Myanmar in the Middle
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The latest news coming from Myanmar in the wake of the by-elections that saw National League for Democracy, led by Aung San Suu Kyi, take 43 of 45 seats up for grabs involve the lifting or easing of decades-old sanctions against the country. The U.S., the E.U., Canada and Australia have all done so in the past few weeks. Japan recently forgave more than $3.4 billion of Myanmar’s debt and has pledged billions in new investment. Now, the World Bank is looking to open an office in June, hinging on how more than $800 million in development loans to it and the Asian Development Bank are re-structured.
The political and investment changes that are in process in Myanmar as well as their importance in a geopolitical sense are making headlines now as the West begins lightening up on sanctions that have been in place since the 1960s. It is becoming obvious that how Myanmar changes and integrates into the rest of ASEAN will have a profound effect on the development of the entirety of Southeast Asia.
The Key to the Region
Myanmar is the key to opening up the western portion of the Indochina peninsula and it's why ASEAN placed such importance on completing the SKRL (Singapore-Kunming Rail Line) sections that link Myanmar with Cambodia. Ultimately opening up Myanmar makes potential aggression between the U.S. and China through Strait of Malacca less of a threat in the long term. The events unfolding in Iran are a direct attack on China by proxy. Myanmar is a means by which to strengthen any hardened stance China makes in defense of its economy against U.S. and European bids to disrupt it.
Development of both electricity and oil and gas production are the foci in Myanmar right now and its global politics that is driving it.
China is investing a ton of money into Myanmar's oil and gas industry. All three of their major oil companies Petrochina (NYSE: PTR), Sinopec Group (NYSE: SHI) and CNOOC(NYSE: CEO) all have investments in Myanmar. FDI into Myanmar's oil and gas industry totaled $13.8 billion USD in 2011-12, or about 31% of GDP, most of which came from China. Sinopec and CNOOC have significant exploration in multiple blocks in the Bay of Bengal as well as exploration activity off the coast of Cambodia. Sinopec announced a large natural gas find in early 2011. Both Sinopec and Petrochina recently reported 1Q results and they are struggling right now with refining losses because of subsidized prices for diesel and gasoline.
With the changes to Myanmar’s government and the recent lifting of sanctions by the U.S., the E.U., Australia and Japan, has a number of political overtones which go in hand with the economics as now China’s big oil companies will no longer operate in a vacuum, admittedly of the West’s own choosing. The competition itself should accelerate development of Myanmar’s assets. But, that said, China’s has a major first-strike advantage after years of developing and investing in Myanmar.
The $1.5 billion, 2000 km pipeline being built by Petrochina from Kyaukpyu on the Bay of Bengal to Kunming, is due to be completed in 2013, which will allow Chinese oil tankers to bypass the Malakka Straits and make it much harder for the U.S. Navy to restrict the flow of goods to China should relations between the two countries deteriorate. Currently only Russia supplies oil to China via pipeline, 400,000 barrels per day.
The Splintering Politics
One quick look at a map can tell you how these issues all come together and how Myanmar is caught in the middle of it. Myanmar's oil production has not increased significantly in 2008-10, hovering near 20,000 barrels per day. Data for this year is not available 2011 yet. But, it is obvious that that number is going to increase significantly in the next few years. Many of the oil field licenses that have been granted in recent years lie near the SKRL and pipeline. Myanmar has the 10th largest known reserves for natural gas in the world.
Given that both China and Russia are resisting the attempts by the U.S. and the E.U. to financially isolate Iran all of this new attention being paid to Myanmar by the West is curious at a minimum. One could make the cynical argument that it was the strengthening of ties between China and Myanmar which has the U.S. looking to lift sanctions and re-establish relations after decades of the self-righteous policy of isolation. In fact China intimated as such last week.
The twists of the Iranian game have directly implications on the situation in Myanmar. As we approach the June 28th deadline for sanctions to be employed against any financial firms doing business with Iran the rhetoric will intensify as will the stakes.
Peter Pham has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.