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India and China - Who will grab the gas?R K BatraThe Hindu Business Line, 21 February 2009

Chinas success in importing gas by transnational pipelines stems from its ability toaggressively sign deals based on a well-thought-out energy strategy. India has anintegrated 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 growingdemand. While natural gas forms 8 per cent of Indias commercial energy supply, it isonly 3 per cent in China, which wishes to raise it to 10 per cent. Chinas projected gasdemand will, therefore, outstrip that of India. The two countries will account for most ofthe increase in imported gas demand in Asia and many of the countries being targetedfor supply are the same.

India was the first to put up an LNG terminal at Dahej and contract with Qatar for gas atan extremely competitive price; it has another LNG terminal at Hazira, an inoperativeone 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 itseastern 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 currentlyat par, future development will depend largely on securing long-term contracts at acompetitive price, affordable by their customers.

Meanwhile, China has made considerable headway on transnational pipelines whileIndia is floundering. India has a 30 per cent stake in one of the Myanmars offshoregasfields 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 inthe competition and the scales tipped in its favour when it vetoed a draft resolution in theUN 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 apipeline laid by the Chinese into Kunming, in south China, and beyond. This gives Chinaan opportunity to lay a parallel pipeline to import crude oil from West Asia, cutting downconsiderably 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 gaspipeline from its Tarim Basin linked to Shanghai on the east coast. This pipeline willdraw gas not only from Turkmenistan but also Uzbekistan and Kazakhstan and will laterbe extended all the way to Guangzhou in South-East China.

The Iran-Pakistan-India (IPI) pipeline has been on and off the discussion table since1989, bedevilled by some of the same issues as the TAPI pipeline. China has subtlymade 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 Karakoramhighway and through the Khunjerab Pass into Western China to link up with thepipelines from Central Asia. Though the project will be logistically difficult, China hasdemonstrated its ability to handle high altitude challenges, such as the rail link to Lhasain Tibet.

A proposal to lay a sub-sea pipeline from Oman to India has recently been revived afterovercoming technical problems. Gas would need to be sourced from countries on the

Arabian peninsula. The proposal looks attractive but doesnt seem to be making anyheadway.

What accounts for Chinas relative success in arranging import of gas by transnationalpipelines compared to India? First, China will be importing from gasfields in countriesthat 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 inthe UN as in the case of gas from Myanmar.

Fourth, China has moved quickly and aggressively in negotiating and signing deals atthe level of heads of state. Finally, it is apparent that China executes policies based on awell-thought-out energy and geopolitical strategy.

Security concerns

In the case of the TAPI pipeline, the gas from the Daulatabad field in Turkmenistan toIndia must transit both Afghanistan and Pakistan. Apart from the issues mentionedearlier, the political situation arising from the strong presence of the Taliban on bothsides of the Afghanistan/Pakistan border makes this proposal a virtual non-starter. Gasfrom Daulatabad will probably now be routed via Russia to Europe.

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Although, Iran has the second highest gas reserves in the world, the gas infrastructure isbeing developed in phases, and plans to supply gas to Pakistan and India will notmaterialise before 2015. Because of the events of 26/11 and their aftermath, discussionson gas availability dates and all other issues will now be on the backburner, till mutualtrust and confidence between India and Pakistan are restored. The IPI pipeline is stillIndias best chance of securing gas by an overland route.

Security concerns related to the pipeline are serious but not insurmountable. Laying asub-sea pipeline from Oman to India requires cutting edge technology and gives Indiaanother promising import option.

However, compared to China, India has been content with routine bipartite and tripartitemeetings with no substantive and conclusive discussions at the level required. India hasan integrated energy policy but the geopolitical strategy and the determination toimplement it, seems to be missing.