Business

Promise of transborder gas pipelines

Political factors stand in the way of three crucial regional deals

PIPELINE DREAMS: Union Minister for Petroleum and Natural Gas, Murli Deora (right), shaking hands with Pakistan's Oil Minister, Amanullah Khan Jadoon (centre), as Pakistan High Commissioner to India, Aziz Ahmad Khan, looks on. A Pakistani delegation led by the Oil Minister was in New Delhi in February for talks on a multi-billion dollar gas pipeline from Iran to India through Pakistan. — FILE PHOTO

NO OTHER issue has dominated news headlines in the last 20 months as much as energy security. The subject has figured prominently during the visits of foreign dignitaries, (U.S. and French Presidents and Australian Prime-Minister) as well as during the visits of the Indian head of state to different countries. Among the options, changing the energy mix to reduce reliance on a single source is being pursued vigorously.

One such option is natural gas. Incidentally, India does not have an equivalent gas reserve to match its growing need. Against its daily demand of 120 million standard cubic metres (mcm), the country imports over 25 per cent of its requirement. Projections indicate that the demand will rise to a staggering 400 mcm a day by 2020. Thus, assured supply of gas becomes a sine qua non if the country has to achieve the ambitious projected annual growth of 8-9 per cent.

Cheapest mode

Of the three ways to transport gas — through ships in liquefied form; through a deep-sea pipeline; or sending over land via a gas pipeline, the last option is the cheapest. Since a land pipeline (in the Indian context) will bring a third country (through which the pipeline has to pass) into the scene, security and mutual dependence issues emerge. An attempt is made here to look at a few such issues involving three countries — Iran, Turkmenistan and Myanmar — which have sufficient gas reserves and purchase deals are being pursued. The deals will not come through if the transit countries - Pakistan, Afghanistan and Bangladesh — do not form part of the negotiations, an issue of mutual dependence.

The three pipelines are: Iran-Pakistan-India (IPI); Turkmenistan-Afghanistan-Pakistan-India (TAPI); and Myanmar-Bangladesh-India (MBI).

IPI Pipeline

Despite the signing of a memorandum of understanding with Iran as early as in 1993 for a $4 billion 2,720 km long pipeline from Iran's South Pars field with 760 km passing through Balochistan of Pakistan, the deal could not be executed due to strained relations with Pakistan in the past resulting in cost escalation by 75 per cent. The IPI deal will also benefit Pakistan as it stands to gain in three ways: availability of gas to meet its own energy needs; $500 million in transit fees; construction jobs in Balochistan. Apart from Indo-Pak relations as a cog, the deal has met with opposition from the U.S., as it involves Iran. However, to the advantage of India, in a recent development, Russia has offered to be a participant in the IPI deal.

The $3.5 billion trans-Afghan pipeline is to supply gas from the Daulatabad fields in southeast Turkmenistan to India via Multan, Pakistan (1,271 km), with a 640 km extension to India.

TAPI project

The estimated cost of the project is $2.9 billion for the Pakistan segment and an additional $600,000 for the extension to India. An earlier project did not have India as partner, but with a pro-U.S. regime holding office in Afghanistan and improved Indo-Pak relations, the TAP project is now TAPI. In terms of security risk, the project appears to be the most risky as it involves two volatile transit countries - Afghanistan and Pakistan.

MBI deal

The MBI pipeline needs to be renegotiated. This is because Myanmar has already agreed to sell 6.5 trillion cubic feet of gas from the same block (A-1 block) to China for 30 years for which an MOU has been signed between India and Myanmar. In the altered situation, the project cost will escalate, as now the available block close to Bangladesh bordering area is A-2 and any gas transported from A-2 to India will require building at least 150 km of additional pipeline. However, by signing the agreement with Petrochina, Myanmar has also hinted at the exigency of resolving the bilateral standoff between India and Bangladesh. Any further delay in resolving the impasse may induce Myanmar to finalise similar deals with other countries including South Korea and Thailand hampering India's quest for gas at affordable cost.

Benefits to all parties

The proposed pipelines will confer benefits to India and the transit countries. Since India's relations with Pakistan and Bangladesh lack trust, apart from ensuring energy security, the oil pipelines will result in stability in the region. Increased stability may further stimulate growth. With respect to savings, estimates are that even after factoring in transit fee payments, the cost of IPI pipeline will be one-fourth of any other option. Another benefit to India from MBI or IPI or TAPI pipeline will be pooling of the isolated gas in Tripura in the North-east region and Rajasthan in the West respectively. An important indirect benefit accruing to India and Pakistan by signing the IPI and TAPI pipeline deals will be an early resolution of the Kashmir dispute.

The oil pipelines will confer many benefits — direct and indirect — to the transit countries. For transit countries like Pakistan or Afghanistan, which have internal insurgency problems, transit will not only guarantee a source of income but also increase stability in the region by tackling local unemployment. Pakistan and Bangladesh may also benefit by realising value for the stranded gas in their northwest and northeast regions respectively. Lastly, it will lead to significant investment in the transit countries for pipeline construction. For instance, in MBI pipeline, the investment on the pipeline in Bangladesh is $150 million. It is to be noted that these benefits accrue to the transit countries though they are neither investing in the pipeline nor assuming any risk involved in its construction.

Though mutually beneficial, these pipelines have three features that have a bearing on energy security. First, overland pipelines require long-term agreements between buyers, sellers and transit countries. Since alternative markets or sources cannot be found overnight, this interdependence raises the stakes for India, Pakistan and Bangladesh to resolve their differences faster.

Second, if wheeling charges are sufficiently high, this interdependence may eliminate the political risk of disruption in supplies as is evident from Russian gas supplies to Western Europe, which were never interrupted even during the cold war era or any other tensions (except last month in Ukraine) since the Eighties. Last, as the pipeline will be traversing insurgency-infested areas across the three countries, the element of instability increases.

If there are many apparent benefits, the question that arises is: why India could not close any of the deals as of now.

The reasons are purely political: India's fragile relations with Pakistan and Bangladesh, the ongoing violence in the Northeast with intermittent attacks on pipelines and proximity of Myanmar to China have prevented India from fully exploiting its proximity to a gas rich region.

Before deciding on a pipeline India has to weigh all the pros and cons.

Crucial factors

Apart from wheeling charges, and inter-dependence, it runs the risk of becoming hostage to illegal demands in its dealings with these countries, if transit countries are unable to quell insurgency. Non-traditional methods, such as offering ownership to communities in regions through which pipelines pass, can yield desired outcomes. Ownership and assurance of development of the region can encourage people to take an active role in the protection of the pipelines. It is not clear whether all the pipeline negotiations will be fruitful or striking one deal means closing other deals. In other words, are the pipelines competing or India will go for all the pipelines? One thing is sure, If India prefers TAPI, IPI may not see the light of the day and vice versa. Finally, even if India strikes all the three deals, this should not prevent it from striving for the bigger goal of energy independence.

Vinish Kathuria

The author is Associate Professor at Madras School of Economics and can be contacted at vinish@mse.ac.in

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