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In recent months, India has embarked on a round of energy diplomacy with its neighbours in what appears to be an effort to negate criticism about its isolated focus in Africa. There’s also a sense of dejavu at the prospect of losing out to China in the region
India has recently signed joint ventures to build power plants in both Sri Lanka and Bangladesh and is also seriously considering exporting electricity to Pakistan and Bangladesh. It is also pumping in millions of dollars into an ambitious Indo-Bhutanese hydro-electricity program. Is this a belated bid to reach out to its neighbors through ‘power diplomacy’? Shouldn’t India, as some skeptics in India argue, first address its own energy crisis before, for instance, exporting electricity to its neighbors?
At the heart of India’s emerging foreign policy focus is its emerging role in the new RIC (Russia, India and China) strategic power formulation, carved out of the BRICS collective, and how she contributes meaningfully to mutually beneficial bilateral, trilateral and multilateral efforts.
Within this broader foreign policy framework, energy remains a critical subtext for India, the fourth-largest energy consumer globally. It is now seeking out new hydrocarbon reserves to feed its growing internal demand. However, India’s success, in comparison with China, has been moderate to say the least. India’s few successes have been overshadowed, arguably by ineffective diplomacy, and its sterile neighbourhood policy trumped by a farsighted China that has walked away with prolific energy assets.
Industry data shows that Chinese giants such as CNPC and China Petroleum & Chemical Corp. have acquired assets worth an estimated $8.8 billion in Africa alone in recent times. India lags by more than 40 per cent in deal size by sealing acquisitions worth $5.14 billion in the same region.
While a rampant China is on a persuasive run to own hydrocarbon across continents, in Asia-Pacific, South America and Africa, India is still in first gear and is perhaps more energy insecure than it was 10 years ago. Its rising oil subsidy bill is already putting pressure on a ballooning fiscal deficit.
DK Sarraf, Managing Director of ONGC Videsh Ltd (OVL), the flagship government-owned explorer, recently told Bloomberg News that Africa, especially East Africa, was becoming more and more interesting and prospective and that “we want to be in the thick of it”. ONGC, the parent company of OVL, has been fraught with many problems: a drastic fall in output because of aging fields, unable to bring new finds into production targets to spend more than $150 billion to add reserves to its kitty by 2030 by buying properties overseas.
China’s thirst for oil is now well known and its aggressiveness while acquiring assets has raised eyebrows globally. Many experts have also argued that a Chinese free run could end up destabilising global markets, prices and supplies. Over the past few years, Chinese diplomats have carved out a three-pronged growth strategy:
China National Petroleum Corp (CNPC), which appointed Zhou Jiping as its chairman earlier this year, has invested $12 billion in deals at such places as Canada, Australia, the US and France. It is also investing, according to a report by The Wall Street Journal, in international pipeline projects to import natural gas from Russia and Myanmar.
India has more to contend with from its other energy-rich neighbours Myanmar, Bangladesh and Sri Lanka (not taking into account Pakistan, given the existing geo-political environment). The Chinese, Thai, Indonesians and even the Europeans are already making inroads into these countries acquiring rich assets and putting in place bilateral treaties with an eye on the future.
On the other hand, India still appears to be in a stupor weighed down by an increasingly inert neighbourhood policy. Its hope to get gas supplies via the Turkmenistan–Afghanistan–Pakistan–India pipeline (TAPI) by 2017 looks like a remote dream today; and no one is talking about the Iran-Pakistan-India (IPI) pipeline anymore.
Even the national auditor Comptroller and Auditor General (CAG) sought answers from the Ministry of Petroleum and Natural Gas over the inadequate progress made in execution of transnational pipeline projects, including IPI, TAPI and Myanmar-Bangladesh-India.
In October, Myanmar awarded 16 onshore blocks to 10 foreign companies. India bagged only two of them. The other giants in Myanmar today are Total SA (France’s largest oil producer); Eni SpA (Italy’s biggest oil company); Korea Gas (the biggest LNG buyer), PTT Exploration & Production (from Thailand), among others.
Myanmar’s march towards democracy has led to a freeing of its foreign investment regime, often compared by critics with the fall of the ‘Berlin Wall’. The country has estimated proven reserves of 10 trillion cubic feet. In 2011, it drilled about 421 billion cubic feet of natural gas. Myanmar is one of the last Asian countries to open up for investments. Like other nations in the throes of change and new growth, apart from industrialisation and social progress, Myanmar will also need to build and upgrade its infrastructure, developing roads, railway, airports, and ports, among others.
India must revaluate its strategy for Myanmar given it is the right time to venture into that country and perhaps take a leaf out of the China-style strategy: develop infrastructure in lieu of energy assets.
Another neighbour Bangladesh is also seeking foreign investment to boost its energy output. The country has an estimated 13.77 trillion cubic feet of gas located under its boundary in the Bay of Bengal. Its first liquefied natural gas (LNG) terminal is being set up near Chittagong port, in south eastern Bangladesh. Indian construction major Hiranandani Group is in a race to build Bangladesh’s LNG terminal in Moheshkhali Island in the Bay of Bengal. If the Mumbai-based group wins the contract for the 5-million-tonne (mt) facility, it may well be the first LNG terminal to be set up abroad by an Indian private company.
The huge opportunity in Sri Lanka is in the downstream sector—refineries. The island country’s refining capacity is miniscule compared with demand and facilities are largely aging. It is today looking for both investment and technology to boost its refining capacity. India is host to the world’s largest refinery complex at Jamnagar and Indian Oil is already carrying out marketing of petroleum products with an eye on the bigger pie in downstream business in Sri Lanka.
As global markets continue to endure a prolonged economic slowdown, India remains one of the world’s most compelling markets, providing exciting business opportunities for Indian firms and multinational companies alike. Its oil diplomacy is a reflection of its famous ability to live under continuous policy volatility and ambiguity. It must move fast to reevaluate its energy strategy in the neighborhood to take advantage of opportunities in the region, without weakening its position at the global energy head table.
Whatever it does, it must ultimately secure its long-term energy resources with a strategy that is steeped in realism.
CRUDE TALK will keep a close watch on the energy industry in India, its neighborhood and across the world, with commentary spanning expansion plans, funds and brands, and public policy.