Oil and Gas in the Capitals

	Vol. 230 No. 5
JEFF MOORE, CONTRIBUTING EDITOR, ASIA-PACIFIC

Bangladesh and Myanmar’s E&P row: Implications for the industry

In late 2008, Bangladesh and Myanmar nearly went to blows over an offshore E&P dispute. This small but potentially dangerous altercation has profound implications for the oil and gas industry.

Bangladesh uses 200 MMcf of gas daily, regularly outpacing supply. The per capita GDP is $1,400. Accordingly, E&P is pivotal for the country’s survival. To widen its E&P, Bangladesh on Feb. 15, 2008, accepted 22 bids by seven companies to explore 15 of 28 blocks in the Bay of Bengal.

Myanmar’s gas exports are that country’s top moneymaker. Gas exports to Thailand in 2007 were $2.7 billion, and the country’s per capita GDP is $1,900, so the stakes are high for Naypyidaw as well. Most of Myanmar’s gas discoveries are near Bangladeshi waters. Daewoo leads a conglomerate including two Indian companies (ONGC, GAIL Ltd.) and a South Korean company (Korea Gas Corp.) conducting E&P in these waters.

Bangladesh has long had maritime border disputes with neighbors India and Myanmar, but they have not been violent. India and Myanmar signed bilateral maritime border treaties with each other between 1986 and 1993, and all three countries agreed not to carry out E&P in their disputed waters.

Myanmar and India protested Bangladesh’s 2008 block designation, but not strenuously. At the time, Bangladesh and Myanmar had held high-level negotiations on their maritime boundaries for months.

Small-scale crisis. Bangladesh was alarmed then, when on Nov. 1, 2008, it discovered Myanmar conducting E&P activities 50 nautical miles southwest of St. Martin’s Island, part of Bangladesh lying 8 km west of Myanmar’s northwest coast. Bangladesh calls the area its Block 8-13. Myanmar says it’s Block A-7 in Myanmar waters. The Myanmar flotilla included two naval vessels, indicating Myanmar knew there would be trouble.

Myanmar gave Daewoo permission to explore the contested Blocks A-3 and A-7 in 2005. In August 2007, Daewoo announced it had found 7.7 Tcf of gas in Myanmar waters next to Bangladesh.

Incensed, Dhaka put its navy on high alert and deployed its own naval assets to stop what it saw as a violation of its territory and attempted theft of its badly needed natural gas.

Neither side fired a shot, however. The opposing naval commanders on scene talked the issue over, albeit briefly. The Bangladeshi commander asked the intentions of the Myanmar commander, who said the Bangladeshi navy was trespassing. The ships backed off and shadowed each other for days while a phalanx of Bangladeshi diplomats struggled to maintain control.

Touhid Hossain, Bangladesh’s senior foreign secretary, fired off a protest communiqué to U Phae Thann Oo, the Myanmar ambassador in Dhaka. Three diplomats led by Hossain were assembled to send to Naypyidaw to resolve the issue. Foreign Minister Iftekhar Ahmed Chowdhury, however, warned that if Myanmar continued its exploration in the disputed zone, military action was likely.

Bangladesh asked the South Korean ambassador in Dhaka to pressure Daewoo to withdraw. It also asked China to pressure South Korea on the matter. Meanwhile, it investigated the nationalities of the 50 workers onboard the ships to pressure those governments to withdraw those personnel.

An anonymous Myanmar official was equally accusatory. He told AFP, “We will try to solve this peacefully, but we are also ready to protect our country if needed … we will not tolerate being insulted, although we do want good will. We will continue with exploration.”

Contradicting signals followed. By Nov. 6, Daewoo had begun to withdraw from the disputed block. Myanmar Energy Minister Major General Lun Thee said his country would not drill in the disputed areas until the two sides had legally demarcated their borders. Then on Nov. 7, Myanmar announced that it would not stop Daewoo from drilling and sent additional naval ships to protect its operations. At the same time, Daewoo sent a letter to Dhaka saying it was dismantling its rig in the disputed area. The issue seemed to cool until the border talks later in November, the details of which were not revealed.

They may not have gone well, however, because on Feb. 11, 2009, there were reports of troop buildups on the land border between Bangladesh and Myanmar, and naval vessels from both sides had deployed, too.

In March 2009, Myanmar began another troop buildup, reportedly to build a fence along the 200-km border. Bangladeshi citizens on the border panicked, and troops went on alert yet again.

Then, on April 3, 2009, Daewoo announced several changes to its controversial E&P adventure. It was “extending” its contract to drill in Myanmar’s A-7 Block until August 2009, when it assumed Bangladesh and Myanmar would have ironed out their differences. Also, its partners on the project, Korea Gas Corp., ONGC and GAIL Ltd., had all bowed out due to the military and political wrangling, leaving Daewoo with full ownership.

As of mid-April 2009, the situation remains uncertain. Bangladesh and Myanmar are talking, but they also are posturing militarily. And there sits Daewoo, in the middle, waiting for the outcome.

Implications. The dispute demonstrates that low oil and gas prices do not preclude conflict over these resources. Demand and national energy goals drove this quarrel.

Energy companies like Daewoo in disputed border areas will likely get sucked into such clashes. They will have to decide if the well is worth being caught in a potential shooting conflict. In this case, ONGC and others decided it was not.

Conflicts such as this one signify the importance of corporate government affairs and intelligence for energy companies to either guide them through politically troubled projects or avoid them completely. Such corporate diplomacy and information needs will only increase.     

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