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India, China locked in energy
game
By Chietigj Bajpaee
HONG KONG - In the words of Indian Prime
Minister Manmohan Singh, "China is ahead of us in
planning for its energy security - India can no
longer be complacent." These words conveyed the
sense of urgency that India holds over meeting its
energy needs.
India is playing catch-up
with other major players in the global energy
game. This realization has not come a moment too
soon, given the advent of rising oil prices,
India's unprecedented growth levels, lack of
energy-efficient technologies and reliance on
energy-heavy industries for its development.
Power shortages and blackouts continue to
plague India's major cities and undermine the
confidence of investors and foreign companies
operating in India. These power shortages have
been fueled by a combination of burgeoning growth
rates, inefficiencies by the state-run power
sector and power being stolen or siphoned for
votes. The growing popularity of gas-guzzling
sports utility vehicles and multi-purpose vehicles
in India is also placing strains on its energy
needs.
India, as the world's number six
energy consumer, is also in a more desperate
situation compared to its peers. For example, oil
imports account for two-thirds of India's oil
consumption, while China imports a third of its
crude oil consumption. Furthermore, China's proven
oil reserves stand at 18 billion barrels, compared
to 5 billion barrels in India.
Indian-owned Oil and Natural Gas Company
(ONGC) has invested US$3.5 billion in overseas
exploration since 2000, while Chinese-owned China
National Petroleum Corporation (CNPC) has made
overseas investments of an estimated $40 billion.
Indian policymakers have initiated
numerous policies to address the country's growing
energy needs. For example, India is pushing for
the creation of 15-45 days of emergency reserves
in Rajkot, Mangalore and Vishakapatnam. India is
also diversifying beyond oil to access other
energy resources, such as nuclear power, coal,
natural gas and renewable energy resources, as
well as stepping up exploration activities within
its borders.
Nevertheless, for the short
to medium term India will have to rely on an
increasing amount of imported oil and gas to meet
its energy needs. As a result, India is stepping
up energy diplomacy with states in the South Asia
region, as well as states further afield in
Central Asia, Russia and the Middle East and as
far away as Latin America and Africa.
ONGC, for example, has invested in
offshore gas fields in Vietnam, as well as energy
projects in Algeria, Kazakhstan, Indonesia,
Venezuela, Libya and Syria, while Indian Oil
Corporation is looking to invest in deepwater
exploration in Sri Lanka. Reliance Industries,
India's largest private sector oil firm, also has
stakes in an offshore field in Yemen and a
liquefied natural gas project in Iran, and is in
talks to acquire energy assets in Nigeria, Chad,
Angola, Cameroon, Congo and Gabon in Africa, as
well as in South America and the Middle East.
However, this quest for energy security is
being impeded by India's sometimes tense relations
with energy suppliers, energy transit countries
and energy competitors. For example, just as India
and China have for centuries engaged in
competition for leadership in Asia, the developing
world and status on the world stage, so the need
for energy security has now raised the possibility
of further competition and confrontation in the
energy sphere.
India's tense relations
with Pakistan also have an added dimension with
the question of a gas pipeline from Turkmenistan
or Iran to India, which will have to traverse
Pakistani territory. Nationalism and oil are
proving to be a volatile mix. Resolving
territorial disputes and improving relations with
traditional adversaries will become increasingly
important for India if it is to meet its energy
import needs by peaceful means.
Festering disputes
While China
has either resolved or shelved its border
disputes, India has active conflicts on almost all
of its borders with neighboring states. Apart from
India's poor relations with Pakistan on its
western borders, the ongoing violence in India's
northeast with sporadic attacks on pipelines and
India's poor relations with natural gas-rich
Bangladesh and China-friendly Myanmar have
prevented it from fully exploiting its proximity
to a region rich in energy resources on its
eastern borders.
Frosty relations between
Bangladesh and India are rooted in accusations by
India that Bangladesh is fueling terrorist
movements in India's northeast in the presence of
rising Islamic fundamentalism and anti-India
sentiment in Bangladesh under the Bangladesh
National Party (BNP)-led coalition government,
illegal migration between both states, and
Bangladesh accusing India of rerouting the Ganges
and Brahmaputra river systems that traverse both
states.
These disagreements have slowed
the progress for discussions on a natural gas
pipeline from Myanmar to India, which will have to
pass through Bangladeshi territory, forcing India
to look into the expensive option of creating a
deep-sea pipeline through the Bay of Bengal that
would bypass Bangladesh.
Disagreements
have recently given way to progress as a joint
statement was issued at a meeting of the energy
ministers from India, Bangladesh and Myanmar in
Yangon, which agreed to the construction of a 900
kilometer gas pipeline from Myanmar's offshore
Shwe field to Kolkata, passing through Myanmar's
Arakan state, the Indian states of Mizoram and
Tripura, and Bangladesh.
As part of the
deal, Bangladesh will also get access to the gas
as well as $125 million in transit fees. In
exchange for agreeing to the project, Bangladesh
is also pushing for a trade and transport corridor
linking Nepal and Bangladesh through Indian
territory, as well as access to hydroelectric
power generated in Bhutan and Bangladesh using
India's power grid.
Nevertheless, several
potential glitches remain. Given that the pipeline
will be traversing insurgency-infested areas
across the three states adds an element of
instability to the project. Furthermore, relations
between Bangladesh and India remain strained, as
seen most recently with Bangladesh's
disappointment to India unilaterally withdrawing
from the 13th South Asian Association for Regional
Cooperation (SAARC) summit, which was due to be
held in Dhaka. India cited the suspension of
democracy in Nepal and the deteriorating security
situation in Bangladesh as its reasons for
withdrawing, which ultimately resulted in the
postponement of the summit.
While India's
relations with Myanmar have seen considerable
improvement in recent years, Myanmar clearly
remains within the Chinese sphere of influence.
India has moved from voicing its opposition to the
military junta's crackdown on pro-democracy
activists and the arrest of Aung San Suu Kyi, the
leader of the National League for Democracy to a
more pragmatic, non-interventionist policy. This
change in policy by India has been prompted by its
desire to access the region's energy resources,
gain access to the vast markets of Southeast Asia,
balance the influence of China and counter Indian
insurgent groups operating from Myanmar.
Notably, Myanmar has helped Indian
security forces to crack down on northeast Indian
insurgent groups on at least three occasions over
the past 10 years. India's more conciliatory
approach with Myanmar's military regime was
demonstrated most recently when India became the
first country to host General Than Shwe, the
hardline chairman of Myanmar's ruling State Peace
and Development Council, since the ousting of
moderate premier Khin Nyunt at the end of October.
However, India's warming relationship with
Myanmar is making Myanmar a potential stage for
Sino-Indian energy competition. For example, China
is also in discussions with Myanmar for a 1,250
kilometer pipeline from the deepwater port of
Sittwe in Myanmar on the Bay of Bengal coast to
Kunming in Yunnan province.
China is also
looking at the possibility of pipelines traversing
Pakistani and Bangladeshi territory, as part of
its "string of pearls" strategy to bypass the
narrow Strait of Malacca, which experiences 40% of
the world's piracy and through which 80% of
China's oil imports flow. Construction has
recently been completed on a deep-sea port in
Gwadar in the Pakistani province of Balochistan,
in which China has provided technical expertise
and financing.
China's involvement has
been fueled by the proximity of the port city to
the Straits of Hormuz, through which 40% of the
world's oil passes. The port would compete with a
port facility at Chabahar in Iran, which is being
jointly developed by India and Iran to access the
landlocked states of Central Asia and Afghanistan.
China's "string of pearls" strategy also forms
part of a wider Chinese policy to encircle India.
India's plans to generate hydroelectric
power through damming and rerouting several river
systems have also been delayed by changes in state
and central governments and disputes with upstream
and downstream states such as Nepal, Bangladesh
and Pakistan. Most recently, Pakistan has been
pushing for international arbitration to resolve a
dispute over the Baglihar dam, which India is
constructing to generate power across the Chenab
river running through Kashmir. Pakistan claims
this project is a violation of the 1960 Indus
Water Treaty. The dispute now threatens to derail
the peace initiatives between India and Pakistan.
Nevertheless, India has made significant
progress in tapping into energy resources within
its borders, including oil discoveries in
Rajasthan by UK-based Cairn Energy and gas
discoveries by India's Reliance Industries off the
coast of Andhra Pradesh in the Bay of Bengal. In
August 2003, ONGC also announced a deep-sea
project, "Sagar Samriddhi", to look for oil and
gas reserves in the Arabian Sea and the Bay of
Bengal. In the past two years, India has reported
21 oil and gas discoveries amounting to 800
million tons of oil and gas, although domestic oil
production has still been stagnant at about 32
million tons annually for the past few years.
Indo-Iranian energy
cooperation
The inability to resolve the
Kashmir dispute between Pakistan and India has
undermined the viability of an Iran-Pakistan-India
natural gas pipeline. A memorandum of
understanding was signed between Iran and India in
1993 for a $4 billion 1,700 kilometer pipeline
from Iran's South Pars field with 700 kilometers
passing through Pakistani territory. Pakistan
stands to benefit with gas to meet its own energy
needs and $500 million in transit fees.
The international community has also shown
growing interest in the Iran-Pakistan-India
pipeline, with the World Bank and Japan's Sumitomo
Mitsui Banking Corporation willing to finance the
project. Russia also supports the project,
although the US opposes it, instead pushing for
the competing trans-Afghan pipeline project.
However, in the presence of sporadic
tensions between India and Pakistan, both states
have often proposed separate pipeline projects
with Iran, with India sometimes pushing for the
expensive option of a deep-sea pipeline that
bypasses Pakistan altogether. Rising oil prices
and a recent improvement in Indo-Pakistani
relations following a commitment to resume a
"composite dialogue" in January 2004 has revived
hopes for the "peace pipeline", which has now
become one of the confidence-building measures
being pursued by both states.
Notably,
Pakistan has offered security guarantees for the
pipeline, vowing that gas flow will not be
"switched off", even during periods of Indo-Pak
tensions or hostilities. However, the future of
the pipeline project is once again in doubt due to
periodic violence across the Line of Control in
Kashmir and rising tensions in Pakistan's
Balochistan province, with attacks by the Baloch
Liberation Front on energy infrastructure.
At the beginning of 2005, India also
completed a $40 billion deal with Iran to import
7.5 million tons of liquefied natural gas annually
over a 25-year period, as well as obtaining stakes
in the development of Iran's largest onshore
oilfield, Yadavaran, as well the Jufeir oilfield.
The Yahavaran oilfield is a Sino-Indian-Iranian
collaboration with India holding a 20% stake,
China 50% and 30% with Iran. In exchange for
Iranian gas, India is investing in Iran's ports
and energy infrastructure. Iran and India have
agreed to jointly develop the Iranian port at
Chabahar as well as the road linking the port to
Afghanistan and Central Asia, and grant India
exclusive rights to the port.
Cooperation
in the energy arena is mirroring relations in
other arenas, including trade and military
cooperation. Bilateral exchanges of defense and
intelligence officials are routine and in 2003
both states conducted joint naval exercises. These
developments have not only concerned India's
traditional adversaries, China and Pakistan, but
also its newly found allies, Israel and the United
States, who fear that military technology supplied
to India could be diverted to Iran.
Central Asia
India is at a
geographic disadvantage in Central Asia when
compared to China. While China shares borders with
Kazakhstan, Kyrgyzstan and Tajikistan, as well as
Russia, India does not share a land border with
any of the Central Asian states. That being said,
however, India's warm relations with the Soviet
Union during the Cold War have provided it with
influence in Central Asia. Further, India also has
its soft power to exercise, with historical links
that go beyond the Indo-Soviet Treaty of
Friendship to the Mughal period and Silk Road, as
well as the popularity of Indian mass culture in
the region, such as Bollywood films and music.
However, the presence of two unfriendly
regimes standing between India and Central Asia
has slowed the progress of Indo-Central Asian
cooperation in the economic, transportation and
energy spheres. For example, progress on the $3.3
billion US-backed
Turkmenistan-Afghanistan-Pakistan (TAP) or
Trans-Afghan pipeline that is to supply gas from
the Daulatabad fields in southeast Turkmenistan
has been delayed by instabilities in Afghanistan
and poor Indo-Pak relations. With the ousting of
the Taliban regime in Afghanistan, the installment
of a pro-US regime and improving Indo-Pak
relations, the TAP project is back on the table.
Nevertheless, progress has been impeded by
the competing Iran-Pakistan-India pipeline,
sporadic violence in Afghanistan, Turkmenistan's
isolationism and questions over whether
Turkmenistan has sufficient gas to meet India's
and Pakistan's needs, given its competing energy
agreements with Ukraine, Russia, Iran and its own
domestic consumption needs.
India's
increasing interest in Central Asia's energy
resources has been accompanied by a growing
involvement in the region's security. India has
expanded military contacts in Central Asia,
allegedly establishing a military and medical
facility in Tajikistan. Other major world powers
have followed similar trends. Since September 11,
2001, the US has forged closer relations with
Central Asia and established a military presence
in Afghanistan, Tajikistan, Kyrgyzstan and
Uzbekistan. China has led in the creation of the
Shanghai Cooperation Organization, which is
fighting the "three evils" of extremism, terrorism
and fundamentalism and promoting greater economic
integration and development in Central Asia and
China's West.
Meanwhile, Russia has
reasserted its presence in Central Asia under
President Vladimir Putin, as seen most recently
with Russia becoming a member of the Central Asian
Cooperation Organization. Russia has also
established a permanent military presence in
Tajikistan, replacing its 201st division and
border guards, who had been in the region since
the 1992-1997 Tajik civil war, as well as
maintaining a military presence at Kant airbase in
Kyrgyzstan.
Numerous formal and informal
overlapping power blocs are emerging in the
region, which spillover into the energy arena. For
example, Iran, Russia and India are pushing for a
north-south oil and gas pipeline and
transportation corridor to link Asia with Europe,
which is in competition with a US-led initiative
to create an east-west corridor on the historic
Silk Road through Baku, Tbilisi and Ceyhan. A
growing military presence in the region coupled
with increasing desperation to access the region's
energy resources makes Central Asia a stage for
potential great power conflicts.
Revival of the 'strategic triangle'
India has recently stepped up efforts to
access energy resources in Russia, the world's
second largest oil producer and leading gas
producer. India's ONGC Videsh Ltd (OVL) holds a
20% stake in Sakhalin-1 of $1.7 billion, which is
set to begin production this year eventually
generating 2.3 billion barrels of oil and 17.3
trillion cubic feet of gas. India is also looking
to invest in the Sakhalin-3 project, which is
estimated to hold 4.6 billion barrels of oil and
770 billion cubic meters of gas as well as
investing in the joint Russian-Kazakh Kurmangazy
oilfield in the Caspian Sea.
During
Putin's visit to India in December, the two
countries also signed a memorandum of
understanding for joint exploration and
distribution of natural gas from the Caspian basin
as well as building underground gas storage
facilities in India.
The controversy over
the sale of the Yugansk, which produces 60% of
Yukos' oil output and pumps 11% of Russia's oil,
has also highlighted India's growing interest in
Russian energy assets. While the mysterious buyer,
Baikal Finance Group, ended up selling its stake
in Yugansk to Rosneft in December, which has been
acquired by Russian state-owned Gazprom, this does
not preclude the possibility of Yukos' assets
being acquired by India's ONGC. ONGC has been
considering a $2 billion investment for a 10-15%
stake in Yugansk.
Indo-Russian energy
cooperation is being further cemented by political
and military cooperation. Just as India
increasingly relies on Russian energy resources,
so it also constitutes one of the biggest buyers
of Russian military hardware. During Indian
Petroleum Minister Mani Shankar Aiyar's visit to
Moscow in October 2004, he voiced similar
sentiments stating that "in the first half-century
of Indian independence, Russia has guaranteed our
territorial integrity, and in the second half it
may be able to guarantee our energy security".
In fact, growing Indo-Russian energy
cooperation resurrects former Russian prime
minister Yevgeny Primakov's idea for a strategic
triangle between Russia, India and China. These
states are bound together by their shared
interests in the fight against terrorism, the push
for a multipolar world, and respect for the
principles of state sovereignty and
non-intervention with regards to their respective
separatist movements in Chechnya, Kashmir and
Taiwan.
Now the energy sector can be added
to this list of shared interests. India and China
are already collaborating in the development of
the Yahavaran oil field in Iran and India's
leading state-owned gas company, Gas Authority of
India Limited (GAIL), has acquired a 10% stake in
China Gas Holdings. With India and China vying for
assets in Yukos, Sino-Indian-Russian collaboration
in the energy sphere could be further cemented. On
December 3, during Putin's meeting with Indian
Prime Minister Manmohan Singh in New Delhi, a
joint statement was released which included a
proposal for greater cooperation with China,
stating that "the sides express their conviction
in favor of a progressive increase in trilateral
cooperation, which also leads to social and
economic development amongst the three countries".
Conclusion
As India has made
limited progress in accessing energy resources on
its doorsteps due to poor relations with
neighboring states, it has shown a growing
interest in accessing energy resources further
afield, including in Africa and Latin America. In
many cases, India is vying for energy resources in
some of the most unstable parts of the world, such
as Sudan, where India has invested $1.5 billion.
In July 2004, India's OVL signed a $194
million contract with the Sudanese government for
the construction of a 741 kilometer petroleum
product pipeline from Khartoum refinery to Port
Sudan. Khartoum refinery is currently owned by the
Sudanese government and China's CNPC. While India
has made nowhere near the progress of China on the
international energy stage, it is conceivable that
India could become a major player in the near
future, thus bringing it into competition with
other major energy consuming countries.
Furthermore, India's and China's attempts
to engage "rogue states" such as Myanmar, Iran and
Sudan in order to access their energy resources is
undermining attempts by the West to isolate these
regimes. The quest for energy resources on the
world stage could eventually be added to the
outsourcing debate as an area of contention
between India and the West.
However,
conflict over increasing energy needs is not
inevitable. The need to access energy resources on
the world stage can be as much a catalyst for
cooperation as it can for conflict. For example,
the Iran-Pakistan-India and
Myanmar-Bangladesh-India natural gas pipelines
raise the stakes for regional states to resolve
their differences.
Conversely, India's
plans for generating hydroelectric power through
rerouting several river systems adds an additional
element of instability in relations between India
and downstream and upstream states such as
Bangladesh, Nepal and Pakistan.
Furthermore, the increasing
interdependence between China and India as a
result of their burgeoning trade relationship
reduces the possibility of conflict over energy
resources. Sino-Indian bilateral trade reached
$13.6 billion in 2004, making China India's
second-largest trading partner. It should be
noted, however, that expanding trade relations do
not necessarily preclude the possibility of
conflict, as seen by the fact that China is
Japan's largest trading partner, with trade up 26%
in 2004, while relations in the political and
security arena have continued to plummet over
historical animosities and territorial disputes
rooted in nationalism and energy resources.
India faces this same volatile combination
in many of its disputes with neighboring
countries. Thus, the jury is still out over
whether India's quest for energy security will
undermine international security.
Chietigj Bajpaee is Hong
Kong-based energy analyst.
Published with permission of
the Power and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
to content@pinr.com
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