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    Myanmar Upstream Gas Production Forecast

    January 20, 2022 - Fitch Solutions Sector Intelligence


      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 Upstream Gas Production Forecast

      • 20 Jan 2022
      • Myanmar
      • Oil & Gas

      Key View: The 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, but highlights the level of caution prevailing across the sector as firms face significant risks and pressure from maintaining, expanding operations in Myanmar that are viewed as benefitting the military regime.

      Latest Updates
      • POSCO International appears set to continue to make investments to maintain production at the Shwe gas field, in which it holds a 51% operating interest.
      • In its latest presentation to investors, the South Korean firm revealed plans to invest a further USD473mn and USD315mn for Phase II and III development at the Shwe field, respectively.
      • Phase II will see the drilling of eight new wells across the Shwe and adjacent Shwe Phyu fields, drilling works began in November 2021 and expected to be completed in 2022.
      • Phase III would see the addition of a new gas compression platform, which will help to maintain production at the field. A letter of intent for the platform was awarded to Korea Shipbuilding & Offshore Engineering (KSOE) in February 2021.
      Structural Trends

      Myanmar’s natural gas production has been on a long-term decline since peaking at 17.5bcm in 2015, due to natural declines across existing offshore fields. The long-term outlook has been revised down, as we no longer include potential gas from Woodside Petroleum's offshore Block A-6, following the firm's decision to halt all offshore activities in Myanmar, in light of the February 2021 coup. As a result, we expect total gas production to fall below 10.6bcm in 2030, down from an estimated 16bcm in 2020, squeezing gas supplies needed for own consumption and exports, thereby driving up the need for LNG imports.

      As with oil, previous efforts to reform the country’s outdated oil and gas law and strengthen existing PSC terms pose limited upside risks to future output growth, although it remains to be seen how much or whether these would be retained under the military regime. In addition, the level of risks arising from a precarious domestic political environment would need to calm, before investor appetite can hope to rebound. The previous civilian government had also harbored a plan to eventually launch a fresh licensing round for onshore, offshore exploration blocks, although it remains to be seen whether this will be achieved under the military's rule.

      All four of Myanmar's offshore gas fields are expected to enter terminal declines within the next decade. Malaysia’s Petronas has suspended operations at the Yetagun field in April 2021, citing declining output, deteriorating field economics and growing safety risks to its staff and operations. While the field doesn't supply gas to the domestic market and instead, ships all of its output to neighbouring Thailand, the loss of output from the mature field is nonetheless a negative for the domestic gas sector. Other partners involved in the project include state-owned Myanma Oil and Gas Enterprise, Thailand’s PTT and Japan’s Nippon Oil Exploration.

      Thailand’s PTT reiterated its commitment to sustaining investments into its Myanmar assets, notably Zawtika, although it has admitted that the near-term focus will be on ‘reducing unit costs’ in the face of persistent global oil price volatility. The Thai SOE nonetheless is forging ahead with further development phases at the aging field, and has recently secured government approval to progress with further appraisal drilling at the Zawtika field, as well as the M-3 block, any gas from which will be used to feed greenfield gas-fired power plants to be constructed in Kyaiklat. However, it remains to be seen whether such level of commitment can be sustained over a longer-term, as international pressure mounts and PTT strives to meet ambitious long-term decarbonisation aims, among which is the target to transition away from fossil fuels and reach carbon neutrality by 2050.

      India’s ONGC also committed to make an additional USD121.3mn available to be injected into Shwe in June 2020, which will go towards the drilling of eight new wells over the coming years to 2022 to stem output declines. Shwe operator POSCO Daewoo has also shown no signs that it will halt activities at the field, having recently committed to invest nearly USD800mn over the coming years for Phase II and III works at the field. Yadana field operator Total also indicated in April 2021 that it must continue to produce gas and pay taxes to the junta to protect its staff from forced labor and imprisonment, while also sustaining electricity supplies to Yangon and western Thailand.

      Myanmar's Offshore Gas Fields
      Peak Capacity, mmscfd Peak Capacity, bcm Operator Basin
      Shwe 550 5.7 POSCO-Daewoo Rakhine
      Yadana 850 8.8 Total Moattama
      Yetagun 200 2.1 Petronas Moattama
      Zawtika 300 3.1 PTTEP Moattama
      Source: Fitch Solutions

      As shown above, most of Myanmar’s gas production comes from four mature offshore fields: the Yadana, Shwe, Zawtika and Yetagun fields:

      Yadana: France-based Total operates Myanmar’s biggest gas field, the Yadana in blocks M5 and M6, offshore Moattama basin, with a 31.24% interest. Yadana has peak output capacity of about 8.8bcm and is expected to produce close to this level into the early-2020s before declining. 75% of the field’s output is allocated for exports to Thailand, while the remainder is consumed domestically. Other partners include California-based UNOCAL Corporation, Thailand’s PTT and state-owned Myanma Oil and Gas Enterprise(MOGE) which holds a 15% stake.

      Shwe: South Korea's POSCO-Daewoo International operates the Shwe field in the offshore Rakhine basin, which has a production capacity of 5.7bcm. About 77% of the field's output is exported to China. In May 2018, POSCO-Daewoo pledged to invest up to USD475mn over the coming years to develop and expand output from the Shwe, Shwe Phyu and Mya, which will help to maintain peak output at the field out to 2027. In September 2019, FEED contract for Phase III development for the field was awarded to McDermott International. Other partners include India’s ONGC and GAIL, South Korea's KOGAS and state-owned MOGE.

      Zawtika: PTT's upstream arm PTTEP is the operator for the Zawtika field, which is also located in the Moattama basin. Two-thirds of the field's output are exported to Thailand, while the rest is re-routed domestically to be converted to electricity. Output from the field is expected to begin declining from 2023, according to government estimates. Risks lie to the upside from PTT's ongoing search for additional reserves in blocks M9 and M11, which reportedly saw up to 26 additional development wells drilled over 2018.

      Yetagun: The Yetagun field is located in offshore blocks M12, 13 and 14, in the Gulf of Martaban, and all of its current output of about 0.5bcm, down from a peak of about 2bcm, is exported to Thailand. Malaysia’s state-owned Petronas operates the field; in April 2021, it declared 'force majeure' on production activities at the offshore Yetagun field in Myanmar which it operates, citing declining output, deteriorating field economics and amid growing safety risks to its staff and operations. Other participants in the project include Japan’s JX Nippon, PTT and MOGE.

      Outlook Lacklustre As Assets Mature, New Projects Halt
      Myanmar - Gas Production Forecast (2020-2031)

      e/f = Fitch Solutions estimate/forecast. Source: EIA, BP, Fitch Solutions

      Some of the most likely sources of additional output are as follows:

      • PTT’s M-3 block, offshore Gulf of Martaban, is anticipated to come online in 2023, bringing through new output capacity of about 60mscfd (0.6bcm) in the first phase. M-3 will supply gas to a 600MW gas-fired power plant in New Yangon City, which the SOE is developing with Global Power Synergy.
      • Consultation process for additional offshore drilling programs for AD-1 commenced in April 2019, after a well drilled by Woodside Petroleum in 2018, Aung Siddhi-1, interjected a combined 26m of net gas pay. First gas may be possible by 2023, according to the Ministry of Electricity and Energy (MEE).
      • At end-2019, the JV of Total, Woodside Petroleum and local firm MPRL E&P has signed an agreement to explore and develop Block A6, Myanmar’s first ultra-deepwater project. High cost could prove to be a stumbling block, although the government did sign off on favourable fiscal terms proposed by the consortium to replace original contract terms in place since 2007 to support project economics.
      • The block is estimated to contain below-ground gas reserves of about 2-3tcf, a little over 40% of certified reserves at the largest domestic gas field Yadana. The current target to produce first gas is set at 2024.
      Gas Production (Myanmar 2020-2025)
      Indicator 2020e 2021e 2022f 2023f 2024f 2025f
      Dry natural gas production, bcm 16.0 14.0 13.2 12.6 12.2 11.8
      Dry natural gas production, bcm, % y-o-y -2.0 -12.5 -6.0 -4.0 -3.5 -3.0
      Dry natural gas production, % of domestic consumption 332.0 310.7 315.8 319.1 317.4 314.2
      e/f = Fitch Solutions estimate/forecast. Source: EIA, BP, Fitch Solutions
      Gas Production (Myanmar 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas production, bcm 11.6 11.5 11.1 10.9 10.7 10.5
      Dry natural gas production, bcm, % y-o-y -2.0 -1.0 -3.0 -2.0 -2.0 -2.0
      Dry natural gas production, % of domestic consumption 311.0 301.9 288.5 279.9 271.6 263.5
      f = Fitch Solutions forecast. Source: BP, Fitch Solutions
      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.


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