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Thursday, Mar 30, 2006

Opinion

Opinion - Leader Page Articles

Diversification and energy security

Sudha Mahalingam

India's energy security is ineluctably interlinked with the fortunes of its neighbourhood. The country's foreign policy cannot ignore this reality.

THE NUCLEAR accord with the United States has given rise to a sense of complacency over India's energy future. Such complacency, apart from being totally unwarranted, leads to the perception that India can now relax its pursuit of the Iran gas pipeline project. Far from it. Nuclear power can never be a substitute nor supplant the need for a diversified energy basket, of which natural gas is an integral and key component.

Gas is the fuel of the future. It is also abundant and less whimsical in its distribution than oil or coal. Gas is by far the cleanest and most efficient of the fossil fuels, a consideration that should weigh heavily in a post-Kyoto world. For a comparable unit of consumption, gas emits 60 per cent lower carbon dioxide than electricity produced from coal, and 42 per cent lower when the fuel used is oil. And unlike nuclear power plants, gas turbines do not pose problems of waste disposal or safety. Extensive use of gas can lead to a reduction in total energy consumption by 20 per cent to 30 per cent because of its high thermal efficiency. Combined cycle gas turbines (CCGT) — state-of-the-art power generation technology — are relatively cheap and easy to install. Besides, CCGT plants can be set up in just two years' time, compared to the long lead times required to build nuclear or coal power plants.

Gas is essentially a continental or regional resource. While the advent of liquefaction technology has made it possible to ferry gas across continents, LNG still constitutes only 6 per cent of the global gas trade. The higher costs of liquefaction, cryogenic transportation, and regassification make piped gas the most economic, feasible, and indeed desirable option. No wonder then the globe is criss-crossed by gas pipelines — from Canada and Mexico to the United States, from Norway, Russia, and Algeria to continental Europe. Gas has thus retained its allure as a neighbourhood resource best transported through pipelines within the region.

Besides, regional energy cooperation is an idea whose time has come. And this is as true for oil as it is for gas. Regional energy alliances have acquired a salience hitherto not contemplated. Many factors — geological, geopolitical, geo-strategic, and economic — have contributed to its evolution. Oil's acclaimed fungibility that rendered it a truly global commodity has lost some of its allure. Markets are no longer regarded as reliable and infallible allies of nations in search of energy security. Global energy realignments point to a pronounced shift towards regional sources of supply, buttressed by long-term political and economic relationships.

Take the U.S. for instance. It is by far the largest energy consumer in the world, guzzling more than a quarter of all the oil produced in the world. Yet it produces less than half of what it consumes, more by design than by necessity. Until recently, the U.S. used to source most of its remaining consumption from the Middle East, notably Saudi Arabia. It even went to the extent of providing security to the Saudi royal family as well as the country's oil installations to ensure the security of its supply. But now, the U.S. has deliberately and consciously moved away from Saudi oil or for that matter, oil from the entire Middle Eastern region. This shift began as early as May 2001, with George W. Bush's New Energy Policy, which predates the catastrophic events of 9/11. Post-9/11, the U.S. resolve to move further away from the Arab region has paid dividends. Now the U.S. sources most of its oil from its own continent — Canada, Mexico, Venezuela, and Colombia. Western Africa supplies some oil to the U.S. whose dependence on the Middle East has dwindled to just 15 per cent of its consumption. As for gas, Canada and Mexico have emerged as the biggest suppliers, through a web of inter-boundary pipelines. Canada's gas flows to the U.S. through several major pipelines feeding U.S. markets in the Midwest, Northeast, the Pacific Northwest, and California. Robust political ties often strengthen and advance regional commercial relationships.

Russia's emergence

The European Union has also been following similar strategies. Fortunately for Europe, Russia has emerged as the new petro-state in its own backyard. Russian pipelines and ports are westward bound and Europe has turned out to be the natural destination of Russian exports of both oil and gas. Rapidly ramping up oil production to 9 million barrels a day, the Russians have all but edged Saudi oil out of the European energy market. Russia is also the repository of the largest gas reserves in the world. It now supplies as much as half of Europe's gas consumption. The newly built Bluestream — the first undersea gas pipeline — transits the Black Sea to carry Russian gas to Turkey. The recent Russian spat with Ukraine notwithstanding, Europe has become inexorably reliant on regional gas supplies transported through pipelines.

China and Japan are not far behind. China has hitherto been dependent on the Middle East for virtually all its energy supplies, but of late has been exploring possibilities of turning to neighbourhood supplies. It sources marginal quantities of oil from Russia ferried through railway wagons. With the inauguration of the Atashu-Alashankou pipeline from Kazakhstan, China has clinched its first regional energy lifeline. Russia has also announced that it will build its first eastward oil pipeline from Taishet all the way to the Pacific coast with a spur going to China. In fact, Japan, the other major energy consumer in the region, is also vying for Russian oil supplies.

China, Japan, and South Korea to a lesser extent, are also eyeing the substantial gas reserves available in the Russian Far East, Siberia, and the Sakhalin Peninsula. In fact, Japan's economy is heavily dependent on LNG, which comes all the way from the Persian Gulf region, exposing it to the twin choke points of the Straits of Hormuz and the Malacca Straits. It is but inevitable that both Japan and China would like to minimise the risks of supply disruption that could be caused by terrorist strikes in the sea lanes. The best way to avoid such an eventuality would be to turn to supplies nearer home that avoid the two choke points. Russian and Central Asian supplies fit the bill neatly. No wonder both Japan and China are aggressively wooing Russia for energy pipelines. China will probably be the beneficiary of the gas deposits in Russia's Kovykta fields while Japan could access Sakhalin gas and oil. China is also aggressively pursuing pipeline projects to access Turkmenistan's abundant gas reserves. Thus regional energy equations are acquiring salience in Asia as well.

That leaves India, the other growing energy consumer. At present, we import three out of the four barrels of crude we consume. Two of these barrels come from the Middle East Region. India's oil fields are depleting fast, Bombay High being the last major find in more than two decades. We will soon be importing four out of five barrels, probably from the same region.

While India has been buying up oil fields in faraway lands such as Sudan and Sakhalin, physical deliveries of energy are best secured from neighbourhood sources. In Vietnam, India's ONGC Videsh has a stake in the Nam Con Son Basin gas fields, but can we physically access this gas? Similarly, Sakhalin is expected to yield substantial quantities of gas, which will benefit mainly the neighbourhood consumers. Despite talks of fetching Sakhalin gas in LNG tankers all the way to India, we must face up to the reality of our dependence on our neighbourhood supplies of both oil and gas.

The recent offshore gas finds in the Krishna-Godavari basin hold out the tantalising prospect of domestic production serving our energy needs to some extent. Being deep sea deposits, extraction of gas is going to be costly, time-consuming and challenging. Fortunately for India, we are ringed by gas-rich neighbours in our immediate and extended neighbourhood — Myanmar, Bangladesh, Turkmenistan, and Iran. Yet geography conspiring with geopolitics poses formidable challenges in the way of India's access to regional gas supplies. Turkmenistan is doubly land-locked, with mountainous terrain posing added difficulties to unlocking its gas potential. Where both geology and geography have been benign, as in Myanmar or Iran, we can hardly afford to allow geopolitics to queer the pitch.

Herein lies the importance of the Iran gas pipeline project. Of all the possible pipeline routes from our neighbourhood, the Iran-Pakistan-India pipeline is the most promising, in terms of the size of gas reserves, the distance and terrain to be traversed, the size of investments required, and the feasibility of the project. And fortunately for us, Pakistan is also emerging as a gas consumer and is ideally situated to provide us transit. The promise of collateral gains from the "peace pipeline" is indeed too alluring to ignore.

In a world that is decisively gravitating towards regional coalitions and groupings based on shared interests, the security of India's energy future is ineluctably interlinked with the fortunes of our own neighbourhood. Our foreign policy can ignore this reality only at the cost of our energy security.

(The writer is Senior Fellow at the Nehru Memorial Museum & Library, New Delhi.)

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