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The Need to Enhance Diplomatic Impetus in India's Global Energy Strategy

Nandakumar Janardhanan is Deputy Director at the Energy and Climate division at the Institute for Global Environmental Strategies.
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  • August 16, 2007

    Overseas energy being a key factor in India's economic development, it is necessary to think whether we need to treat the country's global quest for energy resources as a purely commercial interaction with the energy market or as a larger strategy involving diplomatic activism. While not ignoring the importance of nuclear or alternative sources in the country's energy landscape, we need to understand that petroleum sources would continue to be indispensable for India's fuel economy in the foreseeable future. Even if India's electricity production increases to a significant level using a wide spectrum of resources, it is undeniable that many of our industries and most of the transportation sector will not be able to sustain themselves without adequate oil and natural gas supply.

    Hence, the prime questions that arise are: Can India achieve energy independence in terms of petroleum supply? Will domestic petroleum reserves/production be able to address the country's energy needs? How well is India prepared to address the energy security concerns arising out of the global energy market?

    For an economy that is growing at a pace of 8-10 per cent, complete energy independence in the coming decades appears to be a distant dream. India's current petroleum reserves are estimated at 5.7 billion barrels of oil and 37.95 trillion cubic meters of natural gas, with a reserve production ratio as per the current production levels of oil and gas estimated at 19.3 years and 33.9 years, respectively. Recent claims by some domestic energy industry majors about finding large natural gas reserves in the Krishna-Godavari (KG) basin are yet to be fully verified and integrated into the present reserve estimate. However, with increasing demand for petroleum fuels, the reserve-production ratio would certainly come down unless new energy reserves are found domestically. This indicates that the increasing demand for energy sources would certainly push forward the country's dependence on the global market in terms of resources and technological support.

    For its global energy quest, India primarily needs to focus on two aspects: a) ensuring trans-border energy transport options; and b) acquiring energy equity and long term energy contracts. While the major trans-border energy transportation options are currently limited to the proposed natural gas pipelines, namely, the Iran-Pakistan-India (IPI) pipeline, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, and the Myanmar-Bangladesh-India (MBI) pipeline, some experts have also observed the possibility of trans-border electricity lines to India from Nepal and Bhutan. Despite the fact that economic or technological feasibility for most of these plan exists, political feasibility continues to be a crucial question that needs to be taken into consideration before charting out an energy strategy. Though domestic political volatility in or geopolitical rivalry among supplier/transit countries adversely affect India's energy interests in these trans-border energy transportation plans, it is important to note that effective diplomatic measures would certainly help enhance India's stakes in such scenarios.

    In recent years the country witnessed the MBI pipeline, which was proposed to transport natural gas from Myanmar and Bangladesh to India, suffered serious political hurdles and finally led Yangon to choose China. This happened despite the Oil and Natural Gas Ltd (ONGC) and Gas Authority of India Ltd (GAIL) together holding a 30 per cent stake in the A-1 offshore Block containing natural gas reserves. The Myanmar Ministry of Energy claims that apart from the A1 Block, the country has identified 24 more natural gas reserves offshore blocks, of which a total of 15 blocks are still available for exploration and development. However, on December 7, 2005, PetroChina signed a Memorandum of Understanding with Myanmar's Energy Ministry for the sale of 6.5 tcf of natural gas from the A-1 Block. Myanmar has been in Chinese energy radar for a long time not only for oil and natural gas reserves but also to build a pipeline connecting Sittwe port to Yunnan province, which might eventually avoid Chinese supply traversing through the Malacca Straits. Despite the two countries moving closer on energy deals, there were no official statements from either Yangon or Beijing, nor was India kept informed about developments on this front. As a further step, in April 2007, China's National Development and Reform Commission approved a plan to construct an oil pipeline between the deepwater port of Sittwe and Kunming, Yunnan's capital.

    A question that arises here is could India have cracked the deal with Yangon had New Delhi been aware of China's energy intentions in Myanmar? India's Ministry of Petroleum and Natural Gas (MoPNG) website cites 'bilateral issues with Bangladesh' and affirms that 'the option of getting Bangladesh on board is being pursued,' while the Myanmar puzzle remains unanswered! In fact, India has not lost any deals to China, though it has failed to gain any breakthrough in the energy sector with Yangon. This, despite the important role Myanmar would have played in India's energy sector in terms of natural gas supply as well as in its long term strategic ambitions of land connectivity to South East Asia.

    With regard to the global search for energy, there have been incidents of Indian energy companies facing challenges from their Chinese counterparts. While the Indian side insists that these incidents should be seen purely from a commercial angle, it is imperative to understand the reach of economic and diplomatic measures Beijing has adopted in outbidding its competitors. Energy co-operation that was initiated between India and China is yet to make any significant progress in terms of energy supply as the two instances of joint overseas contracts provide only about 2 million tons of oil per year to India.

    Given that most of the global energy resources have either been mapped or under exploration and development, India is likely to face tougher competition in the global energy market especially in acquiring equity stakes or energy contracts. While some claim that India's energy supply is ensured by the global market mechanism, it is necessary to understand that the so-called market would certainly reflect global price differences, which results in a fatter energy bill for the country and a long term impact on its GDP. Oil imports during April-May 2007 were valued at US $9165.20 million, which was 1.01 per cent higher than oil imports worth $9073.62 million during the corresponding period last year. With crude prices still hovering above $70 per barrel, the burden of over dependency on the open market would certainly necessitate the country entering into more long term energy contracts and acquiring more equity stakes.

    While India has an 'Integrated Energy Policy' to address its energy security concerns both on the domestic and overseas arenas, it is imperative that policy makers mould an overseas energy strategy to positively address political concerns. New Delhi needs to work towards not only addressing issues like the MBI pipeline, but also to minimize the challenges it might face in its worldwide energy search. In short, the foreign policy element in India's energy strategy needs to be strengthened.