THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
Myanmar Oil & Gas Key View
- 20 Jan 2022
- Oil & Gas
Key View: The oil and gas sector outlook for Myanmar continues to be heavily influenced by deteriorating conditions in the country, as political, civil unrest in light of February 2021’s coup continues to loom large, providing long-term drags on multitude of factors economic performance, energy demand growth and investor sentiment. The growth expectation for refined fuels and natural gas consumption growths have been meaningfully revised down to account for ongoing headwinds, while also factoring in the Fitch Solutions Country Risk team’s assessment for the current conflict to prove long-lasting and highly debilitating.
Headline Forecasts (Myanmar 2020-2026)
|Indicator ||2020e ||2021e ||2022f ||2023f ||2024f ||2025f ||2026f |
|Crude, NGPL & other liquids prod, 000b/d ||8.6 ||8.1 ||7.8 ||7.5 ||7.4 ||7.2 ||7.1 |
|Refined products production, 000b/d ||2.8 ||2.0 ||1.9 ||1.9 ||1.8 ||1.8 ||1.8 |
|Refined products consumption & ethanol, 000b/d ||139.6 ||97.7 ||89.9 ||92.6 ||94.9 ||97.8 ||100.9 |
|Dry natural gas production, bcm ||16.0 ||14.0 ||13.2 ||12.6 ||12.2 ||11.8 ||11.6 |
|Dry natural gas consumption, bcm ||4.8 ||4.5 ||4.2 ||4.0 ||3.8 ||3.8 ||3.7 |
|Brent, USD/bbl ||43.21 ||70.95 ||72.00 ||73.00 ||75.00 ||78.00 ||78.00 |
|e/f = Fitch Solutions estimate/forecast. Source: EIA, JODI, Fitch Solutions |
Latest Updates And Key Forecasts
- Interest in any remaining under-explored hydrocarbon acreages in Myanmar is expected to remain subdued amid the ongoing political turmoil, as firms face pressure to downsize or cease operations that are perceived to be supporting the military regime including exploration for oil and gas.
- A new licensing round had been mulled under the previous democratically-elected regime, although has seen little traction since the coup, while many existing projects have been put on hold as firms weigh the significant risks at hand.
- TotalEnergies and partners in the A-6 deepwater project have quelled speculation about a possible early resumption of the project. A-6 has not progressed since being mothballed in April 2021 following the JV’s decision to put it on hold in April 2021.
- Successful development of the block would have seen the drilling of 10 deepwater wells across two phases at water depths of more than 2,000m in the Rakhine basin, targeting about 67mn boe in place. Any gas produced would have been piped to the Yadana field, either to be consumed domestically or exported to Thailand.
- The pessimistic expectation for Myanmar’s gas production remains unchanged, with output set to see a broad structural downtrend over the forecast period as existing assets mature and new project sanctions dry up.
- The decision by TotalEnergies’ led JV to halt works at the A-6 deepwater block comes as a major blow, and highlights the level of caution prevailing across the sector in light of the ongoing situation.
- However, POSCO International could appear one of few exceptions, as it appears to be keen to maintain investments into its operated Shwe gas field, Planning to invest about USD800mn over the next several years.
- The domestic refining sector continues to be in decrepit state, suffering from chronic under-investment and under-utilisation.
- It is our view that significant new investments into the refining space, regardless of the significant deficit apparent in the sector, will be few and far between, until the situation is resolved, and new, more stable regime is in place to instill investor confidence.
- The reported number of new Covid-19 infections and deaths is relatively low, although actual state of affairs remains difficult to gauge amid the ensuing unrest and lack of reporting.
- A sizable portion of the country’s medical staff have resigned from state-run hospitals and instead choosing to operate in underground facilities as part of the broader civil disobedience movement, making reliable data tracking even more difficult.
- Fuel consumption appetite is expected to be lackluster while in the midst of ongoing anti-pandemic lockdowns, next to ongoing civil turmoil in the country. Businesses and industries are expected to continue to experience trouble operating at optimal rates amid rising input costs, power shortages.
- Though in addition to these headwinds, demand appetite has been further curtailed by higher prices at the pump, a product of rising international oil prices, strong demand pulls for cargoes from post-pandemic reopening across the region, and a depreciating kyat.
- As with refined fuels, the short-term growth outlook for natural gas consumption in Myanmar continues to be heavily influenced by not only persistent disruptions caused by Covid-19, but the escalating political turmoil that has ensued since February 2021’s coup.
- In fact, the outlook has become more pessimistic, amid reports of gas-fired power plants in the country shutting down as operations become increasingly financially untenable. The decline in power generation is set to limit electricity supply available to households and businesses, further adding headwinds to the bearish demand growth outlook.
- A multitude of factors have contributed to the situation, including the sharp surge in global commodities prices towards the end of 2021, a sharp depreciation in the local currency against the US dollar and the inability of the junta to pay off electricity suppliers.
- The medium-term expectation for gas demand to see positive growth had previously been hung on expectation for new LNG projects being commissioned to spur growths across industries, although a far darker outlook for new project sanctions, in light of international sanctions, cooling FDIs, mean these expectations have also been toned down.
- Oil import flows into Myanmar will continue to favour direct refined fuels imports amid chronic refining capacity shortages. However, despite the clear, growing need for imports, trade flows continue to be disrupted, due to the ongoing civil unrest, and adverse impact on oil demand from ensuring violence and economic, infrastructural bottlenecks.
- As has with the gas consumption growth outlook, the view for Myanmar’s gas trades continue to be heavily influenced by the ongoing political turmoil. Myanmar’s pipeline gas export commitments to China and Thailand remain considerable, although abilities to meet them depend largely on output rates from mature offshore assets that are increasingly proving unreliable.
- Myanmar’s projected LNG need, based off current projections for gas production growth, pipeline gas exports and revised down gas demand growth assumptions, shows an annual domestic gas deficit of about 4-6bcm.
- Barring a substantial ramp up in production, LNG will be needed to fill this apparent gap, in order to avoid jeopardising either exports or demand, but outlook remains highly uncertain, as outlook for new project sanctions remains as cloudy as ever.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.