BURMA: DARKNESS AT NOON

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 001340

SIPDIS

STATE FOR EAP, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

E.O. 12958: DECL: 10/15/2012
TAGS: ENRG EPET ECON BM
SUBJECT: BURMA: DARKNESS AT NOON

REF: A. RANGOON 1292

B. 01 RANGOON 1819

C. 01 RANGOON 783

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: Power is flowing nearly 24 hours a day in the
capital. The government is making this happen through a
hodgepodge of policy proclamations, full dams at the
hydropower plants, and expensive, and potentially dangerous,
stopgap measures. Because of increasing agitation over food
prices, the regime is trying to hold this Potemkin village
together until after the harvests in November. However, as
we see no long-term solution on the drawing board, we expect
darkness to descend again by the end of the dry season. End
Summary.

Light at the End of the Tunnel?


2. (U) Denizens of Rangoon have been pleasantly surprised by
nearly 24 hour electricity in their homes since September 18
or 19. The government asserts that this will be the reality
from now on as additional natural gas is brought into the
city from the offshore Yadana field. Also, the government
says, a turbine in a Rangoon-area power plant has been fixed
allowing for full capacity generation of power. The
government mouthpiece newspaper New Light of Myanmar has been
filled with photos and stories of officials from the Ministry
of Electric Power visiting power plants, factories, and
government offices offering "guidance" on production and
conservation of electricity.


3. (C) The government is, in fact, able to pipe some gas now
from Yadana to the capital. However, there is less to their
claims than meets the eye. This gas is coming over a
haphazard collection of poorly constructed pipelines of
varying diameters running from Kanbauk in Tanintharyi
Division up to Hpa'an and then on to Rangoon. A Ministry of
Energy official claims it is now piping 50 million cubic feet
a day (mcfd) through this pipeline network (although he
admitted that most of this was consumed by factories and
power plants along the way). UNOCAL says that supplies now
are running about 40 mcfd, though how long the pipeline can
sustain the volume remains a question mark. Because of its
poor quality, the existing Burmese pipeline system could
easily be disabled through corrosion, flooding along the
pipeline's path, or explosion.

No Easy Way Out


4. (C) Other than this shaky supply from Yadana, the
government is relying on four things to keep the lights
burning in Rangoon.

-- First, the government has ceased piping 8 mcfd of gas per
day from the onshore A'Pyauk field, near Rangoon, to a power
plant near Thaton. This supply has been redirected to power
plants in the Rangoon area.

-- Second, the government is now firing up existing
hydropower plants whose dams are full following the heavy
monsoon season this year.

-- Third, the government is pushing massive conservation
efforts, both in the ministries and at state-owned factories.
Ministry buildings, government schools, and hospitals are
kept dark except for emergencies. A representative of a
foreign oil company told us that the government has ceased
sending gas to its fertilizer and methanol plants.

-- Finally, the government is spending precious hard currency
to import high-speed diesel fuel (at around $40/barrel) to
run generators and dual-fuel turbines.


5. (C) These strategies may be effective in the short term,
but are not sustainable. As reported in Refs B and C, the
A'Pyauk gas field is nearly drained, producing at under 40
mcfd and declining rapidly. The other major onshore gas
field, in Nyaung Doun, is masking some of A'Pyauk's decline
(producing between 25 and 45 mcfd depending on whom you ask),
but is being exploited too quickly. This unwise strategy
shortens the fields economic life span and risks spoiling the
gas by sucking water into the reserve. Based on our sources,
we think the A'Pyauk field could run dry within a year. The
Nyaung Doun field should hold out a few more years, but
unsound drilling practices could reduce yield and drive up
costs of production.


6. (C) Hydropower is also only a temporary balm. If
conditions are perfect, hydropower plants in operation can
generate 350-390 MW of power (Rangoon relies on hydropower
for 250 MW),but nearly 40 percent of this will be lost
during transmission. However, some of these plants are in
dire need of refurbishment, and in any event, this peak
generating capacity is available only during the period of
least demand, during the post-monsoon "cool season" (October
to February). The dams are usually quite low, and generation
capacity much reduced, during the "hot season" period of peak
demand (March to July). The government claims that 2136.6 MW
of new hydropower will be available over the next five years
as new dams and plants are built. However, only about 510 MW
of new generating capacity is predicted between now and the
end of 2003 -- and we are skeptical of this number.


7. (C) The Burmese government claims it is moving away from
fueling its power plants with imported oil as it is a very
expensive solution -- particularly as the cost of Malaysian
and Sumatran oil rises alongside Middle East oil. Domestic
oil fields are producing about 6000 barrels a day, but the
production is not economical and provides only about 60
percent of total domestic demand during normal times. No new
oil production is forecasted, although the Chinese National
Petroleum Company has agreed to work with the Ministry of
Energy to try and pump out any remaining oil in the old Pyay
fields north of Rangoon.


8. (C) Finally, radical conservation by government ministries
will have no real impact on the energy situation here. More
alarming is if the government continues to keep hospitals and
schools in the dark. Though keeping fertilizer and other
factories idled will have the largest impact on energy
conservation (we estimate that heavy industry here consumes
about 85 mcfd of gas) the impact on the economy, and in the
case of fertilizer plants food yields, will be devastating.

Which Way Out?


9. (C) Unfortunately there are no quick, or cheap, solutions.
The most logical move would be for the Burmese to claim the
right it negotiated several years ago to 125 million cubic
feet a day of Yadana gas by approving the Total/UNOCAL plan
to build a 20-inch pipeline directly from the Yadana to
Rangoon. This has been tabled since the end of 2000 due to
reluctance by Senior General Than Shwe to front the $750
million (over 15 years) price tag. A Ministry of Energy
official said, though, that there was no interest now in
continuing with this project. Instead the focus would remain
on using the existing domestically constructed pipelines,
cooperating with neighboring countries on regional pipeline
projects, and on developing hydropower. The latter two
priorities are long-term solutions.


10. (C) If, as we predict, Burma's dwindling onshore gas
reserves suddenly become unreliable, the only short-term
option for the Burmese government will be to try its luck
buying additional gas from the Yadana pipeline consortium,
expensive and unlikely if the Thais increase demand or if the
Burmese do not upgrade their pipeline network. Another
option would be to negotiate with the Yetagun operators for a
share of its Thai-destined gas, though this too would be a
very expensive solution. Failing this, the Burmese might
have to return to the most expensive option of all, shifting
their plants back onto imported oil, and increasing their
purchases from Malaysia.

Comment


11. (C) We cannot predict exactly when the lights will start
going out again, but we would be surprised if the government
could keep its expensive patchwork of stopgap measures in
place for long. Because of growing unrest over mounting food
prices, see Ref A, the government is desperate to maintain
the illusion of government sacrifice and electricity upgrades
until after the rice harvest in October of November.
However, once the flush of monsoon-driven hydropower subsides
in January and February, the government will be stuck trying
to supply nearly all the country's energy needs with imported
oil and gas. This is an impossible proposition for an
already foreign exchange-poor country. End comment.
Martinez