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2014-05-28 18:05:00

MYANMAR: OIL TRADERS GROWTH

MYANMAR: OIL TRADERS GROWTH

Two of the world's largest oil traders are investing in Myanmar's fuel-distribution sector, aiming to cash in its small but rapidly growing market for transport fuel.

While many major international energy companies have signed deals to explore for oil and gas in Myanmar since 2010, when its military leaders started introducing political reforms after decades of hard-line rule, its downstream fuel-distribution sector is undeveloped and so far has attracted little foreign investment.

Myanmar's economy and transport infrastructure are among the most underdeveloped in Asia, but vehicle ownership is growing rapidly, as are traffic jams in the streets of the capital, Yangon, and the need for fuel.

Vitol Group SA, the world's largest independent oil trader, and Trafigura Beheer BV, the world's third-largest independent oil trader, are among those that have made recent investments or are considering doing so.

Myanmar uses only 35,000 to 40,000 barrels of oil products a day, despite having a population of some 55 million. By comparison, neighboring Thailand uses around one million barrels a day, despite having only 10 million more inhabitants.

The investments in Myanmar's fuel-distribution sector come at a time when growing competition in fuel markets, spurred by new refineries in the Middle East and a stream of exports from the U.S., is increasing the attraction of frontier markets.

Trafigura affiliate Puma Energy, working with local partner Asia Sun, is building an 80,000-cubic-meter import-and-storage facility for gasoline, diesel and a petroleum product called bitumen at Thilawa on the Yangon River, a Trafigura spokesperson said. The storage facility should be ready next year, and the company may further invest in Myanmar's fuel supply chain as opportunities arise, the spokesperson said.

Puma Energy, 49% owned by Trafigura, already has extensive fuel-supply operations across Europe, the Americas, Africa and elsewhere. Last year Puma became Australia's largest independent fuel retailer through a series of acquisitions. Its other stakeholders include Angolan state oil company Sonangol.

Trafigura wouldn't say how much the Thilawa terminal will cost, but industry experts estimate such a facility would likely cost up to $65 million, excluding auxiliary construction work in the rest of the port.

Vitol is planning a similar project.

"We are in the midst of concluding a joint venture with a local partner for the construction of a fuel-import terminal for gasoline and diesel in the Yangon area," said Jasper Schmeetz, commercial manager for VTTI Asia. VTTI Asia is a unit of Vitol Tank Terminals International BV, itself owned by Vitol and MISC Bhd., a Malaysia-based shipping group. He declined to give further details.

Myanmar's demand for oil products is expected to reach the equivalent of 60,000 barrels a day by 2020, assuming economic growth of 6% to 7% a year, said Sushant Gupta, an analyst at energy consultancy Wood Mackenzie.

Only half of present demand can be met by Myanmar's three small refineries, two of which are around 60 years old. Imports of 10,000 to 15,000 barrels a day of diesel and gasoline, and an equal volume of jet fuel every month, come from Singapore where suppliers include Hin Leong, Vitol and Trafigura, and from Thailand's PTT PLC.

Plans by Chinese companies to build refineries in Myanmar haven't advanced, and neither has construction of a large refinery proposed by PTT, which if it went ahead could turn the country into a net exporter of refined fuel. Wood Mackenzie doesn't expect any new refinery to be built before the end of this decade.

Meanwhile, investors are banking on the transport sector to drive their business. The passenger-vehicle market expanded by almost 60% to around 383,000 cars in the five years up to fiscal year 2013-14, while the number of light and heavy trucks doubled to 125,000 in the same period, highlighting the growth in industrial activity.

"There are currently six cars for every 1,000 Myanmar citizens, compared with 14 per 1,000 Vietnamese and 270 per 1,000 Thais," said analyst Shine Zaw-Aung at consultancy New Crossroads Asia in Singapore.

wsj.com

Tags: MYANMAR, OIL

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