BURMA: YETAGUN PIPELINE RUPTURE TO COST MILLIONS

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000256

SIPDIS

SIPDIS

STATE FOR EAP/MLS; INR/EAP; OES FOR JMIOTKE AND ACOVINGTON;
EAP FOR JYAMAMOTO; EEB FOR TSAEGER
PACOM FOR FPA;
TREASURY FOR OASIA:SCHUN

E.O. 12958: DECL: 09/21/2016
TAGS: ECON ENRG PGOV EPET SENV BM
SUBJECT: BURMA: YETAGUN PIPELINE RUPTURE TO COST MILLIONS

REF: A. IIR 6812 0052 08/BURMA: POSSIBLE SABOTAGE OF THE
YETAGUN GAS PIPELINE

B. DTG 041010Z APR 08

RANGOON 00000256 001.2 OF 002


Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d)


1. (C) Summary. Petroleum industry contacts confirmed that
the Yetagun pipeline was shut down on April 2, not because of
a small leak, but because an explosion approximately 15 miles
from the Thai border ruptured the pipeline. Malaysian-owned
Petronas, majority shareholder in the Yetagun gas fields, is
investigating the cause of the explosion and refuses to
publicly discuss the incident. Andrew Hay, former Petronas
employee, corroborated reports that the explosion was caused
by external factors, although he could not say who or what
caused the explosion. The Thai Government, which purchases
Yetagun gas, wants Petronas to repair the pipeline within ten
days, but Petronas officials have indicated that the ongoing
investigation and mountainous terrain along the border will
delay repairs. A non-operational pipeline means that
Petronas and its partners will lose an estimated $3 million a
day in revenues. Additionally, Petronas' contract dictates
that Petronas pay the Burmese and Thai Governments up to $90
million in penalties and fines for pipeline failure.
Depending on how long the repairs take, Petronas and its
partners could lose more than $150 million in revenues. End
Summary.

No Small Leak
--------------


2. (C) April 2 news reports that the Yetagun pipeline, which
transports natural gas from the Yetagun gas fields in the
Gulf of Martaban to Thailand, was leaking were inaccurate,
Daewoo official Andrew Hay told us. Hay, who used to work
for Yetagun Gas Field operator Petronas Myanmar, confirmed
that Petronas shut down the Yetagun pipeline on April 2 after
an external explosion ruptured the pipeline (Reftel). He
could not say who or what caused the explosion, but confirmed
that the pipeline did not burst due to high pressure.
Petronas Production Control Manager Bob Thomas told Hay there
is a one-meter hole in the pipeline and that the edges of the
hole bent inwards, suggesting that an explosion occurred
above the pipeline rather than inside of it.


3. (C) Malaysian-owned Petronas, which controls 41 percent
of the Yetagun Gas Project, has brought in several security
experts to investigate the April 2 incident and has refused
to elaborate publicly about the causes of the pipeline
rupture. The Burmese Government wants to conduct its own
investigation and collect forensic evidence, which could take
several weeks. According to Hay, this is the first time in
more than 15 years that there has been a serious threat to
the Yetagun or Yadana pipelines (which run side-by-side 50
miles from the Gulf of Martaban to Thailand). The last
incident occurred in the late 1990s, when an unidentified
person allegedly threw a grenade into French-owned Total's
construction office during the building of the Yadana
pipeline (Total is the majority shareholder in the Yadana Gas
Field). Petronas and the GOB profess determination to
uncover who sabotaged the pipeline and for what reason.
Until then, Petronas, Total, and perhaps the 282 Infantry
Battalion plan to closely monitor both the Yetagun and Yadana
pipelines.

Pipeline Repairs: Difficult and Costly
--------------

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4. (C) Thai-owned PTTEP, which purchases gas from both the
Yetagun and Yadana projects, has demanded that Petronas
repair the pipeline within ten days, Hay told us. While
Petronas has replacement pipe sections readily available, the
logistics of replacing the pipeline require at least a month.
Petronas must bring in qualified welders and excavators to
remove and replace the pipeline, must ensure that the
pipeline and the surrounding area are free of gas before
beginning repairs, and must do hydro tests on the finished
pipeline to prevent future leakages. Additionally, it will
be difficult for Petronas staff to access the ruptured
pipeline, which is located in the mountainous area
approximately 15 miles from the Thai border. While Petronas
is ready to start the repairs, the GOB has also requested the
company to wait until after it has collected any forensic
evidence left at the explosion site. Given that Burma's
ten-day Water Festival holiday starts this week, it could
take weeks for the GOB to finish its investigation, Hay
commented. Until then, Petronas's hands are tied.

Penalties and Revenue Losses Add Up
--------------


5. (C) The pipeline rupture will cost Petronas and its joint
venture partners - PTTEP, Myanmar Oil and Gas Enterprise, and
Nippon Oil Exploration - millions. The consortium earns
approximately $3 million a day in revenues from the Yetagun
pipeline; if the pipeline is not operational for a month,
revenue losses could total more than $90 million.
Additionally, according to Petronas' production sharing
contract with MOGE, the company has to pay penalties and
fines for pipeline failures, specifically including sabotage,
to the Burmese and Thai Governments, to cover lost power and
other costs incurred by the end users. According to Hay, the
fines for pipeline failure run up to $90 million, in addition
to the revenue losses. This incident alone, not including
repairs, environmental cleanup, and security expenses, could
cost Petronas more than $150 million.

Comment
--------------


6. (C) Industry officials do not know who sabotaged the
Yetagun pipeline or for what purpose, and they have no faith
that the GOB will be able to conduct a successful
investigation into the April 2 incident. Companies are now
scrambling to increase security for the Yetagun and Yadana
pipelines, but they are woefully unprepared for both the cost
and the implementation of security measures. Companies like
Daewoo and PetroChina, which will be constructing a 900-mile
pipeline during the next few years, are now planning to add
security measures to the overall pipeline operation -
something that will exponentially raise the cost of the
pipeline. Given the importance of the Yetagun and Yadana
pipelines to the Burmese Government - gas exports account for
$2 billion in revenues annually - we can be sure that the
regime will find someone to blame for the incident. Given
their poor investigative skills, we doubt they will find the
actual culprits. More likely, they will blame their usual
suspects among the Burmese exiles living near the border.

VILLAROSA