There’s no escaping the impact of seemingly uninhabited towns and cities. It somehow jars with the construct of human civilisation that we have evolved over centuries; it strikes an unsettling chord that resonates.
Such desolate streets have also been the sight emanating from Myanmar this week, as the country marked one year since the military coups that increasingly threaten to define it. A ‘silent strike’ reportedly saw streets deserted and shops abandoned across many of the country’s towns and cities on Monday (31st January), on the eve of the coup’s first anniversary.
Myanmar’s two largest cities – Yangon and Mandalay – were reportedly a vision of uncharacteristic emptiness as the public apparently defied the threats of the military junta and stayed at home in an act of peaceful protest.
What began as political warfare has descended into a humanitarian crisis – a crisis that also comes with significant economic consequences.
The World Bank’s recently published Myanmar Economic Monitor of January 2022 projects growth of just 1% in the year to September 2022 and notes that Myanmar’s economy and people continue to be severely tested by the ongoing impacts of both of the military coup and the surge in Covid cases in 2021.
While reflecting recent signs of stabilisation in some areas, the projection remains consistent with ‘a critically weak economy, around 30% smaller than it might have been in the absence of Covid-19 and the February 2021 coup’.
Further still, the report’s key findings note that over the longer-term, events since the coup last year are expected to limit Myanmar’s growth potential. “Most indicators suggest that private investment has fallen markedly, and previously viable projects are becoming unviable as demand remains weak, the cost of imports has risen, and kyat-denominated revenues are worth less in foreign currency terms,” it explained.
It’s a far cry from a country that was widely seen as a potential economic and industrial gas growth hotpot just five years ago.
A market in waiting…
Prior to the conflict of early 2021, the narrative around Myanmar had been one of cautious optimism. Here was a country reinvigorated, ready to capitalise on its status as a market in waiting, one of the rapidly rising emerging economies of Southeast Asia.
According to a 2019 gasworld Business Intelligence dashboard for Myanmar, the country’s GDP had grown by an average of 12.4% per annum (p.a.) in the period from 2009-2019, with its economy developing rapidly over the course of the decade. Industrial production (as measured by IPI) had also experienced good growth rates in recent years. Whilst the rate of growth fell dramatically in both 2010 and 2017 sitting at -51.2% and -34.8%, respectively, both of these rates recovered the following years and in 2019 that growth rate stood at a healthy 7.3%.
As a result, Myanmar was a country courting the attention of various industries, analysts and spectators, not least the gases industry. Indeed, a gasworld article exploring ‘Emerging Economies’ in 2019 posited:
“The future is definitely bright for the South East Asian gases market, and there is a market in waiting in the form of Myanmar.
Located on the west side of the Indochinese Peninsula, bordered by Thailand, China and Bangladesh, Myanmar is not just well placed for an economic boom, it is a market benefiting from increasing democracy and infrastructure development.
The country recorded a GDP growth rate of 7.5% in 2013 and, with a population of more than 50 million, an expansive geography and low-cost resource base, is attracting increased investment as ‘the last frontier’ of Asia.’
The same article – of which I was the author – would go on to describe how, ‘There is evidently still a very long way to go for the Myanmar market, but suddenly, the latent potential is compelling.”
Wind the clock further back and there was more reason to support this notion. A gasworld Business Intelligence Insight article of January 2016 zeroed in on the country’s strong oil and gas prospects.
“For the first time since 2004, both the price Brent Crude and US crude have fallen below $30 a barrel. Many oil and gas production centres are floundering amidst the current crisis, yet one South East Asian nation is experiencing record growth in its energy sector.
Over the past 24 months, significant foreign direct investment (FDI) has poured into Myanmar. During the 2014/2015 financial year, over $8bn was injected into the country by international investors – 35% of the total went into Myanmar’s rapidly expanding energy sector.
Major international oil and gas companies, such as Eni, Chevron, Statoil, Shell and Total have already initiated the search for hydrocarbons in the country. The latter company has witnessed recent success in the form of a sizable natural gas well, discovered in one of the 50+ offshore blocks that are currently being explored. It is estimated that Myanmar has over 10 trillion cubic feet of proven natural gas reserves, and oil reserves of approximately 50 million barrels.
A number of important pipeline projects have been commissioned over the past 12 months. During the first quarter of 2015, the Sino-Myanmar pipeline was officially commissioned – both natural gas and oil pipelines run for 771km, from the offshore oilfields off the west coast of Myanmar, to the southern Chinese city of Kunming.
Due to the current level of activity within Myanmar’s energy sector, many investment opportunities are emerging for international, and regional, industrial gas companies.”
Possible demand for nitrogen and carbon dioxide could spike if enhanced oil recovery (EOR) techniques are utilised in Myanmar, it continued.
There was widespread expectation of an increase in demand for industrial gas in the country, and the ‘pure investment potential’ it possessed. This was reinforced by a number of investments made in Myanmar around the middle of the last decade. One of the first to set up operations in the country was Yangon Industrial Gases (YIG) – a partner of Thailand-based Bangkok Industrial gases (BIG) – which itself is a joint venture between Air Products and Bangkok Bank, while Iwatani became the first overseas industrial gas company to engage in air gas production and gas-related equipment in the market, establishing a 100% owned local company to be incorporated in August (2015).
Iwatani began preparations to start its business operations in March 2018, and later announced its intent to launch at least one ASU in the Thilawa Special Economic Zone (SEZ), around 20km from the country’s largest city, Yangon, before 2020. gasworld cannot currently confirm this objective was achieved.
Tier One player Taiyo Nippon Sanso (TNSC) followed suit soon after, announcing plans in September 2016 to establish an affiliate company in the country. The wholly-owned company is named Taiyo Nippon Sanso Myanmar Corporation and also located in the Thilawa SEZ. The new affiliate was due to construct an air separation unit (ASU) in the same location, expected for start-up in 2018; this ASU can indeed be seen on the site today.
Source: Sai Han One / Shutterstock.com
A country in crisis
The landscape in Myanmar – humanitarian, industrial and economic – has changed dramatically since those seemingly heady days of the last decade.
One year ago this week, the country fell into a state of fear, crisis and military control. Myanmar has a chequered history of administrations, military coup’s and seized power, but for the last decade had benefited from a more democratic rule, the release of political prisoners and an improved human right record. This had also led to improved foreign relations and the easing of trade/economic sanctions.
Tensions remained, however. A precis of events 12 months ago as reported in a news story by Sky News this week, explained how on 1st February 2021, the military junta detained democratically elected politicians, citing widespread electoral fraud in the 2020 election as the reason it needed to take power.
Many democratically elected politicians including the country’s de-facto leader, Aung San Suu Kyi, and President U Win Myint were detained, while others fled or were forced into hiding. The coup sparked mass peaceful protests across the country which in some areas turned to armed resistance after junta security forces responded with lethal force.
The country has been in a heightened state of civil war ever since, the human and political scale of which is portrayed by statistics from the Assistance Association for Political Prisoners (Burma), a non-profit human rights organisation based in Mae Sot, Thailand and known as AAPP. Data from the AAPP as of 2nd February 2022, claims that 8,934 people have been arrested, charged or sentenced since the coup one year ago; 1,972 have been charged with a warrant and are evading arrest, with 666 sentenced. It claims that 1,510 people have been killed by this junta.
The sense of conflict has only deepened on the anniversary of the coup. Widespread media reports detail the scenes on the ground in Myanmar this week.
A report from BBC News described “increasingly deadly battles between its military and organised groups of armed civilians, new data suggests. Many of those fighting the military are young people who have put their lives on hold since the junta seized power a year ago.” The Guardian reported Myanmar’s military junta had “threatened sedition and terrorism charges against anyone who shuts their business, claps or bang pots on Tuesday [1st February], as it tries to stamp out any protests planned to mark the one-year anniversary of the coup.” Meanwhile, a report from The Conversation also noted the apparent force being suggested by the military control, detailing how prisons in Myanmar “have been ordered to clean the gallows, in an apparent preparation for the execution of 101 political prisoners who have been sentenced to death since the military coup one year ago.” These, it added, would be the first official executions in the country in over three decades.
The escalation in conflict has naturally resulted in significant economic setbacks for Myanmar and, whilst some quarters allege that the Western World has ‘forgotten’ about this ongoing human crisis in the country, the eve of this week’s anniversary was met with widespread condemnation and a deepening of international sanctions.
Reuters was among those to report how the US, Britain and Canada had on Monday [31st January] imposed sanctions against additional officials in Myanmar, in measures timed to mark one year since the military seized power and plunged the country into chaos.
”A joint action by the three nations, who have all already imposed sanctions on Commander-in-Chief Min Aung Hlaing and other members of the junta, targeted judicial officials involved in prosecutions against deposed Nobel laureate Aung San Suu Kyi,” it explained.
Key findings from the World Bank’s aforementioned Myanmar Economic Monitor of January 2022 attest to the economic turmoil the country is enduring. In addition to its growth projection of just 1% in the year to September 2022, it finds:
- The near-term outlook will depend on the evolution of the pandemic and the effects of conflict, together with the degree to which foreign exchange and financial sector constraints persist, as well as disruptions to other key services including electricity, logistics and digital connectivity
- Because of a low vaccination rate and inadequate health services, Myanmar is highly vulnerable to the Omicron variant of Covid-19
- Among recent signs of economic stabilisation, mobility has recovered to 2020 levels after falling around 70% below pre-Covid-19 baseline levels in July 2021, though it remains about 30% below pre-pandemic levels for retail, recreation, and transport venues
- This is likely to have supported the services sector, though overall consumer demand continues to be weak due to recent shocks to incomes and employment
- In the manufacturing sector, output and employment also appear to be stabilising, and exports have recovered in recent months
- Economic activity continues to be affected by substantial weaknesses in both supply and demand
- Firms continue to report sharp reductions in sales and profits, cashflow shortages, and a lack of adequate access to banking and internet services
- Over the longer term, events since February 2021 are expected to limit Myanmar’s growth potential. Most indicators suggest that private investment has fallen markedly, and previously viable projects are becoming unviable as demand remains weak, the cost of imports has risen, and kyat-denominated revenues are worth less in foreign currency terms
- In addition, lost months of education, together with large increases in unemployment and displacement, will substantially reduce human capital, skills and productive capacity over the longer term.
It’s a concerning outlook, and that’s without even delving into the human cost and potential for even deeper poverty and lack of food security that the World Bank’s report describes.
It’s a narrative affirmed by the Asian Development Outlook 2021: Update report of September 2021 from the Asian Development Bank (ADB). The Update forecasts a contraction in the economy in fiscal year 2021 (FY2021, ending 30th September 2021) that is nearly double the contraction projected in ADO 2021.
Weaker aggregate demand has weighed on the economy, it explains, with supply constraints adding to the slowdown. Agriculture production was dampened by lower farm-gate prices; higher prices of key inputs, such as fertilisers and pesticides; limited access to finance; and reduced cross-border trade. Agriculture is estimated to have grown by 0.8% in FY2021, lower than the forecast of 1.9% in April.
The Update adds that, “Industry output and employment have declined since the first quarter of FY2021 due to the political turmoil in the country. Measures taken to contain Covid-19 infections and weaker demand caused factory closures. Industry output is forecast declining 20.9% this fiscal year compared with the 10.8% decline projected in ADO 2021. Covid-19 mobility restrictions and political turmoil disrupted activity in services. Output in this sector is forecast declining by 26.4%, compared with an earlier forecast of a 15.1% drop.”
The market for industrial gases
It’s a well-known footnote that the industrial gases business is a barometer or bellwether for macroeconomic trends; the two are intrinsically linked. It stands to reason then, that the political and economic turmoil in Myanmar would be reflected in its existing and potential gases industry.
The market has been through an array of fluctuations in its value and growth projections through the last decade or more. gasworld Business Intelligence’s Myanmar country dashboard (2019) explains how the commercial industrial gas market has been through various stages of expansion and contraction through the years, and stood at a value of around $38.5m in 2019. At that time, it was growing healthily, from a comparatively small base.
There had undoubtedly been a sense of strong growth ahead, with the flurry of investment activity in 2015/16, the number of important oil and gas pipeline projects commissioned, and the flagship Sino-Myanmar pipeline that was officially commissioned in first quarter 2015. The latter, which saw both natural gas and oil pipelines run for 771km, from the offshore oilfields off the west coast of Myanmar, to the southern Chinese city of Kunming, was heralded as a major opportunity for the region and industrial activity.
At the time of a May 2019 story from Japan’s The Gas Review, reflecting on the opening ceremonies for Taiyo Nippon Sanso’s first gas liquefaction plant in Myanmar a few months prior, there were a reported 19 industrial parks in the country and development was progressing under Myanmarese, Chinese, and South Korean leadership. As further economic development increases the standard of living and industry develops, expanded and safe usage of large quantities of high-quality gas is expected, it affirmed.
This was reinforced by gasworld’s analysis of the market in 2019. The end-user market in Myanmar was fairly limited, with sales to the general manufacturing industry dominating the market. The healthcare and food & beverage industries accounted for revenues of $5.8m and $5.4m, respectively. The rest of the end-user market was fractured, with no other individual sector being responsible for revenues in excess of $2m.
As a result, the sale of oxygen was the largest revenue generator in 2019, accounting for around 45% of commercial sales. Carbon dioxide was the second-most important industrial gas, with this product generating 18.1% of gas sales. Both are commensurate with the understood end-user breakdown.
The heavy industry that does exist in Myanmar was and is largely state-owned and therefore tended to prefer owning and operating its own captive gas production plants. Accordingly, there was very little onsite tonnage schemes and the industrial gas marketplace was essentially confined to the production and supply of merchant gas in bulk and packaged format.
Captive conversion to onsite is often seen as a big opportunity in many regions, but it was the wider economic development and the level of activity within Myanmar’s energy sector that were seen as the exciting growth plays in the near term. Many investment opportunities were emerging for international, and regional, industrial gas companies.
Possible demand for nitrogen and carbon dioxide could spike if enhanced oil recovery (EOR) techniques were utilised in Myanmar; the construction of new oil and gas pipelines, could lead to opportunities in purging and leak testing applications; and with Myanmar’s domestic production capacity comprised of a small number of merchant ASUs, with a maximum capacity of 30 tonnes per day (tpd), additional capacity would be required in the near future to meet growing demand in the energy sector.
There were also expected to be opportunities in engineering and construction projects in Myanmar, while the impending addition of LNG infrastructure in Myanmar would almost certainly draw the attention of major industrial gas companies, specifically if they already have a vested interest in the LNG business.
It was a climate for optimism and industrial gas growth that, combined with newfound economic stability and prosperity, prompted gasworld Business Intelligence forecast models to project growth from 5.8% p.a. in a low scenario to 6.9% p.a. in a high scenario within the 2019 – 2024 timeframe.
From hotspot to uncertainty
How has that outlook changed since February 2021? Well, as it stands in February 2022, the picture in Myanmar’s industrial gas market is one of considerable uncertainty.
As the bellwether for the economy, one would have to expect another muted or challenging year(s) ahead, given the civil war status, vulnerability to renewed waves of Covid, and the resulting projections of both the World Bank and the ADB.
The ADB’s Update report of September 2021 is keen to point out that the forecasts and analysis within it are based upon information available to 3rd September 2021, and further still that it does not make projections for 2022. However, the trend lines it observes for both Myanmar and the wider Asia region in 2021 are arguably still relevant today.
Of the wider region, it describes the resurgence of the more contagious Delta Covid-19 variant in late April (2021) as having slowed Southeast Asia’s growth momentum. “GDP growth for the sub-region’s 11 economies is now forecast at 3.1% for 2021, down from 4.4% forecast in Asian Development Outlook 2021. Sub-regional growth in 2022 is forecast at 5% after an earlier projection of 5.1%. Despite rising oil prices, inflation will ease this year as aggregate demand softens. The sub-region’s current account surplus will shrink due to supply chain disruptions.”
“In this mutable landscape,” it continues, “Asian Development Outlook 2021 Update expects somewhat slower regional growth, which is now forecast at 7.1% in 2021 and 5.4% in 2022 in an uneven recovery caused by divergent growth paths. Growth forecasts are revised up for East Asia and Central Asia, but down for South Asia, Southeast Asia, and the Pacific from the projections made in April. This reflects not just the differences in vaccine progress and control of domestic outbreaks but also other factors, including rising commodity prices which are helping Central Asia, and depressed tourism which continues to weigh on tourism-dependent economies in the Pacific and elsewhere.”
The report’s focus on Myanmar states that the country’s exchange rate has been highly volatile, with the kyat depreciating by 19.4% against the US dollar between July 2020 and July 2021. This was despite the central bank’s interventions to limit the depreciation. Weaker capital inflows and subdued demand will continue to put pressure on the kyat, it says, adding that foreign direct investment declined by 54% in the first half of FY2021.
“This Update projects a higher fiscal deficit in FY2021, equivalent to 6% of GDP from the earlier projection of 5.2%. Although significant cuts in public services will result in lower expenditure, declines in revenue collection will be steeper than earlier forecast.
Risks to these forecasts are tilted to the downside, with political uncertainties and the effects of the pandemic continuing to weigh heavily on the economy.”
All of which leaves us questioning whether Myanmar will become another growth market casualty of an increasingly fractured, fragmented and terse geopolitical climate.
The potential was undoubtedly there, the previous investments had been made, and the business cases were both established and lauded.
The question now is not only whether Myanmar can break free from the clutches of civil war, but if it can do so with renewed humanity, democracy and economic vigour. Moreover, will it be on a footing to reach its long-expected potential anytime soon? The world watches and waits.