India and China - Who will grab the gas?

R K Batra The Hindu Business Line, 21 February 2009

Chinas success in importing gas by transnational pipelines stems from its ability to aggressively sign deals based on a well-thought-out energy strategy. India has an integrated energy policy but the geopolitical strategy seems to be missing, says R. K. BATRA.

Chinas current natural gas consumption is twice that of India and both need gas imports by way of transnational pipelines and liquefied natural gas (LNG) by sea to meet growing demand. While natural gas forms 8 per cent of Indias commercial energy supply, it is only 3 per cent in China, which wishes to raise it to 10 per cent. Chinas projected gas demand will, therefore, outstrip that of India. The two countries will account for most of the increase in imported gas demand in Asia and many of the countries being targeted for supply are the same. India was the first to put up an LNG terminal at Dahej and contract with Qatar for gas at an extremely competitive price; it has another LNG terminal at Hazira, an inoperative one at Dabhol and is building a fourth one at Kochi all on the West Coast. China has an operating terminal at Guangdong and is building another four along its eastern seaboard. China has also signed an LNG contract with Qatar and another with the French company, Total. While the progress made by each country in building up LNG infrastructure is currently at par, future development will depend largely on securing long-term contracts at a competitive price, affordable by their customers. Meanwhile, China has made considerable headway on transnational pipelines while India is floundering. India has a 30 per cent stake in one of the Myanmars offshore gasfields and GAIL was initially nominated as the sole marketer of gas. However, India
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took a long time looking at various options for moving the gas to India. China was also in the competition and the scales tipped in its favour when it vetoed a draft resolution in the UN Security Council, on repression of political prisoners in Myanmar. Moving aggressively China has now acquired the entire quantity of gas which will be pumped through a pipeline laid by the Chinese into Kunming, in south China, and beyond. This gives China an opportunity to lay a parallel pipeline to import crude oil from West Asia, cutting down considerably on the long voyage tankers have to make via the Straits of Malacca. India is soft-pedalling progress on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline due to issues relating to gas reserves, pricing, transportation/transit fees, and security of gas supply and of the pipeline itself. Meanwhile, China is laying a pipeline from Central Asia to connect with an existing gas pipeline from its Tarim Basin linked to Shanghai on the east coast. This pipeline will draw gas not only from Turkmenistan but also Uzbekistan and Kazakhstan and will later be extended all the way to Guangzhou in South-East China. The Iran-Pakistan-India (IPI) pipeline has been on and off the discussion table since 1989, bedevilled by some of the same issues as the TAPI pipeline. China has subtly made it known that should India back out of the project it would be happy to step in. This would involve laying a pipeline from a tap-off point in Pakistan along the Karakoram highway and through the Khunjerab Pass into Western China to link up with the pipelines from Central Asia. Though the project will be logistically difficult, China has demonstrated its ability to handle high altitude challenges, such as the rail link to Lhasa in Tibet. A proposal to lay a sub-sea pipeline from Oman to India has recently been revived after overcoming technical problems. Gas would need to be sourced from countries on the Arabian peninsula. The proposal looks attractive but doesnt seem to be making any headway. What accounts for Chinas relative success in arranging import of gas by transnational pipelines compared to India? First, China will be importing from gasfields in countries that have ready gas available. Second, transit through other countries, where applicable, does not, apparently, pose any problem. Third, China has not hesitated to use its clout in the UN as in the case of gas from Myanmar. Fourth, China has moved quickly and aggressively in negotiating and signing deals at the level of heads of state. Finally, it is apparent that China executes policies based on a well-thought-out energy and geopolitical strategy. Security concerns In the case of the TAPI pipeline, the gas from the Daulatabad field in Turkmenistan to India must transit both Afghanistan and Pakistan. Apart from the issues mentioned earlier, the political situation arising from the strong presence of the Taliban on both sides of the Afghanistan/Pakistan border makes this proposal a virtual non-starter. Gas from Daulatabad will probably now be routed via Russia to Europe.

Although, Iran has the second highest gas reserves in the world, the gas infrastructure is being developed in phases, and plans to supply gas to Pakistan and India will not materialise before 2015. Because of the events of 26/11 and their aftermath, discussions on gas availability dates and all other issues will now be on the backburner, till mutual trust and confidence between India and Pakistan are restored. The IPI pipeline is still Indias best chance of securing gas by an overland route. Security concerns related to the pipeline are serious but not insurmountable. Laying a sub-sea pipeline from Oman to India requires cutting edge technology and gives India another promising import option. However, compared to China, India has been content with routine bipartite and tripartite meetings with no substantive and conclusive discussions at the level required. India has an integrated energy policy but the geopolitical strategy and the determination to implement it, seems to be missing.