Myanmar Industry Overview

Oil & Gas

Overview

Myanmar has one of the world's oldest petroleum industries. Its first crude oil production and export started in 1853. Myanmar exports its oil and gas products mainly into China. At the end of 2016, Oil and gas investments represented 33% of the total approved FDI amount, US$ 22410 million. The production of natural gas started in 1999. Natural gas production consists of 98% pipeline gas and 2% natural gas. Oil production is mainly for motor spirit and diesel oil. Currently, the price difference between crude oil and oil products is between 15-25%. In the past, Myanmar was running a trade deficit and due to the export of the natural gas it had a trade surplus in 2001. By comparing the gap between actual consumption and calculated consumption based on total registered cars , 60% of the fuel is estimated to have been from the black market. The South-East Asia Natural Gas Pipeline Co Ltd invested US$2.15 billion to transport natural gas into China via pipeline from Kyauk Phyu. Daewoo International, ONGC Videsh Ltd, Gail Ltd and Korea Gas Corporation invested US$1.98 billion in the development and sale of natural gas and US$443 million to construct an offshore natural gas pipeline system.

Opportunities and Barriers

The demand for oil and gas products is expected to reach 200KB/D in around 2025, and could be over 350KB/D in 2035 according to a research done by Nomura Research Institute. Most of the fuel demand is mainly in Yangon and there are increasing demands in other regions. There are mainly four problems in Myanmar Oil Industry: deficiency of government, low competitiveness of domestic products, inefficiency of the distribution system and lack of reliable operations or operators. Myanmar has three refineries but the operation rate is comparatively low. Illegal fuel imports are still active in border areas due to weaknesses in border guarding. It was estimated that Illegally imported products supply 20% of the oil products demand. The main selling point for illegal imports is the cheaper price than the market price since tax avoidance allows a lower operation costs for illegal importers. According to Myanmar Center for Responsible Business, prospective investors in this sector should conduct enhanced due diligence on companies involved in deals and engage with investee companies to ensure that these companies meet or exceed international standards on responsible business conduct.

Legal & Regulatory Framework

Forming a JV with Ministry of Energy is the only way for participation. The new Foreign Investment Law permits foreign capital in all downstream VC activities. The potential of fossil fuels is restrictive.

Allowed Types of Investments

Investment businesses foreign investors are not allowed to carry on are rigging and production of hand-dug oil well with depth pf 1,000 feet. Investment businesses allowed only in the form of joint venture with a citizen owned entity or a Myanmar citizen is production and domestic distribution and sale of easily inflammable solid, liquid, gas and aerosol. In JV form, production and domestic distribution and sale of oxidizing materials (oxygen, hydrogen peroxide) and compressed gas are also allowed.
Investment businesses permitted with recommendation of Ministry of Electricity and Energy are;

  1. Importing, producing, constructing and installing of equipment, accessories and parts required for construction and installing of offshore platform
  2. Construction and installing tanks, uploading and offloading jetties, pipelines, related equipment and building required for import/export, transport, storage and distribution of petroleum, gas and petroleum product
  3. Construction and installation of various kinds of new petro-chemical plants, refurbishing and installation of old plants and operation
  4. Constructing and operation of offshore supply base to supply necessary materials and service for exploration, drilling and production of onshore and offshore natural gas
  5. Importing, production, assembling and installation of machinery, equipment, parts necessary for exploration, prospecting and interpretation of petroleum and natural gas using geo, geo-physic and geo-chemical technology
  6. Importation, production, construction and installing of machinery, materials and pasts necessary for operation relating to drilling/ production/laboratory test
  7. Importing, production, construction and installation of machinery, equipment, parts necessary for transportation, construction of pipeline network for petroleum and natural gas

Sources

  1. Myanmar Oil & Gas Sector-Wide Impact Assessment Executive Summary, Myanmar Centre for Responsible Business (MCRB), Institute for Human Rights and Business (IHRB), and Danish Institute for Human Rights (DIHR), September 2014
  2. Oil Industry in Myanmar, Challenges to overcome, Nomura Research Institute, February 2015
  3. Myanmar Upstream Oil & Gas Sector, Albert T. Chandler, Senior Partner, Chandler & Thong-ek and Daw Khin Cho Kyi, Managing Partner, Myanmar Legal Services Limited Law Offices Ltd, May 2016

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