The China-Myanmar gas pipeline – which suffered delays after being built through a restive border region – is running significantly under capacity because of complications in the offshore drilling programme, Interfax has learned.

More than seven months after its commissioning ceremony, the pipeline is handling a fraction of its designed capacity of 12 billion cubic metres per year, according to Chinese customs data.

Small volumes of gas started arriving through the pipeline in September last year. Imports climbed to 56.92 million cubic metres in November, 141.29 MMcm in December and 166.02 MMcm in January. However, that amounts to less than 20% of the pipeline’s capacity.

Marketing projections by China National Petroleum Corp. (CNPC) had suggested it would initially run at 50% of capacity.

Industry sources attributed the delays to a hold-up offshore. One source told Interfax Daewoo International, which operates the offshore Shwe gas fields feeding the pipeline, was behind schedule in its drilling programme. Daewoo could not be reached for comment.

“A ramp-up period is more or less expected, but in this case the delivered volumes are smaller than expected. There may well be some delays in the offshore drilling programme, which have limited the feedstock for the pipeline,” Liutong Zhang, a consultant at Asia economic consultancy The Lantau Group, told Interfax.

All that glitters…

The project feeding the pipeline, known as Shwe after the Burmese word for gold, comprises three offshore fields off the coast of western Myanmar – Shwe and Shwe Phyu in Block A-1, and Mya in Block A-3.

The project is being developed by an international consortium led by South Korea’s Daewoo, which includes ONGC Videsh and Gail from India, state-run MOGE and Kogas.

CNPC has a contract for 400 million cubic feet per day (11 million cubic metres per day: MMcm/d) of pipeline gas supply from Myanmar, out of production of 14 MMcm/d from the fields. The remaining 3 MMcm/d will be sent to local markets in Myanmar.

As CNPC’s offtake is equivalent to 4 bcm/y, analysts have questioned where the additional gas will come from to exploit the pipeline’s designed 12 bcm/y capacity.

“New discoveries and new developments for the pipeline could come, but so far, it’s not there yet,” Kang Wu, head of Asia operations at Facts Global Energy, told Interfax.

“You can speculate [and] say it will be filled up. Maybe that will be true, but so far, the development is not concrete enough to say the rest of the pipeline will be filled up soon,” Kang added.

Daewoo said in mid-January that it aimed to produce 14 MMcm/d at the Shwe well, up from 6 MMcm/d at the time, by the end of the year. The company began production at the Mya well – the first to start at the field – in July last year.

Heavy weather

Weather conditions at the project could have contributed to the drilling delays, as Shwe is located in the Bay of Bengal, where powerful tropical storms frequently form. In November, Cyclone Lehar battered the Indian subcontinent with winds up to 200 kph and heavy rain.

Growing domestic gas consumption in Myanmar could also prevent China from fully using the pipeline’s capacity. Last month, APR Energy became the latest United States company to enter Myanmar’s power generation sector, winning a contract to build a 100 MW gas-fired power plant that will reportedly be fed by the China-Myanmar pipeline.

“There is an issue with domestic consumption,” said Wu, adding that “nationalistic sentiment is running high in Myanmar”.

The government’s 2011 decision to suspend the China-backed $3.6 billion Myitsone Dam was highly popular in Myanmar because of concerns Beijing had undue influence within the country. Since then, a rapprochement with Western powers after years of isolationist rule has reduced Beijing’s influence, leading some local analysts to express concerns over the safety of Chinese strategic interests.

One of the most important of these are the twin oil and gas pipelines, which will enable Beijing to diversify its energy supply sources while reducing its exposure to the Strait of Malacca – a potential chokepoint through which Middle East oil shipments flow to Asia.

The slow flows and China’s perceived reluctance to commit to larger volumes besides its initial 4 bcm/y offtake have also raised questions over the pipeline’s economics.

“I don’t think the economics work out well [for anyone but] CNPC. After years of frustration with Russia, they decided to move ahead first in Turkmenistan, Uzbekistan, Kazakhstan and then Myanmar,” said Wu.

But unlike Turkmenistan, which has rapidly evolved into China’s largest supplier after its first export pipeline was commissioned in 2009, the Myanmar supply route has yet to establish itself.