China’s official Xinhua News Agency reported that a crude pipeline to southwestern China through its neighbour Myanmar finally began operations after years of delays, allowing the world’s second-biggest oil user to receive supplies faster from the Middle East and Africa without having to ship through the Straits of Malacca and into the South China Sea.
This is part of President Xi Jinping’s “One Belt, One Road” infrastructure and trade development plan stretching across Asia to Africa and Europe.
Not a new plan: The construction of the Myanmar-China pipeline was originally proposed in 2004.
The pipeline is part of an ambitious USD 2.5bn oil and gas project between the two countries, and measures over 2,400 kilometres from the Shwe fields in the Indian Ocean, through Myanmar to the city of Kunming, China.
Plagued by Delays
Dogged by sensitive relations between Naypyitaw and Beijing, the $1.5 billion oil pipeline has been sitting empty for two years since 2014.
There were also major issues including transport tariffs and Myanmar’s tax take on the oil which has just been settled, but port fees have yet to be finalised, (source).
According to reports, there had been “a big argument with the Chinese” over the move to ship in crude before the contract was finalised, there were also several pending approvals due from Myanmar’s navy.
There are open questions about the economics and future cooperation with Myanmar, given the repeated delays and under-utilization.
From an observer point of view, this project does not make economic sense for China. It cost way too much, stalled for way too long and Myanmar’s tricky political leadership with its junta militants is just a time-bomb waiting to explode.
This project is only important to Beijing because it opens another channel for China to diversify oil imports and enables them to protect their sovereignty in case all hell breaks loose along the Straits of Malacca. (*Note America’s presence along the Straits of Malacca)
Singapore as the undisputed oil hub in Asia
The petroleum industry in Singapore is accountable for part of the country’s economy and is responsible for at least 5 per cent of its GDP.
Singapore refineries export oil to the Asia-Pacific markets such as Malaysia, Korea, Japan and even Australia.
My informed guess is that this specific project has limited impact on Singapore’s petroleum imports and exports.
It should be seen as a strategic move for China’s economic defence.
Additionally, although Singapore sits right at one of the world’s most valuable shipping lanes, its status as the undisputed oil hub in Asia has little to do with its geographical location.
What Singapore enjoys today, and what sets it apart from its neighbours, is political stability, contract predictability, logistical efficiency, and trade openness. To threaten Singapore, the China-Myanmar pipeline/hub would need to outperform in Singapore across all of those dimensions.
Investors may keep coming to Myanmar because incidents such as the Rohingya conflicts normally occur in just one part of Myanmar, far from the hub cities where strife would pose a safety hazard to their operations.
But the government may lose broader credibility if Aung San Suu Kyi can’t get a grip on the military. It is disconcerting to watch the government’s haplessness when it comes to rule of law and its security forces.
Should Singapore, therefore, be worried about this project that would bypass Singapore’s hub?
No. It would not be the first project that tries to do this.