Energy hungry: india engages in oil diplomacy to meet growing demands

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03.07.2009 00:24
Dipanjan Roy chaudhury, analyst on strategic and security issues
Buoyed by a decade-long economic boom, India’s ever-growing appetite for energy is quietly reshaping the way it operates in the world, changing relations with several countries, extending its reach to oil-rich states as far flung as Sudan and Venezuela.
Hovering over India’s energy quest is its biggest competitor: China, which is also scouring the globe to line up new energy ources. The combined appetite of the two Asian giants is raising oil prices and putting greater demands on world oil supplies. India’s energy ambitions have led to developments unthinkable just a couple of years ago  a proposed pipeline to ferry natural gas from Iran across Pakistan; a new friendship with the military overnment in gas-rich Myanmar; and ongoing talks with the United States to let India buy nuclear fuel.

  As the world’s ffth-largest consumer of energy, India used energy at the equivalent of 538 million tons of oil daily in 2002, the most recent year for which fgures were available from the Interna­tional Energy Agency. That demand is expected nearly to double by 2030. Today, India imports about 70% of its oil; in another 20 years, the In­dian government estimates, that fgure will rise to 85%. India’s demand for natural gas is also ex­pected to grow, and most of it would have to be imported.
Till date New Delhi’s most ambitious proposal is a $4 billion, 2,600-kilometer, or 1,600-mile, pipeline that would ferry natural gas from Iran across Paki­stan to India, with a fnal deal expected in July. India’s changing relationships regarding energy are inspiring a delicate diplomacy with the United States. Publicly, Bush administration offcials, in­cluding Secretary of State Condoleezza have op­posed India’s plans for working with Iran. India is pursuing nuclear technology as the United States and European nations are trying to get Iran to give up its own nuclear program. New Delhi has also made it clear to Washington that it would not ac­cept any cap on its strategic programme as part of the civilian nuclear deal, a proposition not favour­able to the Bush administration presently. Both sides are engaged in tough negotiations to see it through.
India, Pakistan and Iran are likely to sign a pact for a tri-nation gas pipeline worth over seven-bil­lion dollars by end of this July. India and Pakistan will have a meeting shortly to sort out issues on transportation tariff and transit fee, after which ministerial level signing of framework agreement for the pipeline will take place. The India-Pakistan offcial level talks by June-end or early July, will be followed by a ministerial dialogue to fnalise issues on transportation tariff and transit fee pay­able to Islamabad for allowing passage of the pipeline to India. Following agreement on the two issues, Iran, Pakistan and India will sign Frame­work Agreement for the project. Iran wants to sell gas to India and Pakistan at $4.93 per million Brit­ish thermal unit. Transportation tariff and transit fee are over and above that. Pakistan is seeking a transportation tariff of $0.70-0.75 per mBtu while India was willing to pay no more than $0.55 per mBtu. On transit fee, Islamabad is seeking $0.493 per mBtu while New Delhi has offered $0.20 per mBtu.
India’s primary commercial energy consumption in 2004 stood at 375.8 mtoe. This comprised coal – 54%, oil – 32%, natural gas – 8%, hydroelectric-ity – 5%, and nuclear energy - one percent. India’s commercial energy consumption is expected to double to 812 mtoe in 2030. India’s demand for oil is expected to increase from 122 million tonnes in 2001-02 to 196 million tonnes in 2011-12, and 364 million tonnes in 2024-25. Domestic produc­tion of oil is expected to increase from 26 million tonnes to 52 million tonnes in 2011-12, and to 80 million tonnes in 2024-25. In the next ten years, even if the latest series of domestic oil exploration discoveries (for example, by UK-based Cairns Energy in Rajasthan) are fully exploited, India will still struggle to keep its imports down at current levels. Domestic demand for petroleum products is increasing relentlessly at 5% per year. India’s demand for natural gas, which stood at 0.6 tril­lion cubic feet (tcf) in 1995 had reached 0.9 tcf by 2002 and is expected to touch 1.2 tcf by 2010 and 1.6 tcf by 2015. Domestic sources of supply met over 90% of demand as late as 2003. How­ever, despite the increased reserves discovered by recent exploration, the country will need to im­port up to one-third of its projected consumption needs by 2015.
Last year, India’s Planning Commission (top plan­ning body) published the Integrated Energy Policy (IEP), which took a holistic view of India’s energy interests. According to the IEP, India needs to sustain an eight per cent to 10% economic growth rate over the next 25 years to eradicate poverty and meet its human development goals. To meet these targets, the country has to increase its pri­mary energy supply three to four times, and its electricity generation capacity/supply fve to six times from the current levels. Therefore, by 2031-32, power generation capacity must increase to nearly 800,000 MW from the current capacity of around 160,000 MW. To achieve these targets the country will have to make a major effort to enhance domestic resources, utilise the huge the national hydel-power potential, pursue civilian nu­clear power projects, and broadbase the sources of hydrocarbon fuels. It will also have to diversify energy sources through increased use of renew-ables. However, for the coming 25 years, fossil fuels will dominate India’s energy requirements. India’s real GDP grew by an average of 5.6% a year in the 1980s, and by 5.8% a year from 1991 to 2003. A growing population and rapid industri­alization has prompted a sharp increase in India’s energy needs. With plenty of domestic coal re­serves, but not enough oil and gas reserves, India’s policymakers are scrambling to bridge this energy shortfall. Already ranking sixth in global petroleum demand, India meets 70% of its needs through crude oil imports. By 2010, India is pro­jected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China, and Japan. To meet the challenge of energy security, Indian government is planning to expand domestic pro­duction of oil and gas by liberalising the oil sector, encourage the entry of private Indian and foreign companies, and investments in technology and research and development. The possibility of a sizeable increase in the production of oil and gas within India has brightened recently in view of oil having been found in the Barmer area in West­ern Indian state of Rajasthan and vast reserves of gas off-shore the Krishna-Godavari basin in Southern India. New supplies of gas are also ex­pected from India’s considerable coal-bearing ar­eas. The government’s New Exploration Licens­ing Policy is expected to give positive results in the near future.
An important aspect is India’s ‘energy diplomacy’ across the globe. Saudi Arabia is India’s largest supplier of crude oil, meeting 25% of its annual requirements. During the visit to India of King Abdullah bin Abdul Aziz in January 2006, the two countries agreed to transform their commercial
ties into a «strategic energy partnership». This will be concretised through investments in each others’ downstream and petrochemicals projects, as also by India’s participation in Saudi Arabia’s upstream proposals in the gas sector. Russia, Japan, Republic of Korea and Norway have emerged as important partners for Indian compa­nies for the development of domestic resources and capabilities like increased oil recovery and enhanced oil recovery and exploration and pro­duction proposals in third countries. India has set up mutually benefcial energy ties with Nigeria, Angola and Egypt in Africa, and Brazil, Columbia, Ecuador, Venezuela and Cuba in Latin America. The mechanisms of the oil market are such that oil assets do not necessarily have to be brought back to India and consumed here; they can be sold in other markets which require them. In recent years, India’s state-run Oil and Natural Gas Corporation (ONGC) has bought equity stakes in oil felds in Iraq, Sudan, Libya, Angola, Burma, Sakhalin in Russia, Vietnam, Iran and Syria. Other Indian public-sector undertakings have become involved -- not only in acquiring exploration and ex­ploitation rights, but also in establishing sales out­lets for Indian petroleum products and in offering a variety of technical services. In the gas market, the Gas Authority of India Limited (GAIL) has started to invest heavily in equity stakes in Liquefed Natural Gas (LNG) plants in Oman and Iran, and is build­ing port facilities and pipelines at home to handle large imports. GAIL is also pursuing plans for direct pipelines from neighbouring Bangladesh, Burma, Iran and even Pakistan.
India’s oil diplomacy has begun to yield results. India has a 25% equity participation in an oil-pro­ducing feld in Sudan, which provides India with three million tonnes per annum. India invested $750 million to pick up a 25% equity previously held by the Canadian Talisman Energy in the Greater Nile Oil Project. The Canadian company was forced to quit Sudan after it came under pres­sure from human rights groups on the charge of committing genocide in Darfur region. Other producing felds in which India has equity stakes are in Russia (Sakhalin I), Vietnam and Myanmar. Two agreements for supply of fve mil­lion tonnes of LNG have been fnalised with Qatar and Iran. India is also keen on transnational gas pipeline projects. The Iran-Pakistan-India pipeline is expected to bring Iranian gas to India in 2010-11. India will be participating in the Turkmenistan-Afghanistan-Pakistan-India [TAPI] pipeline, which will give New Delhi access to Central Asian gas resources and augment the supplies received from Iran. India also plans a gas pipeline from Myanmar through the country’s Northeast. In January 2005, India convened a Round Table Conference involving the four principal Asian oil-consuming countries - China, Japan, Republic of Korea and India and oil-producing countries of West Asia and Southeast Asia. The 11 participat­ing ministers agreed on a consensual programme of cooperation that included studies to reform the Asian oil markets, promotion of investments, joint ventures for exploration contracts, and enhance­ment of Asian capabilities in regard to conserva­tion, environment-friendly fuels and non-conventional energy sources. A second round table was convened in November 2005, on the promotion of oil and gas linkages in Asia. India’s economic growth is driving increasing en­ergy ties with the Middle East, at a time when Chi­na, the United States, and Japan are all ramping up efforts to lock in access to oil and natural gas in the region. With about 65% of those imports coming from the Middle East, India is attempting to secure supplies from the region. Indian com­pany Essar Group is considering a $3.4 billion re-fnery in northern Egypt that will process 300,000 barrels per day. Middle East countries, especially those bordering the Persian Gulf, are also con­scious of the opportunities that India represents. The Middle East sends 66 percent of its exports to Asia each day, a percentage that will almost certainly increase in the coming decades. However, in Asia, India is not alone in its efforts to guarantee energy supplies from the Middle East. Along with quickly expanding efforts in South America, Africa, and Asia, China is aggressively approaching oil and gas producers in the Middle East. India’s basic approach to energy diplomacy - both oil and gas - has been to develop as many potential supply arrangements, and to try to neu­tralise its potential competitors mainly China with cooperation agreements. Today, India ‘s energy requirements already rank amongst the world’s highest. By 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the US , China , and Japan. The oil and gas-rich Cen­tral Asian Republics have America and Russia competing for control. Turkey and Iran are also in the fray as big players. Given their huge oil de­mand, both India and China are bound to be key players in this new Great Game. As the global race for scarce energy resources intensifes India is increasingly looking towards Central Asia as a reliable source of oil and natural gas as well as a focus of its strategic interests in Asia . In a post 9/11 world confgured by en­ergy diplomacy, Central Asia has emerged as the preferred chessboard for the second Great Game for global domination. The major players include the United States , Russia , and China . The US is leading the charge with its oil-driven policies. Russia too has consolidated its presence by sign­ing multi billion dollar deals on oil exploration with former Soviet republics. China has invested mil­lions of dollars in the hydrocarbon sector and may use the region as a trial stage to pursue its ambi­tions as an Asian superpower. After Middle East, Central Asia could be a key re­gion for fulflling India’s rapidly expanding energy requirements. The region has certainly grown in importance for New Delhi. India has enjoyed ex­cellent relations with Central Asian republics right from the Soviet days. India could gain consider­ably from this US backed Baku-Tblisi-Ceyhan pipeline. Besides oil, Central Asian republics, in­cluding Turkmenistan , Kazakhstan , Uzbekistan , Kyrgyzstan and Tajikistan , are important for India from a national security viewpoint. If India is to play its role as a major Asian power, it will have to deepen the engagement and raise its profle in the region.
Russia is emerging as a key energy source for India. Russia had played a pioneering role in setting up India’s oil and gas infrastructure over 50 years ago. Negotiations are on to signifcantly expand India’s investment in Russia’s energy sector. India and Russia have agreed extend their co­operation in the energy sector and work together in refnery downstream projects in both the countries. While India is participating in the produc­tion-sharing agreement in Russia’s far eastern island of Sakhalin, and wants to acquire more oil assets there, it is ready to open up downstream sector for the Russian companies in return. This would add a new di­mensions in their energy cooperation, including participation of Russian oil majors in expanding the refning and delivery capacities of Indian Oil Corporation (IOC).
ONGC and Gazprom has agreed to expand mutual co-operation in the Hydrocarbon and Power sector. The protocol agreement envisages co­operation in exploration and exploitation of oil and gas felds in India, Russia and third countries, midstream and downstream Oil and Gas proj­ects in India and Russia, LNG supplies to India and CNG related projects in India. Gazprom has invited ONGC to participate in eight projects in Russia including oil and gas projects in Eastern Siberia and Far East. ONGC in turn extended invitation to Gazprom for participation in inte­grated petrochemicals, LNG and power projects in India. India and Russia, as states possessing advanced nuclear technolo­gies, also recognise that nuclear energy provides a safe, environmental friendly and sustainable source of energy. They underline the need to further develop international cooperation in promoting the use of nuclear energy for peaceful purposes in accordance with their respective inter­national commitments and national legislations. They further believe that nuclear energy will provide an indispensable source of energy to future generations.
The issue of oil pipelines between Russia and India is still at exploratory stage. There are possibly two variants of a pipeline project realistically attainable for bringing Russian oil and gas to India - both in a rough north-south direction along the existing railway lines and roads in Ka­zakhstan and the Xinjiang region of China. These variants are: West Si-beria-Tyumen-Omsk-Semey-Druzhba-Urumchi-Korla-Kuqa-Aksu-Kash-gar-Yarkand-Shahudullah-India. (An alternative could be that the route branches off from Korla to the southern branch of the Silk Road along the southern rim of the Taklamakan desert, on to Khotan and Shahidullah.); West Siberia-Tyumen-Petropavlosk-Astana-Karaganda-Bishkek-Issyk Kul-Naryn-Kashgar. Alternatively, there could be a pipeline: Irkutsk (Rus-sia)-Ulan Ude-Ulan-Bator (Mongolia)-Yumen (China)-Dunhuang, which would thereafter follow the southern branch of the traditional Silk Road to Khotan-Shahidullah-India.
Similarly, there could be a pipeline enabling India to access the vast Kovykta deposits in Russia’s eastern Siberia. Such a pipeline could be from Irkutsk (Russia) via Ulan Ude-Ulan Bator-Yumen (China)-Dun-huang, and, thereafter follow the southern branch of the traditional Silk Road to Khotan, Shahidullah and India. For any of the above pipeline grids, the hubs would be Urumchi and Kashgar in Xinjiang. The pipelines from Siberia (and any potential ones from Central Asia) could converge on these two hubs, from where the pipelines could move to the south to the main markets of north India. Oil pipelines could also be laid along the same alignments as the gas pipelines. Besides, a pipeline through China could integrate India’s energy cooperation with Central Asian countries. Pipelines could be laid from Turkmenistan and Uzbekistan along a main branch of the Silk Road, namely, Bukhara-Samarkand-Khojand-Andi-zhan-Ferghana-Osh-Erkeshtam-Kashgar.
Oil will remain the dominant fuel in the primary energy mix, with a share of 40% in 2020. The volume of world oil demand is projected at about 115 mb/d in 2020, compared to 75 mb/d in 1997. India’s oil diplomacy has to address two separate but connected chal­lenges -- the frst challenge is issue-oriented and pertains to larger policy matters, such as stability in the petroleum market; the issue of oil prices and the need for an Asian marker; the establishment of petroleum ex­changes; the harnessing of technology, and so on. The second challenge is to set up enduring engagements through the consolidation of existing relationships with foreign countries and companies as also reaching out to and setting up linkages in new areas.