An oil pipeline linking Myanmar’s western coast with Yunnan in China has been talked about for years as a possible solution to the country’s ‘Malacca Predicament’. This is a reference to the mainland’s overwhelming reliance on the Strait of Malacca as the main transit route for oil imports to feed its booming economy.

About 80 per cent of the crude oil that China imports from the Middle East and Africa has to sail through the Strait of Malacca and up through the South China Sea before reaching the mainland’s eastern coast.

This has prompted fears in Beijing that the busy strait could become a potential choke point where China’s rivals could shut down its access to oil and raw materials in the event of a conflict.

The proposed Myanmar- Yunnan oil pipeline will ease this problem, at least on paper, by allowing tankers to unload their cargoes on the western coast of Myanmar before the oil is piped to the mainland.

This would boost China’s energy security, and potentially cut costs and shipping times.

But the prohibitive cost, as well as the political uncertainties involved in such a project, could still emerge as stumbling blocks, observers say.

Politics likely played a huge part in China’s decision not to highlight the natural gas deal. It announced it in the state media only 10 days after it was signed in Myanmar’s capital, Naypyidaw.

Myanmar’s military junta has come under severe international criticism for its crackdown on anti-government protests last year, as well as its sluggish response to the recent cyclone which killed tens of thousands of people.

The lucrative natural gas deal, however, would bolster the generals’ ability to continue resisting threats of international sanctions over their rule.

According to a recently released Myanmar government report, foreign investment in the country’s oil and gas sectors more than tripled last year to $474US.3 million ($645S million).

That figure accounted for 90 per cent of all foreign investment in Myanmar last year of $504US.8 million.

China’s success in clinching the pact also likely came at the expense of India, which is competing for influence in Myanmar and also reportedly in hot pursuit of this natural gas deal.

Chinese state media reports gave no details of the politically sensitive deal, such as its value or commencement date. It merely said that it involved the A-1 and A-3 offshore natural gas blocks in Myanmar.

According to Reuters, South Korea’s Daewoo International Corp has a 51 per cent stake in the fields, followed by India’s Oil and Natural Gas Corp with 17 per cent, India’s GAIL with 8.5 per cent, South Korea’s Korea Gas Corp with 8.5 per cent and Myanmar Oil & Gas Enterprise with 15 per cent.

Under the deal, signed on June 20, the mainland’s China National Petroleum Corp will work with these five partners for the ’sale and transportation’ of the Myanmar natural gas.

‘This signalled the full launch of China and Myanmar’s collaboration in natural gas,’ the official Xinhua news agency said yesterday.

‘This is also an important part of the cross-border energy network that has been in the works for years.’

News of the natural gas deal came in the same month that saw Beijing raise fuel prices by 18 per cent - its highest one-time increase ever.

Yesterday, China’s top economic planning agency, the National Reform and Development Commission, ordered a freeze on major public transport fares in a bid to curb a ‘chain reaction’ that would lead to higher inflation.

But with crude oil prices hitting fresh highs in international markets, a rise in transportation costs seems inevitable in China, despite government price controls.

Meanwhile, Chinese airlines yesterday received the green light to raise domestic fuel surcharges by up to 50 per cent.