Parami talks oil and gas - Analysis

Parami talks oil and gas - Analysis

By The Myanmar Times   |   Sunday, 22 September 2013

Parami Energy Development is a branch of the Parami Group of Companies, working in the oil and gas industry in Myanmar. Parami CEO U Ken Tun here discusses Myanmar's energy sector, including his view of investment, local requirements, production and exports

Parami Group CEO U Ken Tun. Photo: Supplied

In the last bidding round in 2012, the government awarded seven international exploration companies a total of nine onshore blocks. Now we have a historic bidding round for around 48 blocks currently ongoing.

The government requires investors to partner with local companies when bidding for onshore and shallow water blocks, and forbids local companies operating in deep water blocks. It seems to me that the government does not want local companies to take substantial risk in deep water, where it costs up to US$100 million to drill a well.

On the other hand, this policy will deter Myanmar companies from having access to the knowledge and knowhow for deep water operations forever. 

The Myanmar Citizens Investment laws encourage Myanmar companies to work together with international investors in kind or in cash. Resources are depletable. We should learn from the experiences of other countries such as Norway, Malaysia, Trinidad, and Australia. Most of them use revenue from the oil and gas sector to develop the local economy and local capabilities, and income created by local companies enables them to become more competitive regionally.

So, we hope our government takes a far-sighted approach to use the current opportunity to facilitate local companies' involvement in the oil and gas sector to be more competitive and to acquire a professional skill set. For example, operators in Myanmar spent around $270 million in 2009 for procurement, which grew to almost $1 billion in 2012. With the new investment coming in and more companies taking up blocks, we expect service industry revenue to grow to become a multi-billion dollar sector in the future.

But the sad part of the story  is local companies are struggling to compete with each other in the less value added segments of service industries, such as logistics, catering and providing local supplies (I hope we do not end up selling bananas too). The local content share in operators' spending currently amounts to less than 5 percent, while most of the professional services go to service companies abroad.

I understand the government sent out a directive two years back to operators requiring 25pc of their service spending to be sourced from local goods and services. However, since then we've found no productive follow up on that directive. 

The president wants our GDP to double by 2015, but most people in the government have overlooked direct and indirect income from services in Myanmar's oil and gas sector. Instead, the focus is around income generated from export of gas. Supposing we can train local service companies to target 30 to 40pc of the total revenue spent by oil and gas firms on services, it will generate direct income of US$300 to 500 million with great indirect benefits flourishing back to the Myanmar economy. Instead, this income flies very quietly away over our country.

There are a lot of challenges to be overcome to make this happen. Government, investors and local industry need to work hand-in-hand to achieve a common goal and to make sure current development in energy is sustainable. Shale gas in the US has been very successful because there is the strong supporting local industry base, meaning investors can minimise risk, save on costs and improve operational efficiency if we have a competitive local supporting industry. I also urge fellow local companies to work very hard to define and add the value to their offerings. There is no free lunch any more; the old model of a brokerage mentality is no longer relevant. In order to survive, we need to be competent.

As you all know Myanmar is exporting over a billion cubic feet of gas a day (bcfd) to Thailand from Petronas and Total projects. Very soon, we will be exporting an additional 600 million cubic feet a day of gas, making Myanmar the number one gas exporter in Southeast Asia, followed by Indonesia. This is not to be proud of as we are struggling with power shortages.

There are plans for the addition of more than two gigawatts (GW) of new gas-fired power plants. An additional 500 to 600 million standard cubic feet per day of gas will be needed for these newly signed MOUs. Where is the additional gas going to come from? Some possibilities are renegotiating with existing producers, improve efficiency of existing gas turbines to produce more power and incentivising the operators to expedite their exploration, drilling and development programs. Or we can even claim our state participation in kind instead of the current system of taking cash payments.

In conclusion, I think it is time for the government and the private sector to sit down and come up with a far-sighted solution to avoid any regrets in ten or twenty years.

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