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Jan 26, 2012 | 12:07 GMT

5 mins read

Myanmar's Strategic Upgrade

Soe Than WIN/AFP/Getty Images
Summary
In an effort to open the country, Myanmar is focusing its attention on its advantageous location on the Indian Ocean and its large natural gas reserves. By establishing a number of major economic initiatives, the country aims to attract foreign investors, create redundancy by providing a trade route that bypasses the Strait of Malacca and reduce its dependence on China and Thailand.

Myanmar President Thein Sein said Jan. 20 that the country's recent democratic reforms were irreversible. Some of the reforms established by the civilian-led government in Naypyidaw include allowing opposition leader Aung San Suu Kyi to register for the April 1 parliamentary by-elections and a possible Cabinet appointment, releasing some political prisoners and accelerating negotiations with ethnic rebel groups. Signifying an acceptance of the reforms, the European Union lifted some of its sanctions on Myanmar on Jan. 23, and the United States re-established diplomatic ties with the country Jan. 13.

The reforms come at a time when Naypyidaw is interested in allowing outside players to be legitimately involved in Myanmar's business and energy sectors. The country is in the midst of establishing two major economic initiatives — the development of its natural gas production and liquefied natural gas (LNG) export capacity and the development of the Dawei port on the Indian Ocean — that would take advantage of Myanmar's natural gas reserves and strategic location. If they are successful, the initiatives will reduce Myanmar's dependence on China and Thailand; help boost the country's economy; and raise Naypyidaw's strategic profile by making it more critical to China, the Association of Southeast Asian Nations (ASEAN) and foreign consumers of its LNG.

Natural Gas Development

The first of Myanmar's economic initiatives involves developing its natural gas production and LNG export capacity to take advantage of its large natural gas reserves. Myanmar's natural gas production surged 100 percent in 2000, reaching a peak of about 13.5 billion cubic meters in 2007. But even though Myanmar reportedly boasts the world's 10th largest natural gas reserves, its natural gas production and exports have remained relatively stagnant since 2007, primarily due to a lack of LNG export terminals, undeveloped pipeline networks and inadequate production infrastructure.

Without LNG export terminals, Myanmar is limited to exporting natural gas through pipelines, which significantly limits its potential customers. About 70 percent of Myanmar's current natural gas exports go to Thailand; in turn, Thailand gets about 30 percent of its natural gas from Myanmar. Myanmar also exports to southwestern China. However, Thailand and China have preferred to import LNG from more developed and cheaper sources rather than help develop Myanmar's export capacity, and other countries have been reluctant to invest due to international sanctions. With global demand for LNG on the rise and Thailand trying to secure more natural gas sources, Naypyidaw sees this as a good opportunity to develop its natural gas industry.

Dawei Projects 

The second initiative concerns the Dawei port and transportation projects on the Tanintharyi Peninsula, which borders Thailand. Requiring more than $8 billion in capital, the Dawei projects include a deep-sea port, a power plant and infrastructure plans that could make Myanmar a secondary trade hub for exporters in Southeast Asia and southwestern China. The Dawei port is significant because it would provide an alternative trade route to the Strait of Malacca for products coming from ASEAN, China's southwest regions and the Indian Basin. It also would offer faster and more cost-effective access to southern Chinese ports.

Both Thailand and China have shown interest in the Dawei projects. Thailand signed a memorandum of understanding with Myanmar in 2008 to develop the Dawei projects. For Thailand, the projects would provide a key export point near its western Kanchanaburi region that would boost development in a growing region and increase investments in transportation infrastructure to Yunnan, China, and across ASEAN states.

For China, which is trying to develop its inland regions, products from Yunnan would be able to leave port at Dawei and travel through Laos and Thailand, rather than taking the longer and more costly routes to China's southern ports on the South China Sea. Beijing's concerns with vulnerabilities in the Strait of Malacca also make the Dawei projects critical to Chinese interests, as raw materials would be able to bypass the Malacca chokepoint and reach China more securely through the land route.

The proposed transit routes from Dawei through Thailand and into Vietnam are also significant for South Korea and Japan. Both countries have proposed establishing manufacturing hubs in Dawei. They see the potential routes as a way to improve their connection with the ASEAN region. 

Thailand has been the main backer of these projects, though China has indicated interest as well. Myanmar, however, is hoping to balance Chinese and Thai interests in the projects to prevent increased dependence on its neighbors. For instance, the Myanmar government canceled a coal-fired power plant project in Dawei, claiming it was doing so after an environmental review. The Thai developers said that they were not notified of the cancellation but that they were confident that the project would continue using a different energy source, possibly natural gas. The cancellation could have been an attempt by the Myanmar government to open the door to other investors and dilute Thai influence in the project. If this turns out to be the case with the Dawei projects, Japanese and other outside players' financing will become critical to the project.

As Myanmar develops its infrastructure and energy industry, Naypyidaw will attempt to bring in more foreign players to balance its major backers and closest trading partners — China and Thailand — and to better position itself in the region. While benefitting China and Thailand and better integrating ASEAN networks, Myanmar's natural gas and Dawei developments also have their advantages for Naypyidaw.

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