Transocean Chairman to Leave

Days before a fierce proxy fight between investor Carl Icahn and Transocean Ltd. comes to a head, the chairman and former chief executive of the offshore oil-and-gas driller said he would step down in the next year.

Michael Talbert, 66 years old, whose re-election has been opposed by Mr. Icahn, said in a press release late Sunday that if he wins re-election at this Friday's shareholder meeting in Zug, Switzerland, he will give up his chairmanship by November and step down from the board by this time next year.

"After consultations with our shareholders, I have decided to retire from the board on a timetable that will allow the board to carefully select a new chairman who will help guide the company in the creation of sustainable, superior value for all shareholders," Mr. Talbert said. He left the CEO post in 2002.

The move is meant to ensure that three new directors Mr. Icahn nominated for the board don't get elected, according to a person familiar with the matter, and mirrors steps taken by a number of other energy companies recently as activists have pressed them to focus on shareholder returns.

On Friday, Hess Corp.'s CEO, John Hess, said he would relinquish the chairman role in response to investor pressure.

A week earlier, Occidental Petroleum Corp. Executive Chairman Ray Irani was soundly denied re-election by shareholders and was replaced by an independent chairman. Chesapeake Energy Corp. last year replaced a majority of its board with directors recommended by major shareholders including Mr. Icahn; founder Aubrey McClendon stepped down as chairman last year and resigned as CEO in April.

In an open letter to shareholders Monday, Mr. Icahn said he stood by his recommendation that shareholders vote against Mr. Talbert and two other long-time board members.

"We find it to be utterly absurd that a Chairman facing the prospect of losing his directorship would be so brazen as to ask shareholders to return him as Chairman so that he and the board can then pick his successor," Mr. Icahn said.

The activist investor has been particularly critical of the company's $18 billion acquisition of rival GlobalSantaFe Corp. in 2007, a deal that he says was too expensive for the decades-old drilling rigs it got in the deal. He has also urged shareholders to approve a $4 per share dividend.

Steve Newman, the chief executive of Transocean, said the company wants to reinstate the dividend--which was eliminated last year--at $2.24 a share annually, down from $3.16 before the suspension. This will allow the company to keep enough cash to invest in its fleet of drillships and drilling platforms, manage the cyclicality of the oil-and-gas business and still leave room for even larger future payouts, Mr. Newman said.

"There's no question the company has underperformed," Mr. Newman said. "But Mr. Icahn's approach to closing that valuation gap would liquidate the company."

Investors favored the GlobalSantaFe acquisition in 2007, and it ultimately did give Transocean a greater global reach, said Angie Sedita, an analyst with UBS. But the deal wasn't followed by the kind of cost cutting and integration usually needed for such large transactions, she said.

More recently, Transocean has struggled because of the fallout of the Deepwater Horizon disaster in 2010. The company owned the drilling rig leased by BP PLC that exploded in the Gulf of Mexico, killing 11 workers and unleashing the worst offshore oil spill in U.S. history. Early this year, Transocean settled all civil and criminal claims with the Justice Department for $1.4 billion.

Mr. Newman said that settlement, as well as last year's move to sell less-profitable shallow-water drilling rigs and focus on more lucrative deep-water operations, are benefiting shareholders. First-quarter 2013 earnings were $321 million, up from $10 million last year but slightly below analysts' expectations because of higher operating costs.

The company's shares are up more than 22% so far this year, closing Friday at $54.64. But they are down from the peak reached in February, a month after Mr. Icahn first revealed his growing stake in Transocean and shortly before he revealed his demands for the larger dividend and to replace three board members, including Mr. Talbert.

The two largest investor advisory firms, Institutional Shareholder Services and Glass, Lewis & Co., both recommended that shareholders vote against Mr. Icahn's larger dividend.

But both largely agree with Mr. Icahn that the company has long underperformed its peers because of operational shortcomings. Both recommend replacing Mr. Talbert, the chairman.

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Myanmar Pipelines To Benefit China

NEAR HSIPAW, Myanmar - Two pipelines in the highlands of northeast Myanmar will soon begin pumping oil and gas into China, representing a major step in Beijing's quest for energy security.

At the end of a bumpy road here, a 45-minute ride from the nearest town, Cheng Chong Zhen, a 40-year-old Chinese electrician working for state-owned energy giant China National Petroleum Corp., or CNPC, points with his cigarette toward a wide trail of red dirt that disappears over a hilltop. The pipelines lie underneath, stretching 500 miles from the Indian Ocean in the south -- where the oil and gas will be loaded -- to the Chinese border in the north, where they will help fuel China's growing energy needs.

The $2.5 billion pipeline project, scheduled for completion this month, is part of China's land-based network of import routes that includes completed pipelines from Kazakhstan, Turkmenistan and Russia. In a region increasingly defined by its quest for energy, the new pipelines could help China tip the geopolitical landscape in its favor. But in the process, its thirst for energy has fueled some local anti-China sentiment.

Energy security has been a priority for the Chinese government since the early 1990s, when it began an economic gallop and became a net oil importer. China overtook the U.S. as the world's largest overall energy consumer in 2009, with coal accounting for the biggest share.

However, the share of oil and natural gas in the country's energy mix continues to grow because of rising demand for refined oil products, such as petrochemicals that serve as the building blocks of industry as well as gasoline for vehicles -- about 55,000 new cars roll onto China's roads every day. In December, net oil imports exceeded those of the U.S. for the first time.

While the country's import dependency has prompted its state-owned energy firms to search for oil in Africa, South America and the Middle East, it still faces a challenge in getting that oil to its shores. Last year, the lion's share of China's total oil imports -- about 4 million barrels a day out of 5.43 million barrels -- was shipped through the narrow Strait of Malacca, near Singapore, where the U.S. Navy has a strong presence, and through the South China Sea, where territorial disputes with Southeast Asian neighbors have intensified as China has grown increasingly assertive. The two pipelines through these dusty highlands in Myanmar are crucial to Beijing's efforts to diversify its energy-supply routes.

"The way the Chinese have been able to develop their energy oil import infrastructure in recent years has been hugely impressive," said Richard Gorry, an analyst at consultancy JBC Energy.

But resentment is growing in Myanmar. Locals say the pipelines -- built under agreements made with Myanmar's former ruling military junta -- bring little benefit to communities and threaten the environment.

In the wake of similar local protests, Myanmar President Thein Sein in 2011 stopped a Chinese-backed $3.7 billion hydropower dam at Myitsone in the northern part of the country.

Since five decades of military rule came to an end in 2011, Myanmar has opened to the West at a rapid pace, in part to distance itself from China. Its reform process was backed during a visit by President Barack Obama in November, intensifying speculation Myanmar is trying to get out from under the shadow of its closest ally and trading partner of decades.

China National Petroleum isn't taking chances, donating millions of dollars for new schools and health clinics in communities along the pipelines.

"When the project started, Myanmar was seen as Beijing's close ally, but there are now greater risks for the Chinese in this project," said Michal Meidan, an analyst at Eurasia Group. "They could get caught up in political strife."

The pipelines through Myanmar will mark the third leg of major overland import routes, and will be capable of supplying 440,000 barrels of oil a day and 12 billion cubic meters of natural gas a year to China's southern Yunnan province.

The gas will come from a new development off the coast of Myanmar, while the oil will be shipped from the Middle East and Africa on tankers. Today, the tankers transport the oil through the Strait of Malacca to China's coast. But as early as September, they will sail around the southern tip of India and head north into the Bay of Bengal to Myanmar's coastal town of Kyaukpyu, where the oil will be loaded into the new pipeline. The shortcut will reduce China's reliance on the Strait of Malacca route.

Myanmar's Energy Minister Than Htay said natural gas will start flowing in June, followed by oil in September, though the Chinese have said oil may not start before year-end.

Exports of natural gas have been a cause for controversy in Myanmar, as it struggles to meet its own growing energy needs. Mr. Than Htay said that in addition to China's regular payments of land rental and transit fees, Myanmar will be able to draw 40,000 barrels of crude oil a day from the new pipeline.

"We will have very good access to those pipelines," he said. "This is a very big advantage for our country."

At a pumping station at the site of the pipelines, Min Neing, a Myanmar native, sits not far from his Chinese co-workers. He was hired as an unskilled worker for $136 a month -- less than one-tenth what the Chinese electrician Mr. Cheng earns.

CNPC says that more than half of all workers involved in the pipeline project were recruited locally, but some locals say the project is unlikely to result in many lasting jobs. Mr. Min Neing says his job will end when the gas begins flowing.

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Centrica Reports Good Performance from Upstream Activities

UK integrated energy firm Centrica reported Monday that the performance by its international upstream gas and oil business has been good so far this year.

In a trading update, Centrica said it expects total production from existing assets to be around 75 million barrels of oil equivalent in 2013, up from 67 MMboe in 2012. It added that it expects the package of Western Canadian Sedimentary Basin conventional gas and crude oil assets it is acquiring from Suncor to produce around 15 MMboe in 2013.

Meanwhile, the firm noted that it achieved first gas from its York and Rhyl fields during the first quarter of the year, while its other approved projects – Key, Grove, Valemon and Cygnus – remain on track to bring 86 Mmboe of reserves into production over the next three years.

In exploration, Centrica noted that two out of three wells drilled during the first quarter were successful.

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Kosmos Gets Go-Ahead for Irish Farm-In

Europa Oil & Gas reported Monday that it has received government consent for the farming out of its Irish licensing options to independent oil and gas firm Kosmos Energy.

Europa reported that the Irish government has approved the transfer from Europa to Kosmos of 85 percent of Europa’s Licensing Option 11/7 and LO 11/8, which together cover approximately 770 square miles in the South Porcupine Basin in the Irish Atlantic Margin. Kosmos also assumes operatorship of the licensing options, while Europa will retain 15 percent of both options.

The proposed farm-in deal was previously announced April 18.

Europa CEO Hugh Mackay commented in a company statement Monday:

"Subject to government approval for converting the Licensing Options into full exploration licences, the next steps will involve acquiring 3-D seismic over both blocks. We are pursuing the same Cretaceous stratigraphic play that Kosmos pioneered in the Atlantic Margin basins offshore West Africa. Kosmos have outstanding technical and operational experience of exploring this play and are the ideal partner to lead our exploration programme in the South Porcupine basin.

"The recent announcements by ExxonMobil on 23 April of the commencement of drilling on the nearby Dunquin prospect and by Cairn Energy on 7 May regarding their farm-in to three licences in the North Porcupine basin indicate that we are entering an important period in offshore Ireland oil and gas exploration, in which Europa will be playing a key role."

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Bechtel to Open Global Engineering Center in UAE

Bechtel announced Monday that the company will establish a global center of engineering excellence in the United Arab Emirates (UAE) initially focused on rail and marine engineering projects. The center uniquely positions Bechtel to provide customers with high-quality, innovative engineering solutions more efficiently and cost effectively.

"Rail and port infrastructure go hand-in-hand and are the lifeline for transporting goods around the world from major petrochemical, power, and mining facilities," said Amjad Bangash, managing director of Bechtel's global rail business. "The global demand for rail and port infrastructure will increase substantially during the course of the next 10-15 years. This center provides customers around the world with a comprehensive solution for a successful project right from the start."
"Much of the growth for new railways and ports is in the Gulf region. We have worked in this region for more than 70 years, and our decision to base the center in the UAE represents part of our ongoing commitment to the region," added David Welch, Bechtel's regional president for Europe, Africa, and the Middle East.

The center will draw upon Bechtel's global experience and expertise in the design and construction of railways and ports, and will offer services from master planning studies through to engineering execution.

The company is currently involved with Crossrail and the Dulles Metrorail Expansion and has successfully delivered dozens of rail projects including the Channel Tunnel, High Speed 1, and the Athens Metro. In addition, Bechtel has been involved with more than 80 port and marine projects around the world including Khalifa Port and Kizad, and King Fahd Industrial Port.

The new center will open in the third quarter of 2013.

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Lebanon Has 30 Trillion Cubic Feet of Offshore Gas

BEIRUT - Preliminary surveys of Lebanese offshore fields show reserves of 30 trillion cubic feet of natural gas and 660 million barrels of oil, Lebanon's energy minister said, adding that production could begin within four years.

Speaking at the Arab Economic Forum, Gebrane Bassil said scanning was now complete on 70% of the country's territorial waters--an area of some 15,000 square kilometers (5,791 square miles).

"In just 10% of that area... we have 30 trillion cubic feet (850 million cubic meters) of gas and 660 million barrels of oil," he said.

Speaking to AFP, Bassil said the amounts were "very large and promising as initial estimates."

Production from the reserves was linked to the speed of the exploration phases and installation of wells, but "theoretically ranges from three to seven years."

"If we meet all the deadlines, we hope to have completed the first exploration phase in the period between 2016 and 2017 and to begin thereafter development and production," he added.

Last month, Bassil announced the name of 46 firms that had qualified to bid on a first round of licenses to explore Lebanon's offshore fields, with 12 qualified to bid as operators.

The bidding round opened on May 2 and is scheduled to be completed by Nov. 4.

The process has been complicated by Lebanon's fragile political climate, with a caretaker government currently in charge, as Tammam Salam tries to form a consensus cabinet.

In January, Bassil said Lebanon hoped to have exploration contracts with international oil companies signed and sealed by the end of the year.

He has played down the risk of conflict with Israel over the potential reserves, despite a longstanding dispute over the maritime boundary between the two neighbors, which remain technically in a state of war.

In August, parliament passed a law setting Lebanon's maritime boundary and Exclusive Economic Zone.

But Lebanon has submitted to the United Nations a maritime map that conflicts significantly with one proposed by Israel, arguing that its map is in line with an armistice accord drawn up in 1949, an agreement not contested by Israel.

The disputed zone consists of about 854 square kilometers (330 square miles), and suspected energy reserves there could generate billions of dollars.

Lebanon has been slow to exploit its maritime resources compared with other eastern Mediterranean countries, with Israel, Cyprus and Turkey much further along in the process of drilling for oil and gas.

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Offshore Canada Contract for Aker

Norwegian oilfield services firm Aker Solutions reported Friday that it has won a five-year, $150 million contract with Husky Energy to support Husky's activities at the White Rose field offshore Canada.

Aker said the project will employ around 70 management and engineering employees onshore, as well as 20 people on rotation offshore. The scope of the work includes studies, modifications and campaign maintenance services. There is also an option to extend the contract for as many as 10 one-year periods.

"We are delighted that Husky has chosen us as their preferred partner for offshore engineering services at the White Rose field," said Tore Sjursen, head of maintenance, modifications and operations at Aker Solutions.

"Our presence in North America is increasing and the award will be a good foundation for further growth in Canada."

The White Rose field is located approximately 215 miles southeast of St. John's, Canada, and uses a floating production, storage and offloading (FPSO) vessel.

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Oil Futures Weighed by Demand Worries, OPEC Output

Oil futures settled lower for the third straight session, weighed by concerns over weakening demand in China and robust global production.

Futures headed lower after data released Monday showed Chinese industrial output in April came in at 9.3% above last year's level--an improvement over a tepid March reading but under the 9.5% forecast by analysts surveyed by The Wall Street Journal.

The report was the latest underscoring slowing economic growth in China, which in turn has left the oil market worried demand for crude-oil is slowing there, too. China is the world's fastest-growing large economy and the boom has fueled a rise in oil prices over the last several years.

"The Chinese data today started us off on the defensive," said Andy Lebow, senior vice president of energy futures at Jefferies Bache in New York. "We're going to really need some demand growth in the second half [of the year] to suck up the increased crude production."

Light, sweet crude for June delivery settled 87 cents, or 0.9%, lower at $95.17 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange recently settled $1.09, or 1%, lower at $102.82 a barrel.

Monday's fall is the latest decline in crude prices, as signs of strong supply in the U.S. and elsewhere keep a lid on gains. Year to date, crude futures have barely budged, up just 3.65% since the start of 2013.

On Monday, the Organization of the Petroleum Exporting Countries raised its strongest concerns yet this year about weakening oil demand in China. It cut its estimate for Chinese oil demand growth in the first quarter by 20,000 barrels a day, saying weaker-than-expected economic growth in China "may dent oil demand consumption."

Research service Platts estimated OPEC raised crude output by 25,000 barrels a day to 30.5 million barrels a day in April. The increase marked the end of a recent trend of lower production. The service said output had fallen by nearly a million barrels a day between October and March.

Platts said the increase was driven by higher output from Saudi Arabia, the biggest producer, and Iraq, the No. 2 producer. The group's next meeting in Vienna scheduled for May 31

Meanwhile, many oil-market observers remained concerned about the effect of a wind-down of monetary stimulus measures at the U.S. Federal Reserve. The Wall Street Journal reported on Friday that Fed officials had mapped out a strategy for winding down its $85 billion-a-month easing program.

An end to the measure would likely entail more support for the U.S. dollar, which typically weakens oil prices by making the commodity more expensive to global buyers.

The ICE Dollar Index, which tracks the greenback against a basket of currencies, was recently up 0.1% at 83.340.

Front-month June reformulated gasoline blendstock, or RBOB, settled 3.93 cents, or 1.4%, lower at $2.8210 a gallon. June heating oil settled 1.52 cents, or 0.5%, lower at $2.8910 a gallon.

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OTC Exhibitors: Technologies Trending Toward Deeper Water But Also Land

Based on a quick sampling of insights from a few of the more than 2,700 exhibitors at the Offshore Technology Conference (OTC) 2013 in Houston this past week, applications of innovations developed to expand the frontiers of the offshore oil and gas industry are broadening. However, they pointed out that larger companies stand to benefit from this trend.

"I think there is more emphasis on the higher pressures and higher temperatures that the wells, that the equipment, have to accommodate," said Paul Taylor, sales director with Trelleborg Sealing Solutions UK.

Trelleborg, which produces sealing systems for offshore applications such as seismic guns and well head connectors, is modifying how it manufactures and configures these parts so that they can endure these increasingly extreme conditions, Taylor said.

"We're looking at polymers technology to make sure that our product can accommodate the higher temperatures and the higher pressures," Taylor said.

Although the offshore industry is demanding seals and myriad other products that can withstand higher temperatures and pressures, Taylor added that it is seeking more evidence to substantiate the claims made by manufacturers.

"There's becoming an increasing emphasis on the certification of the parts," he explained.

"I think everybody has learned from the Deepwater Horizon that the industry is becoming perhaps a little bit more conservative on insisting the parts that they purchase are endorsed and validated with certificates of conformity."

The increased level of scrutiny – driven in part by more attention from government authorities – applies to constituent parts, measurements and testing, said Taylor. In addition, he believes this trend will benefit larger suppliers such as Trelleborg.

"I think what it will do is probably reinforce what has been done by the larger, more innovative companies that are going with the trends," Taylor noted.

He explained that smaller companies unable to validate the sources of their raw materials, conduct research and development, perform testing and take sundry other steps will be at a disadvantage.

"I think they'll get less and less business and the bigger companies, the bigger original equipment manufacturer end users, will use the bigger, more efficient companies," predicted Taylor. "So there may be a rationalization of competition in our industry as a consequence."

Jeffrey Lavers, vice president and general manager of 3M Mining's Oil and Gas Solutions Division, noted that the oil and gas industry's quest to exploit reserves in deeper waters off West Africa and other regions demands continual innovation from companies such as his.

"Just the basic pressure and force of going that deep in the water, from an engineering standpoint, changes a lot of dynamics of the project," said Lavers. "It's a much more challenging environment in a host of different ways, primarily just because of the heat and the pressure."

"What we have to do is adjust some of our products and we think, candidly, it puts us in a good position because we have the capabilities" to make those adjustments, he added.

Lavers said that 3M is also responding to oil and gas industry needs in mature offshore provinces such as the Gulf of Mexico and North Sea. Although many depleted wells in these areas still contain significant volumes of hydrocarbons and boast well-developed infrastructure, inadequate flow rates from these wells prevent the economic exploitation of the remain resources. 3M is also working to tailor some of its products to perform in these types of situations.

"We're gearing up a lot of technology to see if we can go back to these brownfield wells and make them productive," Lavers said.

Another company aiming to re-purpose existing technology is Tesco Corp., which provides drilling and tubular services technologies for land, offshore and deepwater operations.

Jeff Foster, senior vice president of Tesco's Top Drive business segment, said that more offshore technology is being transferred to land applications in the area of automation and rig mechanization. He explained that "iron roughnecks," which connect and disconnect drill pipe, and top-drive drilling systems are two examples of offshore technologies that are being adapted for onshore use.

Foster said the automation, preventive and predictive maintenance trend offers Tesco and other service providers an opportunity to reduce non-productive time.

"It's an add-on for us," he said.

Late Thursday, OTC organizer Society for Petroleum Engineers (SPE) reported that attendance at the 2013 event hit 104,800 – a 17-percent increase from last year's conference and the second-highest since the show began in 1969.

"We had a terrific conference with deep and broad technical coverage, supported by excellent panels and executive keynote presentations," OTC chairman Steve Balint said in a written statement. "Technology is at the heart of the offshore industry and it was all here on display at OTC 2013."

Houston's Reliant Park will again be the venue for the next OTC, which will run from May 5-8, 2014.

Matthew V. Veazey has written about the upstream and downstream O&G sectors for more than a decade. Email Matthew at mveazey@downstreamtoday.com. Twitter: @Matthew_Veazey

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Myanmar Pipelines To Benefit China

NEAR HSIPAW, Myanmar - Two pipelines in the highlands of northeast Myanmar will soon begin pumping oil and gas into China, representing a major step in Beijing's quest for energy security.

At the end of a bumpy road here, a 45-minute ride from the nearest town, Cheng Chong Zhen, a 40-year-old Chinese electrician working for state-owned energy giant China National Petroleum Corp., or CNPC, points with his cigarette toward a wide trail of red dirt that disappears over a hilltop. The pipelines lie underneath, stretching 500 miles from the Indian Ocean in the south -- where the oil and gas will be loaded -- to the Chinese border in the north, where they will help fuel China's growing energy needs.

The $2.5 billion pipeline project, scheduled for completion this month, is part of China's land-based network of import routes that includes completed pipelines from Kazakhstan, Turkmenistan and Russia. In a region increasingly defined by its quest for energy, the new pipelines could help China tip the geopolitical landscape in its favor. But in the process, its thirst for energy has fueled some local anti-China sentiment.

Energy security has been a priority for the Chinese government since the early 1990s, when it began an economic gallop and became a net oil importer. China overtook the U.S. as the world's largest overall energy consumer in 2009, with coal accounting for the biggest share.

However, the share of oil and natural gas in the country's energy mix continues to grow because of rising demand for refined oil products, such as petrochemicals that serve as the building blocks of industry as well as gasoline for vehicles -- about 55,000 new cars roll onto China's roads every day. In December, net oil imports exceeded those of the U.S. for the first time.

While the country's import dependency has prompted its state-owned energy firms to search for oil in Africa, South America and the Middle East, it still faces a challenge in getting that oil to its shores. Last year, the lion's share of China's total oil imports -- about 4 million barrels a day out of 5.43 million barrels -- was shipped through the narrow Strait of Malacca, near Singapore, where the U.S. Navy has a strong presence, and through the South China Sea, where territorial disputes with Southeast Asian neighbors have intensified as China has grown increasingly assertive. The two pipelines through these dusty highlands in Myanmar are crucial to Beijing's efforts to diversify its energy-supply routes.

"The way the Chinese have been able to develop their energy oil import infrastructure in recent years has been hugely impressive," said Richard Gorry, an analyst at consultancy JBC Energy.

But resentment is growing in Myanmar. Locals say the pipelines -- built under agreements made with Myanmar's former ruling military junta -- bring little benefit to communities and threaten the environment.

In the wake of similar local protests, Myanmar President Thein Sein in 2011 stopped a Chinese-backed $3.7 billion hydropower dam at Myitsone in the northern part of the country.

Since five decades of military rule came to an end in 2011, Myanmar has opened to the West at a rapid pace, in part to distance itself from China. Its reform process was backed during a visit by President Barack Obama in November, intensifying speculation Myanmar is trying to get out from under the shadow of its closest ally and trading partner of decades.

China National Petroleum isn't taking chances, donating millions of dollars for new schools and health clinics in communities along the pipelines.

"When the project started, Myanmar was seen as Beijing's close ally, but there are now greater risks for the Chinese in this project," said Michal Meidan, an analyst at Eurasia Group. "They could get caught up in political strife."

The pipelines through Myanmar will mark the third leg of major overland import routes, and will be capable of supplying 440,000 barrels of oil a day and 12 billion cubic meters of natural gas a year to China's southern Yunnan province.

The gas will come from a new development off the coast of Myanmar, while the oil will be shipped from the Middle East and Africa on tankers. Today, the tankers transport the oil through the Strait of Malacca to China's coast. But as early as September, they will sail around the southern tip of India and head north into the Bay of Bengal to Myanmar's coastal town of Kyaukpyu, where the oil will be loaded into the new pipeline. The shortcut will reduce China's reliance on the Strait of Malacca route.

Myanmar's Energy Minister Than Htay said natural gas will start flowing in June, followed by oil in September, though the Chinese have said oil may not start before year-end.

Exports of natural gas have been a cause for controversy in Myanmar, as it struggles to meet its own growing energy needs. Mr. Than Htay said that in addition to China's regular payments of land rental and transit fees, Myanmar will be able to draw 40,000 barrels of crude oil a day from the new pipeline.

"We will have very good access to those pipelines," he said. "This is a very big advantage for our country."

At a pumping station at the site of the pipelines, Min Neing, a Myanmar native, sits not far from his Chinese co-workers. He was hired as an unskilled worker for $136 a month -- less than one-tenth what the Chinese electrician Mr. Cheng earns.

CNPC says that more than half of all workers involved in the pipeline project were recruited locally, but some locals say the project is unlikely to result in many lasting jobs. Mr. Min Neing says his job will end when the gas begins flowing.

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