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Beset By Delays, Myanmar-China Oil Pipeline Nears Start-Up

Source: Reuters 3/21/2017, Location: Asia

Nearly a decade in the making, a project to pump oil 770 km (480 miles) across Myanmar to southwest China is set for imminent start-up, with a supertanker nearing the port of Kyauk Phyu, marking the opening of a new oil trading route.

Dogged by sensitive relations between Naypyitaw and Beijing, the $1.5 billion oil pipeline has been sitting empty for two years, but the two sides are now close to a deal, said Myanmar-based government and industry sources, despite some last-minute tensions.

An agreement between China's PetroChina and Myanmar's government will allow the state energy giant to import overseas oil via the Bay of Bengal and pump it through the pipeline to supply a new 260,000-barrels-per-day (bpd) refinery in landlocked Yunnan province.

The new oil gateway fits with China's "One Belt, One Road" ambitions, linking it with central Asia and Europe, and will provide a more direct alternative route to sending Middle Eastern oil via the crowded Malacca Straits and Singapore.

It would also be a rare win for China in Myanmar after a diplomatic offensive aimed at forging better ties with its resource-rich neighbour, which has often been wary of Beijing's economic clout.

Aung Myat Soe, deputy director of planning under the state-owned Myanmar Oil and Gas Enterprise (MOGE), said the project was awaiting a final sign-off by the Minister of Electricity and Energy.

Major issues including transport tariffs and Myanmar's tax take on the oil have been settled, but port fees have yet to be finalised, said a Myanmar-based industry source familiar with the matter.

"The two sides are working to finalize the terms and sign the contract," the person said, declining to be named as the information is not public.

"I can't say for sure when the deal would be sealed - it could be in a couple of days or early April."

The pipeline will have an eventual capacity of 400,000 bpd, about 5 percent of China's daily import demand, but the start-up of the Yunnan refinery has been held up as PetroChina and Myanmar negotiated final terms for delivering the oil.

PetroChina plans to start test production at the refinery in June, aiming to expand its foothold in China's fuel-short southwest which has so far relied largely on rival Sinopec for supplies, said two Beijing-based oil officials familiar with the Yunnan refinery.

Before then, PetroChina is expected to purchase another 7 million barrels of crude for the pipeline, to stock up fuel for about one month's production at its new refinery, said one of the officials.

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