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Aug 5, 2013 | 13:00 GMT

8 mins read

The Uncertain Future of the Sino-Myanmar Pipeline

The Uncertain Future of the Sino-Myanmar Pipeline
(Ed Jones/AFP/Getty Images)
Summary

Domestic political opposition and security concerns in Myanmar could threaten an energy pipeline built in the country by China, its longtime patron. Beijing conceived of the pipeline before Myanmar began its opening to the rest of the world in 2010, but since that time, much has changed. Domestic opposition to the project, once largely contained, has escalated, and the government itself may be looking to improve the terms of its energy deal with the Chinese and reduce Myanmar's dependence on China overall. These factors, combined with the activity of numerous ethnic militias operating in areas through which the pipeline runs, could call the reliability of the newly opened pipeline into question.

The pipeline project was first proposed by China in 2004 and plans were finalized in 2007. It consists of two parallel lines, one for imported oil from the Middle East with a projected capacity of 22 million tons and one for locally produced natural gas with a projected capacity of 12 billion cubic meters. Both run 739 kilometers (about 459 miles) from natural gas fields near Kyauk Phyu in Myanmar's Rakhine state through Yunnan, a landlocked province of China, and eventually to Guigang, Guangxi province. Natural gas began to flow to China through the Sino-Myanmar pipeline July 28, though the final stretch of the pipeline to China's Guangxi province has not yet been completed and the initial level of natural gas is flowing at far below its projected rate. This comes after a two-month delay and amid concerns about the pipeline's continued viability due to insurgent violence along the route in Shan state and the adjacent Kachin state. The portion of the natural gas pipeline running from Yunnan to Guangxi is supposed to come online in September 2013, but there are rumors of additional delays, and oil will not begin flowing until June 2014.

The Sino-Myanmar Pipeline

The Sino-Myanmar Pipeline

Beijing financed and built the project as a way to help feed its booming demand for energy. China as a whole consumes 145.9 billion cubic meters of natural gas annually, and the International Energy Agency predicts that this will increase to 200 billion cubic meters per year by 2020, with a domestic production shortfall of as much as 80 billion cubic meters per year. Although the natural gas provided by the Sino-Myanmar pipeline is only a small part of China's total consumption, it will be key to meeting regional gas demand and to Beijing's efforts to diversify its energy inputs. Currently, the natural gas will go toward shoring up local economies in Yunnan and Guangxi and will eventually link up with an extension of the east-west pipeline to feed China's coastal economy.

China was able to meet its vision for energy security when Myanmar's international isolation allowed Beijing to greatly expand its reach into the country. Beijing's strategy toward Myanmar at that time was characterized by engagement with the small group of military leaders and the use of direct investment in the cash-strapped nation as leverage. The development of land-based energy routes like the Sino-Myanmar pipeline was intended to provide China with a strategic and secure alternative to the maritime chokepoint in the Strait of Malacca and the increasingly contested South China Sea. China's influence in the country allowed it to shape Myanmar's energy policy and obtain the pipeline deal.

Increasing Opposition

Beijing's patronage strategy no longer works as it once did when the junta controlled the country. Since the political transition in 2010, opposition voices in Naypyidaw have begun to emerge. Although politically weak because of constitutional limitations, these parties have openly criticized Beijing's ties to Naypyidaw, putting questions about Chinese investment at the center of national debate. Already members of the military's old guard have tried to appease the opposition regarding Chinese-built infrastructure.

In September 2011, Naypyidaw staged a high-profile rebuff of China by suspending Beijing's Myitsone hydropower dam project, which would have exported electricity to Yunnan province. This was a major concession to Myanmar's political opposition, which during its years of exile demanded that major development projects be halted due to the displacement of local villages and environmental issues, among other concerns. Worried that these complaints could affect other projects, particularly the pipeline, Beijing has been forced to shift its strategy and attempt to reach out to the opposition parties and local populations, which are willing to use the pipeline to pursue their own interests.

Exiled activists tied to the opposition Rakhine Nationalities Development Party, in the state near where the pipeline begins, released a report critical of the project on July 28, the day natural gas began pumping. On Aug. 2, they also told the media that their area did not receive its promised share of natural gas, and that too much of the gas was being distributed among the country as a whole. If the Rakhine Nationalities Development Party continues to push this issue, it could become an issue in the 2015 elections and result in a renegotiation of the pipeline.

The opposition's criticism centers on a key concern for Myanmar: electricity. Because of the decades the country spent isolated from the rest of the world, it is extremely poor, and electricity is vital for Myanmar's economic development. The availability of electricity is also important in preventing instability. Only 26 percent of the population has access to electricity, and there are weekly blackouts in the major city of Yangon, where Myanmar's nascent manufacturing sector is centered. Protests broke out in Yangon in May 2012 over these blackouts. In the past (in 1988 and 2007, for example), Myanmar dealt with uprisings with security crackdowns to maintain order. While the military is still capable of violently suppressing unrest, doing so would jeopardize its investment overtures to the West.

Although Myanmar has proven reserves of 221 billion cubic meters of natural gas, Naypyidaw has struggled to use these reserves for domestic purposes, in part due to unfavorable export deals it made with its neighbors prior to 2010 in order to feed its sanctioned economy. To better utilize domestic resources, Yangon city authorities have announced plans to import natural gas, and Myanmar's energy minister said in 2012 that by 2013 the country would revise agreements and reduce natural gas exports to Thailand, its biggest consumer, by 20 percent. Rumors continue to circulate that the government will soon completely reassess all pre-transition energy deals because of a lack of transparency at the time they were struck. This could aid Myanmar's development, which hinges on access to cheap energy, though it could also alienate some of its patrons, such as China.

Adding to Beijing's difficulties, Naypyidaw's determination to consolidate the country's ethnic groups may degrade China's ability to balance the Myanmar government with the various ethnic militias — many of which have close ties to Beijing — a move that is key to securing the pipeline corridor. Prior to 2010, Beijing guaranteed a secure environment for its pipeline by supporting the Kachin Independence Organization, the Shan State Army (North) and the United Wa State Army. Now Myanmar is using the pipeline as leverage to limit China's meddling and assert Naypyidaw's own sovereignty in the region. This has resulted in chaos in the area and the potential for sabotage.

At the end of July, clashes escalated between the Kachin militia and the government. Earlier, in May 2013, an unidentified group of Shan guerrillas attacked an energy installation and killed two Myanmar nationals working for Chinese pipeline companies. Although the pipeline runs underground in some places, it remains vulnerable to disruption. The Chinese state-backed company that runs the pipeline has already floated the idea of employing their own armed private security teams along the pipeline route, which might result in clashes with local militants.

Naypyidaw's New Strategic Position

Myanmar's government is in a position to reassess pre-2010 deals as more countries become willing to invest in the country. Most of China's previous investment was in the extractive sector, but new investors seem more willing to put money into Myanmar's small but growing industrial sector. China remains the largest historical investor in Myanmar, with $14.9 billion in cumulative investment, but with the recent end of Western sanctions, European and U.S. companies have begun to move in. In June 2013, China invested only $4.1 million and Britain poured in $15.8 million. China is currently the third-largest investor in the country, behind Singapore and Vietnam. European, Indian and U.S. companies all bid on recently opened natural gas fields. Now that it has viable foreign investment from a number of sources, Myanmar needs to negotiate favorable resource-sharing deals in this new round or face continued natural gas shortages.

Either way, these new fields will not come online for several years. Foreign companies are ramping up investment in many sectors. This foreign economic involvement in Myanmar has even shown some signs of possible military-to-military cooperation. The United Kingdom announced July 16 that it would resume military ties with Myanmar, starting with training on human rights and accountability. Myanmar is also in talks with India to procure coastal patrol vessels and naval sensors. As Myanmar becomes less of a pariah to the United States and European Union, such ties will strengthen, feeding Beijing's continued concerns that Myanmar's growing geopolitical significance will reinforce its ability to look beyond China.

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