additional power-generation capacity from five gas-to-power projects ahead of the 2020 elections. Imported liquefied natural gas (LNG) will also play an essential role in helping Myanmar meet rising energy demand over the medium to long term, and could potentially be supplied via deepsea ports at Dawei or Kyaukphyu.
In July 2019 the Electric Power Generation Enterprise invited independent power producers (IPPs) to bid for tenders on five sites: Tharketa (400 MW), Thalyin (350 MW), Kyaukphyu (150 MW), Ahlone (120 MW) and Kyun Chaung (20 MW). The projects were offered on a build-operate-own basis under five-year concessions. In September 2019 the MoEE announced that a project had been awarded to a Chinese consortium led by China Energy Engineering Corporation. A month later it announced that a consortium led by Hong Kong-listed VP ower Group, which has close links to China’s CITIC, had won the bids for the other four projects.
The move to develop five new plants follows the launch of the 225-MW gas-fired power plant in Myingyan, the first competitively-tendered IPP in the country. Built and operated by Singapore’s Sembcorp Industries, it commenced operations in October 2018. The $310m plant is expected to produce enough electricity to power 5.3m households, with around 1500 KWh of electricity generated per year. A hike in the electricity tariff was announced in July 2019, in a bid to remedy continuing losses from of the state-run national power provider – Electric Power Generation Enterprise – and make electricity generation developments more attractive to IPPs. The tariff hike was the first in five years.
However, many IPPs – particularly those with backing from large international investors – are likely to want more support from the government before committing to large-scale projects. In the past, some IPPs have struggled to settle on power purchase agreements (PPAs) because the government declined to provide sovereign guarantees to ensure that developers make the expected return on investment. Another obstacle has been the government’s insistence that PPAs be fulfilled in kyat rather than foreign currency (see analysis).
Coal
Although it raises environmental concerns, coal is still one of the cheapest and most readily available sources of energy. Official data shows that Myanmar has more than 405.9m tonnes of coal reserves, with the largest share located in Shan State, which has around 117.7m tonnes. The country’s average coal production between 2013 and 2016 was approximately 517,000 tonnes per year. Although coal-fired plants have been out of favour internationally, the government intends to forge ahead with the construction of new coal-powered generation plants. U Tun Naing, the deputy minister of electricity and energy, confirmed that Myanmar plans to draw 33% of its energy needs from coal, which is higher than the 30% listed in the MEMP. The percentage outlined by the deputy minister would translate to around 7940 MW.
As of 2019 the 120-MW Chinese-operated plant in Tigyit is the country’s first and only coal-fired plant. It was shut down in 2014 over a waste management dispute, while plans for other coal-fired plants have long drawn objections from local communities concerned about the environmental impact.
Renewables
Hydropower remains the main source of renewable energy generation in Myanmar. The Asian Development Bank estimates its potential to be in excess of 100,000 MW. Myanmar has 27 hydropower stations with total installed capacity of 3255 MW and another eight stations are under construction. Five of the existing power stations were constructed on a build-operate-transfer basis, and three hydropower stations with a combined capacity of 939 MW have been developed under joint ventures with foreign firms.
In terms of future developments, the government has identified 92 large-scale hydropower projects with the potential to add some 46,000 MW of installed capacity to the grid. Projects to construct new hydropower plants are already under way. For example, French firm EDF is constructing the 1050-MW Shweli-3 hydroelectric plant and a consortium led by Austrian company Andritz is building a small hydro plant that will have a generation capacity of around 66 MW at Deedoke in Mandalay.
The MoEE aims to cover 8% of electricity requirements with non-hydropower renewables by 2021 and 12% by 2030. With the cost of solar panels coming down, solar power is expected to have a greater share of the energy mix in the future. A 2016 study published by the London School of Economics estimated the country’s solar potential to be as high as 52 TW per year. In June 2019 Myanmar launched the inaugural phase of its first operational commercial solar plant. Built on 338 ha of land near Sagu township in Magway Region, the Minbu Solar Power Plant has been described as the largest of its kind in South-east Asia. It is being constructed in four phases, with the completion of the plant’s first stage allowing for a generation capacity of 40 MW. Once all phases of the project are complete, the plant will have a total capacity of 170 MW and be capable of producing 350m KWh annually, electrifying roughly 210,000 households.
The government has plans to build at least six more solar power plants for 470 MW of additional generation capacity. Meanwhile, in December 2019 local joint venture Mandalay Yoma Energy opened the largest solar mini-grid in Myanmar in Lel Ma village, Magway Region, providing electricity to close to 400 rural households. With regard to wind energy, China’s Three Gorges Corporation is set to develop the country’s first wind power plant, which will have a capacity of 30 MW, in Chaung Thar in Ayeyarwaddy Region. According to government studies conducted in partnership with private companies, wind power plants could add some 4032 MW of installed generation capacity to Myanmar. The MoEE has plans for some 27 wind power projects, most of which are located in Rakhine State and Chin State.
Oil & Gas
There are 17 sedimentary basins in Myanmar where oil, gas and condensates can be found. Crude oil comes primarily from the onshore Salin basin and the offshore Yetagun field. Gas, meanwhile, comes from four offshore fields: Yadana, Shwe, Zawtika and Yetagun. Most of the country’s oil wells are owned by the state and operated by MOGE.
As of 2018 oil production stood at approximately 12,000 barrels per day (bpd); however, consumption was more than twice as much, at 29,000 bpd. Oil production in Myanmar has fallen by 29.4% from an average of 17,000 bpd in 2013 to 12,000 bpd in 2018.
Natural gas output in 2018 totalled 17.8bn cu metres, virtually the same as 2017 levels. Myanmar produced 1.8bn standard cu feet (scf) per day of natural gas, with 50m scf per day from onshore fields and 1.75bn scf per day from offshore blocks, of which 400m scf per day was used for domestic consumption, while the remainder was exported to Thailand and China. In terms of domestic gas consumption, 75% is used for generating power at gas turbines and 13.4% by industry.
Oil and gas production, for its part, is forecast to decline annually by 2% and 4%, respectively, over the years to 2024, due to depletion and a lack of new E&P activity. Still, with an estimated 16.6trn scf of natural gas and some 139m barrels of crude oil trapped under the seabed as reserves, the country still has significant oil and gas potential.
Permits & Taxation
Private sector participation in Myanmar’s upstream segment is based on PSCs. While some of the terms can be negotiated, certain terms are fixed. The production split is applied on a sliding scale depending on the level of production and the depth of the well. It ranges from 60% to 85% for crude oil, and 60% to 90% for natural gas. The production bonus starts at $500,000 and can go up to $6m. Initial exploration permits are awarded for three years, with two possible extension periods of up to three years each. Meanwhile, production permits usually span 20 years. In aggregate, the average revenue take of the state in a typical oil and gas PSC is estimated at 77%, higher than any other upstream market in Asia.
The standard corporate tax in Myanmar is 25% and royalty is calculated at 12.5% of the output. Depreciation is tax deductible. The depreciation rate for shaft and drilling equipment is 20% and 5-10% on other equipment. State participation takes place through MOGE and starts at 15%, with an option to increase participation to 25%. Share transfers are permitted but are subject to capital gains tax or transfer tax. For profits of less than $100m, MOGE is entitled to transfer tax at a rate of 40%; profits of $100m-150m are taxed at 45%. As for profits over $150m, MOGE is entitled to receive 50% of the capital gains. A commercial tax of 5% is levied on crude oil exports, while, under the new Union Tax Law of 2019, the special goods tax of 8% was removed on natural gas exports, effective October 2019.
Upstream
There are 17 onshore and three offshore oil blocks currently in production in Myanmar. Output from these fields is estimated to be a little over 9600 bpd. Some 40% of Myanmar’s oil production – approximately 4480 bpd – comes from the onshore Salin basin near the centre of Myanmar. It is home to two of the country’s largest oil fields – Chauk and Yenangyaung. Both of these fields are operated by Singapore-based Interra Resources. The rest of the oil comes in the form of associated condensates produced from offshore gas projects.
Yadana, located 60 km offshore in the Moattama basin, is the biggest gas field, producing 850m scf of gas per day. France-headquartered energy major Total is the lead operator of two blocks in Yadana – M5 and M6 – and holds a 31.24% stake in the concession. Some 75% of its output is exported to Thailand. Thai energy firm PTT is the operator of the Zawtika field, which is also located in the Moattama basin. It produces around 300m scf per day of gas, around two-thirds of which is exported to Thailand. Together, output from the Yadana and Zawtika fields make up around 65% of domestic gas production.
The Yetagun gas field in the Gulf of Martaban spans 24,130 sq km. The field produces 200m scf of gas per day and is estimated to contain 80m barrels of condensate. Malaysian operator Petronas holds a 40.9% stake in the field. Gas produced from Yetagun is exported to Thailand through the Tanintharyi pipeline, and the condensate, which is stored in a 606,000-barrel floating storage and offloading unit, is sold to both local and international buyers. The Yetagun North Field is located 12 km north-east of the main field and is estimated to produce 70m scf of gas per day. Posco Daewoo operates blocks AD-1 and AD-3 in the Shwe gas field of Rakhine basin, producing 550m scf of gas per day. The South Korean firm has pledged to invest up to $475m over the next few years to maintain peak output at the gas field until 2027. Gas that comes from the Shwe field is primarily exported to China.
E&P
Oil and gas accounted for 27.3% of approved FDI after the first 10 months of 2019, totalling $22.4bn. Exploration interest peaked in 2014, when a string of international oil majors were awarded 20 offshore blocks for investments of up to $3bn. However, a combination of risk factors led many to give up their rights. Out of the concessions that were awarded, three remain under contract: blocks AD-1 and MD-2 in the Rakhine basin, operated by CNPC and Italy’s Eni, respectively; and MD-4 in the Moattama basin, which is jointly operated by Eni and PetroVietnam. Apart from Woodside Petroleum’s offshore discoveries at the A6 block in Rakhine between 2016 and 2018, and discoveries made by Thailand’s PTTEP in the M3 block in 2013, there have not been any significant discoveries in recent years.
However, new exploration activities are in the pipeline: in November 2018 Petronas Cargali and its partners began exploration drilling at Shwesitaw-1 at a depth of some 2450 metres; Eni will start exploration works in its onshore block RSF-5 in Magwe; while MPRL and Woodside Petroleum aim to commence production at the A-6 and AD-1 blocks in Shwe Yee Htun gas field, which could reverse the declining gas production. A-6 is estimated to hold up to 3trn scf of gas and first gas is scheduled for 2023. Myanmar still has 56 open onshore and offshore petroleum blocks that are largely under-explored and could be offered to investors.
New Law
A new petroleum law was tabled in Parliament in November 2018. It proposed, among other things, a controversial tender procedure that could have resulted in an investor losing the title of the concession between the E&P phases; however, this section of the legislation is now being revised.
The MoEE plans to offer as many as 33 oil and gas blocks – 18 of which are onshore and 15 offshore – to investors, which could be put up for tender as soon as 2020. This includes 11 blocks that had previously been relinquished. The success of the round will be contingent on whether the government can provide sufficiently attractive fiscal incentives for investors, many of whom are cautious following the failure of the draft petroleum law to pass.
Midstream
Owned and managed by MOGE, the gas pipeline network in Myanmar spans some 4100 km. The largest domestic natural gas pipeline is the Yangon-Magway pipeline, which runs north-south through the centre of Myanmar and supplies offshore gas from the Yadana gas field to the hinterland. However, the link between Shwedaung and Magway is in urgent need of rehabilitation.
Myanmar also has two export pipelines – one to Thailand and the other to China. Feed gas for export to Thailand comes from the Yadana, Yetagun and Zawtika gas fields. In addition, an export pipeline supplies approximately 380m scf of gas per day from the Shwe gas fields to China. There are four offtake points along the way where Myanmar can extract its share of the allocated gas for feedstock for domestic power plants and other uses.
In 2018 Chinese-owned Sinopec started supplying the China-Myanmar gas pipeline with 11.5m cu metres of regasified LNG per day. That same year India’s government announced plans to establish natural gas pipelines to Myanmar via Bangladesh.
Myanmar has three state-owned oil refineries with a total nameplate capacity of 57,000 bpd: Thanlyin (26,000 bpd); Thanpayarkan (25,000 bpd) and Chauk (6000 bpd). However, the output from the three refineries – which are operated by MPE – is generally well below capacity and is not sufficient to cover local demand. To help bridge this gap, MPE has laid out plans for two new facilities in Thanpayarkan and Thanlyin, which will have a combined capacity of up to 350,000 bpd once completed.
As of late 2019 total refining output averaged around 12,000-13,000 bpd. Domestic oil consumption, meanwhile, averages 29,000 bpd. Much of the refined fuel available in the market is, therefore, imported. Domestic demand comes mainly from the transport sector. Petrol and diesel together account for 72% of total refined fuels produced in Myanmar. The consumption of refined fuel increased by 13% in 2018 to reach 288,000 bpd, supported by fast-paced economic expansion, ongoing infrastructure development and growth in private vehicle ownership.
Liquefied petroleum gas (LPG), which is primarily used for cooking at present, is produced at MPEowned refineries and plants, but only 5% of domestic households currently have access to it. The government has set a goal of providing 2m additional households with LPG by 2020. To create the steady supply needed to achieve this target, nine largescale fuel import and storage terminals are being developed in Yangon alone. Additional fuel import and storage facilities are also expected to be constructed near the deepsea ports currently being developed at Kauykphyu and Dawei.
Downstream
“Individual service station owners rely on expensive petrol imports and can have trouble ensuring standards,” Debabrata Bhattacharjee, country manager at Indian Oil Corporation, told OBG. “However, aggregation in the sector should help solve these issues and ensure consistent prices and quality for consumers,” he added.
As of July 2019 there were over 2500 licensed retail fuel stations across Myanmar, many of which are small enterprises with less than 10 stations. Mandalay Region had the highest concentration, with a quarter of the country’s fuel stations. Since 2018 a number of foreign players have entered the retail fuel market. One of the most prominent of these is Singapore’s Puma Energy, which enjoys a monopoly on the supply of jet fuel through its joint venture National Energy Puma Aviation Services, though this could soon change with Golden Myanmar Airlines having received approval in April 2019 to launch an aviation fuel business. Puma operates Myanmar’s largest oil products storage facility, and is engaged in the trading, distribution and storage of refined fuels and lubricants.
In March 2019 CNPC subsidiary Singapore Petroleum Company became the first foreign firm to open a fuel station in Yangon through a joint venture with local Shwe Taung Energy. PTT is expected to set up its first fuel station in 2020, along with an LPG and oil reserve facility, which will be the largest facility of its kind in Myanmar, with a capacity of 1m barrels of petrol and 4500 tonnes of LPG.
Increased competition in the downstream market is likely to benefit consumers in the country. “Price remains the main differentiation factor for customers,” U Win Paing Kyaw, director of fuel retailer Shwe Byain Phyu Group, told OBG. “We have yet to see major demand for higher-quality midstream consumer products, though of course there is a specialised market for them,” he added.
Outlook
Investment opportunities exist throughout the power sector supply chain, as well as in supporting services such as consultancy, project management, maintenance and installation. Major energy projects are being approved, while mini-grid and off-grid solutions are increasingly being targeted. The liberalisation of the downstream industry is creating opportunities for players in fuel storage, distribution and retail, with operation and maintenance contracts open to private actors.
In the upstream segment, Myanmar still holds vast untapped reserves of oil and natural gas that could help meet rising domestic demand as well as serve high-growth markets in the region. There are also challenges that come with a frontier market, namely red tape, delays and a lack of transparency in the procurement process. However, if the government can continue working to addressing these challenges and create a more favourable business climate for investors, the sector will be better placed to attract the capital and investment needed.
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