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Subject: Scenario #2: The Thai Canal
Arbalest    8/27/2007 6:03:09 PM
The Straits of Malacca have been mentioned and discussed at SP many times. But there is a potential future alternative, that has the potential for changing the world as we know it. Scenario #2: The Thai Canal A group of wealthy investors and shipping companies approach the Government of Thailand with a proposal to dig a canal across the Malay Peninsula (the Kra Isthmus). Background: This idea has been around since at least 1677 (Thai Canal, Kra Canal or Kra Isthmus Canal), but was beyond the capabilities of the day. Further, the British and Thais agreed in 1897 to not build such a canal, in order to protect the regional dominance of Singapore. Things are different now. The technology to build the canal exists (as proved by the Panama Canal), but there was, and still is, the question of cost; even today, a lot of money will be needed (someone will owe someone else, “big”). The Strait of Malacca is slowly becoming a risk to all users; it is effectively 800km long with pirates along most of its length, and very narrow and shallow in one place. It is also international water. Ending piracy (indigenous, state-sponsored or other) seems tough. A canal through exclusively-Thai territory would be about as shallow and not as wide (but perhaps wider; 3 or 4 channels each way), but it would be roughly 800km shorter and well-policed. The Thai Canal is like the Corinth Canal, not the Panama or Suez canals; the alternatives are either taking the old route (thousands of miles south to the tip of South America or Africa) or unloading the cargo, shipping it across a land route, then reloading it. Closing the Corinth Canal or the Thai Canal simply diverting ships to the old route; in the case of the Thai canal, diverting to the Strait of Malacca for a cost of 3 or 4 days. But there are geo-political issues. China and Japan depend heavily on the Strait of Malacca for trade and energy supply. A new, shorter and more secure route seems quite appealing, but it will be controlled by Thailand. South Korea probably also has some interest, and the Philippines and Vietnam are also likely to be interested. Singapore, Malaysia and Indonesia make some money off of shipping. If most of the shipping goes north, they stand to lose some heavy cash. Could Singapore still maintain a sufficiently close standard-of-living, or decay into poverty? The Thai Canal would be in the southern provinces, where there is a significant (Malay) Muslim population. Malaysia might have a claim to the canal, as the old Srivijaya Empire extended far up the Kra Isthmus, apparently up to what is now Myanmar (this covers all proposed Canal locations). There is a remote chance that Myannmar will make some claim (if for no other reason, “just because”). The US is currently Thailand’s best friend, but does not have the same stake in maintaining open shipping lanes. Questions: 1. Will Thailand build the canal? I suspect “no”, but for this scenario, “yes” must be assumed. 2. Will “sides” appear, and who will be on what side? For example, South Korea and Japan quite probably have almost identical interests in this scenario 3. How stable will the sides be? For example: China, Malaysia and Indonesia might align, but potentially later Islamic "issues" in Western China, or the treatment of Chinese in Malaysia / Indonesia, will cause a split. 4. What is the potential for conflict, and what types of conflict? If the conflict consists initially of diplomatic / economic pressure, and perhaps an extended arms buildup, then the USN can do nothing. The Strait of Malacca might remain physically open, as will the Sunda Strait (if sailing past Krakatoa is no problem), and the other straits to the east, but there is a political issue, as the waters are Indonesian. Depending on which straits stay open, and depending on any “tolls” or other costs, the threat is more towards profits than national survival.
 
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Arbalest    More Details   8/28/2007 4:52:15 PM

More details.

The partners who build the canal is an issue.

China, Japan and South Korea seem like the biggest investors. All 3 countries are already heavily dependent on shipping through the Strait of Malacca; the Canal would be welcome.

Will Thailand, these 3 countries, and any other interested parties, reach agreement on who pays for the canal, and who controls it? Potentially not, so one might win (and someone will be excluded).

Assuming everyone’s included, a 5 way split, with the 5th split, divided among all other investors, might be a good assumption.

But some economies have much more room to grow, and this represents a scheduling question, and lots of money going to the other shareholders, and forever. Will control of the Canal be "adjusted"? How?

Perhaps the split must be 6 ways, with India getting an equal share. The Canal will be quite a distance away, but it does affect India; Indian trade will likely pass through it, it is a border of an area of Indian influence, invites the presence of naval forces, and increases access to the Indian shoreline.

 

If the canal is built, then a very large portion of the shipping that floats past Singapore, and through Indonesian / Malaysian waters / ports (and buys fuel / repairs and generally spends money), gets diverted about 300km north.

I think this spells disaster for Singapore. Singapore has had outstanding success in many areas, but much of it is dependent on being located at a major transportation hub. Remove the hub, and problems appear.

Indonesia and Malaysia are larger and have a larger economic base to fall back on. Indonesia has oil and Malaysia probably has some too, and more might be found. Still, loss of the trade route is not a small matter.

The likeliest Canal areas have a large ethnic Malay population, many of whom are agitating now; actually they’re killing people. The separatist movement seems likely to get stronger as the cash from the Canal grows. Will there be a move then to join Malaysia? 2 or 3 small provinces have about zero chance of controlling the Canal, or even getting a reasonable payment; but the locals might see Malaysia as the solution.

 

Myanmar has an interesting position; it has a long border with Thailand, its southern border will likely be very close to the Canal, and it has a long border with China (a very large country with a very large interest in the Canal). If the Canal is built, the friendship between Chinese people and the Burmese people will reach an all-time high.

Just looking at oil shipments for a moment, a pipeline from Rangoon to Kunming might be much cheaper and quicker to build than the Canal, and only involves 2 nations.
 
Would a pipeline be a cheaper delivery method than shipping oil all the way to mainland China? 
 
Would a pipeline diffuse tension, and for how long?
 
 
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xylene       8/28/2007 5:02:55 PM


I don't think a Thai Canal will be built, but I think it will be for practical reasons than geopolitical. Your correct that a tremendous amount of commerce moves through the Straits of Malacca, it has traffic and piracy issues, but a canal will costs billions of dollars and I do not think it would achieve the benefits intended for following reasons:

1) Size of canal required. The Malacca Straits see approx. 300 ship transits per day. Panama Canal can move approx 40 ships a day, mainly due to locks. To be effective the canal would need to be several hundred feet wide, eneabling two way transit, and be sea level. It would also have to be dredged very deep approx. 70 feet and the rate of siltation is unknown. East-West canals are very difficult since tides, currents, and water level due to Earth's rotation may be different.

2) Canal fees and limits. Thailand will most likely impose tolls on the use of the canal. Given it will be a restricted waterway ships would need to have a pilot as well. These are added costs that they do not face when transiting through Malacca Strait. Even the supposed savings in time may be eroded if long wait times for directional convoys or if there is inadequate number of pilots, eventually you will have a finite limit of vessels that can pass through per day. It's not like shaving two months off a voyage around Africa or Cape Horn, the 2-3 days you gain by not diverting south can be consumed by delays and may take longer.

3) Singapore. Many ships not only use the Starits of Malacca to transit, but Singapore is normally on their itinerary. It is the largest and most efficient port in the world. It is a center of world class shipyards, refineries, container yards, chandler services, and is a major bunkering/fueling port. If Singapore is already a scheduled stop, no vessel will pay canal fees simply to appraoch Singapore from a different direction.

 
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Godofgamblers       8/29/2007 4:04:33 AM
Some excellent points have been made. I will add just one more: the Thai king himself has spoken against the canal despite the optimistic views of economists. He is fearful of the implications in splitting the nation in two, whatever the financial benefits may be.
 
His advisors may make him change his mind, but until then, he does have the definitive word.
 
Still, interesting scenario worth exploring!
 
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xylene       8/29/2007 2:02:07 PM
I doubt a pipeline would work either. All that would be occuring is double handling the cargo and eventually paying freight on two ships plus pipeline fees when at present all you have to do is pay freight on a single vessel. Plus the handling will be time consuming time waiting for discharge berth, discharge time, time waiting for load berth, testing / analysis, time loading. Plus it becomes a nightmare trying to separate products in a single pipeline. Various types of crude may work but then it becomes an issue regarding accounting and quantity, especially if you sold oil basis load port figures in Persian Gulf, now you are introducing all these points at which quantity can vary and even a few percentage difference can mean lots of money.
 
Maybe a pipeline with large tank farm terminal specifically built as a trading hub may work.
 
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Arbalest       8/29/2007 6:11:05 PM

Clarification

Xylene’s point ("I don't think a Thai Canal will be built") is well taken.

To digress, I think that the King of Thailand is right; the Thais should avoid building the Canal. If the Canal is ever built, the amount of outside influence and money that will enter Thailand will destroy the country.

As for economics, the Corinth Canal seems profitable. Using similar logic, it may be that shaving 2-3 days off a voyage for certain cargo is worth the premium of using the Thai Canal.

But I originally asked the question as a formality, and avoided the related questions of "will environmental issues be insurmountable" and "will the result be profitable".

There are suitable investors who vote "yes".

In order to have a Scenario #2, we must assume "yes, the Canal will be built and will be profitable".

 

I assume in the original scenario possibly 4 channels each way (8 total). I’m assuming that there is no technical reason not to dig extra channels, and that the effort and results are worth the cost.

Assuming the Panama Canal (2 channels) rate of 40 ships per day, and assuming more advanced handling facilities (20% improvement), this works out to 50 ships per channel * 4 channels = 200 ships per day, 8 channels = 400 ships per day;

If the Canal is used only by large tankers and cargo ships, due to cost, other ships may still use the Strait of Malacca. This lowers the traffic load on the Canal, and keeps some traffic routed via Singapore.

There may be tide, silting and other environmental issues, but the revenue generated by 100 ships per day seems sufficient to try to solve these issues.

It’s true that Singapore is a magnificent port, but other countries in the vicinity probably wouldn’t mind having an opportunity to build up their own modern, world-class, port and shipping facilities.

Rangoon and Bangkok have potential, as do parts of Malaysia and Brunei, but Vietnam looks particularly well suited; the Mekong is located near the sea lanes and has a large city nearby.

 

The pipeline through Myanmar is a backup option, but pipelines of similar length do exist. The idea would be to pipe oil from Rangoon to the interior of China; no second tanker required, no other parties involved. There are issues, but there is an increase in security to oil deliveries, and the overall cost of getting oil to the interior of China might be competitive. Perhaps the tradeoff is not too unfavorable.
 
 
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xylene       8/29/2007 9:02:46 PM
I myself like Thailand and the Thai people much more than authoritarian Singapore and I would love to see them benefit from some type of economic engine. I think with ships, a canal, the making of a world class port are all a function of products being exported or imported. Ships are built for only one reason and that is to carry freight. So a nation must either increase it's exports and/or imports. Singapore has thrived because it has all the legs of the triangle. Large amount of raw material imports, large amount of material exports, and strategic location.
 
You do have an intersting idea regarding pipeline from Burma to Southern China. Security of the pipeline would be hard since many areas are sort of lawless, but it may be viable, especially if Chinese demand continues to grow. If built expect China to excert more influence on Burma and it would be in China's interest to keep Burma isolated internationally.
 
I've always thought the Phillipines was in a better geographic position to be a hub refinery and container center than Singapore. 
 
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Godofgamblers       8/30/2007 5:55:38 AM
In my humble view, all economic, geographical and logistic considerations are trumped by Sing's legal system: foreign companies will invariably choose Singapore because of the legal certainty of doing business there and its fair unbiased arbitration laws. With the exception of HK, no other Asian country comes even close.
 
 
 
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