Thursday, July 30, 2009

Is China Playing Safe with its Burma Pipeline Plan?

The Irrawaddy News

BANGKOK—China appears to be making alternative plans in case its Middle East oil transshipment port and pipeline project in Burma fails because of regime change.

The Chinese state-owned oil and gas conglomerate China National Petroleum Corporation (CNPC) is spending at least US $1.5 billion to use Burma as a conduit for oil shipments from the Middle East and Africa. But as a backup in case this scheme has to be abandoned it is now also investing in a multibillion dollar oil project in northern Malaysia.

The CNPC is to play a central role in a regional oil processing and transshipment hub link between the Middle East and China on the northwest coast of Malaysia facing the Indian Ocean just like the port development at Kyaukpyu on Ramree Island on the central Burma coast.

Crude oil from Saudi Arabia and probably also Iran will be shipped to a $10 billion refinery on reclaimed land at Yan in Malaysia’s Kedah state close to the border with southern Thailand.

The refinery will have a capacity of 350,000 barrels a day and CNPC will take at least 200,000 bpd.

The chief Malaysian developer, Merapoh Resources Corporation, says the Chinese are likely to become major shareholders. Industry reports suggest that one of the chief financiers of the Yan project, Hong Kong-based equity procurers Beijing Star, is in fact acting as a proxy for CNPC.

This new plan involving Chinese investment revives a Malaysian idea that rose briefly two years ago and then sank without trace, Bangkok-based oil industry consultant-analyst Sar Watana told The Irrawaddy.

In 2007, Malaysia was looking for financial backing for a west coast transshipment port and cross-country pipeline. The main beneficiary would have been China, but the Chinese seemed to lose interest as the Burma pipeline possibility grew.

The re-emergence of this project with China closely involved implies that the Chinese are not going to rely solely on the Burma transshipment scheme.

Both projects short-cut the long sea journey tankers heading for China’s south and east coasts from north Africa and the Middle East currently have to make via the Malacca Strait and Singapore at the bottom of the Malaysian peninsula. More than 60 percent of China’s oil imports pass through the strait.

China has not disclosed how much crude oil it plans to transship through Burma, but the deep-draught port on Ramree Island will be able to handle the biggest bulk tankers. Oil will be pumped 1,200 kilometers in unprocessed form to a refinery in Kunming, capital of neighboring Yunnan province.

There has been speculation that further pipelines inside China will move some of the oil deeper into China to other provinces.

Work on the Burma oil pipeline is supposed to begin before the end of this year, according to Chinese media reports, and be operational by 2012.

The Malaysian refinery at Yan is scheduled to be completed in 2014.

Another Chinese state company, China National Overseas Oil Corporation, had reportedly been involved in Malaysia’s 2007 oil transshipment plans.

According to Malaysia’s Merapoh Resources Corporation, 40 percent of the Yan project will be owned by Beijing Star of Hong Kong.

Beijing Star chairman Li Feng Yi was quoted by The Star newspaper in Malaysia as saying his firm will sell its share in the finished Yan refinery to CNPC.

From a commercial point of view it doesn’t seem to make sense for China to be involved in two major oil trans shipment schemes in fairly close proximity of Southeast Asia, says Collin Reynolds, another industry analyst in Bangkok.

But these Chinese state oil-gas giants have very, very deep pockets, and their primary purpose is supply, not cost, Reynolds told The Irrawaddy.

It begins to look as though China is hedging its bets. Burma is very much a client state right now, with Beijing able to manipulate the military junta for its own ends.

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