The race to attract foreign oil and gas companies could consolidate the transformation of a former pariah state.
- By Keith JohnsonKeith Johnson is Foreign Policy’s acting managing editor for news. He has been at FP since 2013, after spending 15 years covering terrorism, energy, airlines, politics, foreign affairs, and the economy for the Wall Street Journal. He has reported from Europe, the Middle East, Africa, and Asia and, contrary to rumors, has absolutely no plans to resume his bullfighting career.
Energy executives around the globe rubbed their hands anticipating a new gold rush in Myanmar when that formerly isolated country began opening up in 2011. They’re still eagerly waiting, but the fledgling democracy finally seems ready for them.
Before Myanmar, also known as Burma, could fling open its energy reserves, it had to remake its government, overhaul the way it does business — no more opacity, bribes, and corruption — and update its crumbling infrastructure.
"People assumed that once sanctions were lifted it would be easy to go in," said Erin Murphy, a former State Department official who started Inle Advisory Group, a consultancy focused on Myanmar. Potential investors thought of it as an emerging market, when really it was much less developed, she said.
International firms were so anxious to get back into Myanmar ahead of a new investment boom that office rental prices in Yangon, or Rangoon, were higher than in New York for a spell last year; exorbitant rates still spark scandal there today.
Foreign investments are inching upward after most international sanctions imposed on the military junta in 1997 were lifted and the country prepares for its first, fully democratic elections in more than two decades. (The military junta ignored the results of the 1990 elections. The 2012 elections only offered opposition parties a handful of seats in parliament.) Incoming investments rose from about $2 billion before the political transition to $2.7 billion last year, showing that Myanmar’s efforts to make the country more appealing to international companies by reforming its laws is slowly paying dividends.
For the energy sector, years of anticipation came to fruition this spring when Myanmar finally awarded 20 blocks for offshore oil and gas exploration to foreign firms, a landmark step.
Attracting more outside capital is crucial; and not just to boost energy production and exports, which are a key source of government revenue. In the energy sector especially, greater involvement by foreign companies could actually help solidify Myanmar’s nascent political makeover as those enterprises demand more transparency, accountability, and better governance.
When Myanmar’s military rulers began liberalizing restrictive rules on labor unions and the media, freeing political prisoners, and entering talks to end decades of armed conflict with ethnic minorities in 2011, expectations soared that international firms would scramble to invest in a country that many considered akin to the next Vietnam.
For energy companies in particular, Myanmar is ideally situated geographically to supply its fast-growing neighbors in Southeast Asia. And Burma was one of the first countries to export oil, back in the 1850s. For decades, Western firms such as Total and Unocal, later Chevron, extracted natural gas from large offshore deposits in the sprawling Yadana field off the southern coast. The energy sector — including oil, gas, and power generation — accounted for the bulk of foreign investment flowing into the country. What’s more, many oil firms believe Myanmar holds even greater energy riches that simply haven’t been explored because of decades of sanctions and isolation.
Norway’s Statoil, for example, joined forces with ConocoPhillips and was awarded one offshore block earlier this year. Despite all the challenges of doing business in Myanmar, and lingering uncertainty over the political transition there, Statoil’s motivation was clear. "This is a large and virtually unexplored basin with a proven petroleum system and significant potential upside," said Statoil spokesman Knut Rostad.
That unquantified potential drew almost 70 big international firms to the latest bidding round; 30 actually bid and 20 won rights to begin exploration, including international majors such as Statoil, Shell, Total, Chevron, BG, and Eni.
"In terms of oil and gas exploration, this is really frontier exploration. There haven’t been any wells drilled in deep water, so this is really one of the last frontiers that we have seen around the world, and that has recently been made available," said an executive with one Western oil firm recently awarded blocks.
Actually tapping Myanmar’s energy potential has been a long, slow slog, which could be a good thing.
Four years after the elections that ushered in an end to total military rule and the beginnings of Myanmar’s opening, no production contracts have been signed for those promising offshore blocks; and no new gas fields have started producing. What’s more, the foreign rush to explore for oil and gas both onshore and offshore threatens to overwhelm the small number of government officials overseeing the development of dozens of big, complicated projects, potentially causing further delay.
There are other concerns dogging the pace of resource development, especially the lack of data on just what oil and gas resources are really out there and a narrow window of time to carry out geological surveys on the blocks that were awarded. Furthermore, Myanmar’s growing appetite for domestic energy, such as natural gas for power generation, raises fears that the government will increasingly make companies dedicate more of what they produce to the less-profitable domestic market.
"Above ground factors have had a significant impact on the pace of Myanmar’s upstream development," said Olivia Boyd, who covers Myanmar for energy consultancy IHS. The government delayed awarding the offshore blocks, a process that began in 2012, until earlier this year, largely to bring the whole process up to snuff for international firms that face strict environmental and compliance rules.
For example, Myanmar introduced an industry-wide standard contract to replace the old, individually negotiated, opaque ones. It also undertook tougher environmental reviews. It also overhauled which government ministries are in charge of energy contracts, making shady deals less likely, and approved new legislation to tackle bribery and corruption. Perhaps most importantly, it applied to join the Extractive Industries Transparency Initiative, a global standard pushing more openness in resource development around the world.
"Oil companies have demonstrated that they are treading very carefully when it comes to investing in Myanmar and the government, in turn, has been very active in seeking to address transparency concerns," Boyd said.
U.S. Commerce Secretary Penny Pritzker opened a new commercial office in Yangon this month, touting how American involvement can accelerate Myanmar’s reforms. "When our businesses make investments, they bring with them the highest standards, including a commitment to corporate a
nd social responsibility," she said.
All this could go a long way toward helping Myanmar avoid the so-called resource curse, when countries’ abundant natural resources fuel corruption and inequality and undermine democracy. Instead, Myanmar could "piggy-back on the more rigorous standards of foreign partners," concluded Cullen Hendrix and Marcus Noland in a recent Peterson Institute of International Economics study.
"It’s kind of a gold rush, but with time the boys leave, and the men stay," the Western oil executive said, referring to how the right environment attracts the right kind of investors.
Jamila Trindle contributed to this article.