India-US and the gas conundrum

Posted in India | 28-Jun-05 | Author: Siddharth Srivastava

A motorist drives out of a gas station in San Francisco on June 30, 2005.

NEW DELHI: It is the hottest issue concerning Indo-US relations in which both the countries have an equal stake. It concerns the give and take as well as push and pull over energy security in the face of growing prices as well as depleting oil resources.

A crisis is brewing with India, China and USA identified as the future powerhouses guzzling more oil than they can possibly produce or import. Oil prices have sky-rocketed to over $ 50-a-barrel, with petrol and diesel prices undergoing another round of hikes last week in India. China and other Asian nations have raised fuel prices in recent months but India Asia’s fourth-largest economy postponed it for weeks due to opposition from the ruling coalition’s communist allies. The rise in prices, however, is expected to reduce demand only in the short-run.

It is estimated that by 2025, today's global demand for 84 billion barrels of oil per day will have grown to 121 billion to 130 billion barrels a day. The United States is the world's largest energy consumer. US demand for oil is about 21 million barrels per day, compared with 7.4 million barrels per day projected this year for China, according to the US Energy Department. India's oil consumption was 2.2 million barrels per day in 2003 and is projected to grow to 2.8 million by 2010, according to the department. No amount of digging domestic resources in Alaska will yield the US requirements. China and India too will have to import considerable quantities of crude oil to make-up for gasoline guzzling automobiles. India imports 70 % of its crude.

US energy secretary Sam Bodman said this week that it will take years to close the gap between increasing world oil consumption and the ability of oil producers to meet that demand.

It is in this context that natural gas has emerged as a more environmentally sound, cheaper and easily available substitute to oil. When compared to oil at over $ 50-55 a barrel an equivalent amount of gas costs only in the region of $ 20. Experts predict that gas which was once considered a wasteful by-product of oil exploration will turn into the number one fossil fuel in the future.

The problem, however, is that the US, India and China, more specifically the first two as well as Japan and the European Union countries, are all situated at some distance from major reserves of gas in countries such as Iran, Qatar, Yemen, Russia, Central Asia, Nigeria, Angola and Venezuela. Then there is the added problem of these nations facing unstable political situations. The gas from fields here will be required to be carried through disturbed and often dangerous physical and political quarters.

Enter China and India who want to quickly tie-up with these countries to tide over future requirements with the US trying to balance the growing Asian demand with its own rising requirements. India has signed a US $22-billion deal to buy liquefied natural gas, or LNG, from Iran over a period of 25 years starting 2009 after protracted negotiations. India recently signed a LNG deal with Qatar as well to tide over its energy shortages.

Scores of Indian officials including deputy chairman of the planning commission Montek Singh Ahluwalia, foreign secretary Shyam Saran and curiously India’s national security advisor have been involved in conveying to the US about India’s concerns. This includes divesting the linking of Iran’s nuclear programe with needs of energy security. Till now USA has been playing tough on the issue. Last month, Ahluwalia and Bodman met in Washington on to launch a new bilateral "India-US Energy Dialogue."

“The energy dialogue will build upon the broad range of existing energy co-operation between the two countries as well as develop new avenues of collaboration,” a joint statement said.

The US President George W Bush said recently that US will encourage China and India to turn into more efficient users of oil. Bush said: ``It's in our economic interest and our national interest to help countries like India and China become more efficient users of oil. That would help take the pressure off global oil supply, take the pressure off prices here at home,’’ he said.

The real story as well as conflict of interest, however, lies elsewhere. If the invasion of Iraq was about controlling oil, it is unlikely that the US will cede control over the sources of gas. This week, Bodman said US natural gas supplies remain ``very tight’’ and consumers and businesses will face high gas prices from some time. ``This is a trend that, as far as I can tell, seems likely to continue,’’ he said. But, it is clear that the US will try and push its case internationally.

It is in this context that one can read the resistance of the US to allow a go-ahead to the 1,600 mile long gas pipeline from Iran through Pakistan to India, despite the three countries agreeing to go ahead with the massive project. While the US has been harping about the supposed nuclear programme of Iran it has barred its fangs when pushed by threatening Pakistan with sanctions if it gives the project a go-ahead. Clearly, it is a case of killing two birds with one stone.

Reacting to the new US threat, Iran’s oil minister Bijan Zanganeh said: ``It is unreasonable to prevent India and Pakistan from accessing Iranian gas. Energy markets should be depoliticized. We sell crude oil and LNG. Why can’t we be allowed to sell piped gas.’’

Writing in the Times of India, foreign editor Chidanand Rajghatta says if the geo-politics of south Asia vis-à-vis USA was about wheat in the 60s and 70s, to movement of intellectuals in the 90s, it will be about controlling the transportation and consumption of energy, more specifically natural gas.

Apart from gas, there is also a renewed interest in nuclear power for peaceful purposes. High on Indian Prime Minister Manmohan Singh’s visit to the US next month will be US nuclear technology for India, given its clean record in contrast to North Korea or Pakistan. The area of civilian nuclear power is hobbled due to legal hurdles, which experts feel will be easier to overcome than issues of natural gas, given the US direct interest in the matter.

India turned into a full-fledged nuclear power when it tested a nuclear bomb in 1998, which was quickly followed by Pakistan. The USA imposed economic sanctions, but with the end of the cold war when India was aligned with the former Soviet Union the two world’s largest democracies are looking to expand their military and economic relationship. But, for now the real politics is over gas.

(Siddharth Srivastava is a New Delhi-based journalist)