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India, China:
Comrades in oil
By Jyoti
Malhotra
NEW DELHI - Having gingerly
circled around each other like two cautious
pugilists for the past decades, India and China
may be taking their first step in the creation of
an Asian synergy that has much more to do with
making real money than the rhetorical bombast of
anti-imperialist morality.
Last week in
Beijing, within days of China announcing that it
would vote against a resolution led by India and
Japan to expand the UN Security Council, vice
chairman Zhang Xiaoqiang of China's National
Development and Reform Commission was feting
Talmiz Ahmad, an Indian diplomat seconded to the
Oil and Petroleum Ministry in New Delhi with the
task of creating energy partnerships abroad.
As Ahmad and his delegation were shown
around Beijing, Harbin and Shanghai, a senior
Chinese oil executive told him, "The possibilities
of India and China cooperating in Central Asia,
Russia and Africa are enormous of course, but both
of us must also work together in America and the
big nations of Europe."
The senior Chinese
oil executive's message was clear: American oil
major Unocal's recent rejection of China National
Offshore Oil Cooperation (CNOOC)'s nearly US$18
billion offer to take over the US oil company had
been grounded as much in American realpolitik as
in the number-crunching offered by Unocal. India,
on the other hand, growing at 8% per annum and
hungry to elbow its way into the world's top 10,
could definitely bring something to the table.
According to PetrolWorld statistics,
Beijing imports one-third of its oil supplies,
accounting for as much as 7% of the world demand
at 5.46 million barrels a day. India, on the other
hand, imports as much as two-thirds of its oil
needs, consuming about 2 million barrels a day.
But Indian officials say that if the Indian
economy maintains its robust growth, by 2025 it
could be consuming 7.4 million barrels a day.
This overpowering need for energy security
is obsessing India. President Abdul Kalam referred
to it in his government-cleared address to the
people on the occasion of India's independence day
on August 15. Prime Minister Manmohan Singh has
described it as being "second only in our scheme
of things to food security". And, indeed, it lies
at the heart of New Delhi's ability to win
American confidence that accompanied the
pathbreaking nuclear energy deal between the two
countries in July.
Political observers
point out that China's growing interest in India
also had something to do with this nuclear deal,
in which Washington implicitly accorded
nuclear-power status to India. "India's elevation
in the eyes of the world, that too at the hands of
the Americans, has concurrently given it greater
respect in Chinese eyes," an observer said.
Ahmad and his delegation were given such a
right royal tour of the three Chinese cities that
they were thrilled. Just as the Chinese side had
carefully prepared for the Indian team, the Indian
delegation had brought with them power-point
presentations comparing Indian and Chinese oil
strategies - the latter in answer to questions
posed by the Chinese delegation to the round table
of Asian oil ministers in New Delhi in January.
"The visit far, far exceeded my
expectations," Ahmad said, pointing out that
India's Petroleum and Natural Gas Minister Mani
Shankar Aiyar would visit China in November to
formalize principles and understandings between
both nations in the energy sector.
Working together
Far from the
prickliness of mistrust and consequent competition
as a result of the border war they fought in 1962,
such energy cooperation has the potential to build
on the recent political thaw that saw a settlement
of the border issue. Indian officials now openly
speak of pooling resources and jointly bidding for
oil blocks and fields with China.
Two
examples of India and China investing in the same
hydrocarbon exploration fields are in Iran and in
Sudan. In the development and exploration of
Yadavaran field in Iran, India's ONGC Videsh
Limited (OVL) has a 20% stake, while China holds a
50% stake. The exploration fields are estimated to
have a daily production of 300,000 barrels of oil.
Along with this, both India and China are
investing in natural gas imports from Iran.
In Sudan's Greater Nile Oil Project, China
National Petroleum Corporation (CNPC) holds a 40%
stake, while India has a share of 25%.
An
important aspect of cooperation in the Iranian
energy sector is to work for a single
transportation route for gas imports. The proposed
gas pipeline to India from Iran via Pakistan
could, according to Aiyar, be extended to China's
Yunnan province.
Pointing to the
advantages of such Sino-Indian cooperation, rather
than competition, Ahmad said in an approach paper
before his visit that such competition for equity
"merely increases the asking price to the
detriment of both sides, [while] consultations
between our companies would ensure that we
understand each other's requirements and attempts
to develop opportunities which would be beneficial
to both of us. Pre-bid dialogue will create the
space for cooperation in place of competition."
One for all, all for one
Despite the examples cited above, and the
bonhomie generated by Ahmad's visit to China, the
two oil-guzzlers have competed - and still are -
to secure their needs.
As recently as
Monday, reports emerged of a bidding battle in
Kazakhstan, where Indian and Chinese state-owned
oil companies are trying to buy a Canadian company
with oil fields in Kazakhstan.
A joint
venture of CNPC, China's biggest oil company, and
PetroChina, its publicly traded subsidiary,
offered about $3.2 billion for PetroKazakhstan,
Asia Pulse reported.
Meanwhile, India's
state-owned Oil and Natural Gas Corporation (ONGC)
has already reportedly submitted a bid of $3.6
billion in cooperation with the steel-maker,
Mittal Group.
PetroKazakhstan, whose
shares are traded in Toronto, issued a statement
from its headquarters in Calgary, Alberta, after
the close of trading on Monday that it had
received proposals to acquire the entire company.
The company announced in late June that it had
been approached by suitors, and investment bankers
had identified CNPC and ONGC as being interested.
While the Chinese bid is lower than the
Indian bid, Chevron's successful pursuit of Unocal
this summer, despite a higher bid from CNOOC, has
shown that the higher bid does not always win in a
politically charged industry like energy. CNPC
already has substantial oil investments in
Kazakhstan and has been trying to build a pipeline
to carry the oil to China.
In October
2004, China outbid ONGC in an exploration deal in
Angola, courtesy of Beijing tieing aid to that
country.
China is buying $6 billion worth
of oil from Russian company Rosfnest, while India,
though OVL, has stakes in Sakhalin. According to a
report in YaleGlobal Online, "Beijing has sent a
$6 billion advance payment for oil supplies to
Rosfnest, the Russian company that bought
Yuganskneftegas (the main Yukos production unit),
and is mulling a 20% equity stake offer in
Yuganskneftegas".
OVL said this week that
it hoped to begin earning returns on its $2.7
billion investment in the Sakhalin block in Russia
with start-up gas production due to begin in
October, at which time it will produce 70 million
standard cubic feet per day. It will be sold on
the domestic market.
Sakhalin is India's
largest investment overseas in a single project.
Through OVL, India has acquired oil equity and
participation in 15 projects in over a dozen
countries. OVL has a 20% stake in the Sakhlain-I
project. ExxonMobil is the operator of the project
with a 30% stake while Sodeco of Japan has a 30%
interest. The remaining 20% is held by Rosfnest.
India is currently working on ways to to
bring its share of gas and oil from Russia to the
country. The options include swapping its share of
oil and gas with Japan or China, and instead
taking delivery from sources nearer to India.
India's multiple energy strategy is making
observers sit up and take notice. At an Asian gas
buyers' meet in New Delhi in February, Aiyar
exhorted assembled nations, including China and
Saudi Arabia, to build a pan-Asian gas grid and
end "the wretched Western dominance".
At
exactly the same time, India's Foreign Ministry
was secretly pursuing the nuclear energy deal with
US State Department officials.
Observers
point out that for the first time since the end of
the Cold War, Indian officials are perhaps
learning how to conduct its own foreign policy -
and they are learning from none other than the
Chinese. "Look at the way Beijing has successfully
leveraged its enormous trade and investment
linkages with the US and simultaneously maintained
an independent foreign policy," a senior Indian
diplomat said, adding, "In this brave, new grey
world, the color of the cat, whether it is black
or white, is especially not important. What
matters is whether it can catch the mice" -
paraphrasing a famous saying of former Chinese
leader Deng Xiaoping, who set China on its path of
economic liberalization.
Jyoti
Malhotra is a political analyst based in New
Delhi.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
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