China National Petroleum Corporation (CNPC) has announced that it has inked an agreement with the government of Myanmar, granting the state-back behemoth company exclusive rights to build and operate the new Burma-China oil pipeline. China's willingness to deal with Myanmar, a country where most Western oil companies are prohibited from operating, has given China a powerful position in the country. While work on the project has already started, the finalisation of the pact has served to cement the agreement between the two countries.
The pact is based on a Memorandum of Understanding that was signed between CNPC and the government of Myanmar back in June of this year, which determined that CNPC would be responsible for the design, construction, and operation of the pipeline. Under the terms, a CNPC subsidiary, Southeast Asia Oil Line, will both build and manage the pipeline. Meanwhile, the government of Myanmar will be responsible for the security of the pipeline, which runs through areas in north-eastern Myanmar which remain only loosely under government control. In addition to the sharing of responsibilities, the pact also provides for CNPC to receive customs clearance and unspecified tax concessions on crude oil passing through Myanmar territory.
The Myanmar-China oil pipeline is designed to speed up the journey time for imports of crude oil coming from the Middle East. At present, around 80% of China's crude imports are transported via oil tanker through the heavily congested Malacca strait. The idea is that the new pipeline will transport crude oil 771km from Kyaukphyu on the coast of Myanmar to the Chinese city of Kunming, the capital of Yunnan province. The new line is expected to be constructed in two separate phases. With an initial capacity of 241,000 barrels per day (bpd), the flow rate will rise to 402,000 bpd after the second stage of development. At present, it is not yet clear when work on either phase is expected to be completed. Work on the $1.5 billion pipeline first began in the autumn of this year and construction of the oil terminal in Kyaukphyu began as recently as October 31. The project is a joint venture between CNPC who holds a majority 50.9% stake and state-backed Myanmar Oil & Gas Enterprise with the remaining 49.1%.