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June 8, 2011

A lot of gas

Procuring adequate gas supplies requires greater decisiveness

Photo: Amir Jina

India was the fourth largest oil consumer in the world in 2009. Seventy per cent of India’s oil imports come from Middle Eastern countries like Saudi Arabia and United Arab Emirates. A wobbly political climate in the Middle East has added to ever-increasing prices in crude oil. It is time India took steps to lessen its dependency on Middle Eastern oil.

Following the nuclear accidents in Japan, anxious questions have been raised on India’s reliance on nuclear power as a major source of energy in the coming decades. An energy starved India has to look for other sources of energy like natural gas to meet its short and long-term requirements. Natural gas is vital in avoiding electricity shortage, a major choke point in the growth of India.

Environmental impact of natural gas is minimal as it is the lowest emitter of carbon dioxide and, is generally considered as the cleanest fossil fuel. Liquified Natural Gas (LNG) is a cleaner alternative to other automobile fuels. Natural gas produces half as much carbon dioxide, less than a third as nitrogen oxide, and one per cent as much sulphur oxides compared to coal-fired plants. It is a clean alternative to a country that is heavily reliant on coal. According Paris based International Energy Agency; nearly 41 percent of India’s energy is from coal. As of December 2009, India had 935,000 natural gas driven vehicles.

India’s failure to take any strategic decision on the natural gas trade with Myanmar has only strengthened China’s grip on that country’s resources. China is purchasing gas from all seven gas blocks in Myanmar, which include some of the largest natural gas fields in Asia. India has less than 30 percent stake in two gas blocks. Myanmar is not hostile towards the Indian government. It is difficult, but possible, to connect pipelines between the two countries without having to pass through Bangladesh. It is India’s indecision that is to blame. India must invest heavily in infrastructural and energy projects in Myanmar.

There is a case for massive investments in pipelines between the two countries. This will also galvanise development in Assam and better border management against insurgents along the India-Myanmar border.

Energy policy discussions in India have to move forward from being overly focused on proposals like the trans-Afghanistan and Iran-Pakistan-India gas pipelines to improving energy relations with non-OPEC countries such as Brunei, Malaysia, Indonesia and Russia. India’s Western neighbour will remain an impediment in building major gas pipelines to Central Asian countries. The Centre for Strategic and International Studies, a US think tank, reports that the China National Petroleum Corporation (CNPC) has invested approximately $45 billion dollars to establish its global energy partnerships as opposed to ONGC’s $3.5 billion. Central Asia-China pipeline supplies gas from Turkmenistan, Uzbekistan and Kazakhstan to China. This will transport 30 billion cubic metres annually into China. The Russia-China gas pipeline will be commissioned later this year. China has definitely tilted the energy equation in Asia and India should continue to diversify its energy relations in order to ensure that its energy supplies do not suffer.

Instead of being overly enamoured by pipelines, India’s strategy must centre around LNG. Petronet LNG has constructed LNG terminals in Dahej, Gujarat and Kochi, Kerala for imports from Australia, Qatar and Kuwait. Gas trade introduces long term agreements of twenty to thirty years involving significant investment between buyers and suppliers. Such agreements provide strong bases for strategic bilateral relationships.

Since January 2011, India and Indonesia have signed 18 preliminary trade pacts worth $15 billion, including energy deals. Indonesia has the largest natural gas reserves in South East Asia. Indonesia and China have signed a 25-year supply agreement to Fujian LNG. India is catching up, with Indonesia agreeing to supply 5 million tonnes of LNG to India per year.

India has been under-performing in domestic natural gas production. While the production in KG-D6 block by Reliance Industries has been very disappointing, the Indian government should not panic and allow private companies to continue to supply drilled gas to sectors like the fertiliser industry.

International investors have shied away from looking at India as a lucrative natural gas destination. Government policies to tightly regulate gas prices when domestic production and imports are not keeping up with growing demand are misguided.

Indian government should look at providing incentives for natural gas as it has for crude oil exploration. However, matters like the government’s indecisiveness on the Cairn-Vedanta deal will further alienate foreign investors.

Shale Gas is rapidly increasing as a source of energy and has revolutionised the US gas market. Large shale resources have been discovered in Assam and Gujarat—the first shale discoveries in Asia. It is imperative that GAIL take the initiative to develop the technology to explore shale resources in India. Regulatory hurdles to explore shale gas in India are bound to be suffocating, not least because it requires land acquisition. India might have to emulate controversial method of hydraulic fracturing, involving injection of chemicals into seams of rocks. Environmentalists claim that the chemical wastes can contaminate groundwater. On the other hand, shale gas might hold the key to supplement, if not perhaps even dominate the Indian gas market.

There are many countries in the world competing for energy. India cannot afford to repeat failures like the debacle in Myanmar. Swift and strategic decisions have to be taken to secure supply of energy.


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