What lies beneath: getting to all that oil and gas

Already, our dependence on imported oil to meet our requirements has exceeded 75 per cent and our expenditure on imported crude oil in 2004-05 was Rs 1,17,000 crore ($26 billion). The import bill for the current year is likely to be higher. Notwithstanding the projected increase in domestic crude production from the existing level of a sliver below 35 million tonnes per annum to 50 million tonnes per annum by 2025, India’s dependence on imports of crude at the projected levels of growth will only relentlessly rise to 85 per cent or more over the next two decades. As for natural gas, which till the ’80s was regarded as the nuisance that stood between the explorer and the crude oil he was looking for, now it is becoming more precious perhaps than crude.

Thus, by bringing down gas flaring to zero as quickly as possible, and exploring for gas, particularly in the Bay of Bengal, we have succeeded in pushing up domestic gas output by a factor of 10 from about 9 million standard cubic meters a day (SCMD) in the eighties to 90 million SCMD at present. But, our gas explorers are now straining at the end of their tether. Even by the most optimistic projections, India’s import dependence on gas is not likely to fall below 50 per cent.

Therefore, India’s only hope would be to ensure energy security through integration with the Asian hydrocarbons economy. And since the Asian hydrocarbons economy is an integral part of the global energy economy, any Asian regional cooperation would have to seamlessly merge into global energy cooperation.

Once one has the parameters of India’s energy security in mind, the quest for energy security gets lighted up with rays of hope. First, the domestic scene. We are well-endowed; the only question is of breaking geological and technological barriers in the way of our reaching into the bowels of the earth and below the surface of the seas that surround us to secure for our needs what nature has so bountifully endowed us.

There are two geological issues specific to the origins of hydrocarbons in our subcontinent. When many hundreds of millions of years ago the continent of Gondwana broke from the Antarctic and began swimming up the Indian Ocean towards Eurasia, it unfortunately passed over Madagascar — “unfortunately” as there were a series of volcanic blasts which covered much of our hydrocarbons resources under heavy volcanic cover: the so-called Deccan Trap extending from Kutch through much of Gujarat, Madhya Pradesh, Maharashtra and Andhra Pradesh. This leads to immense difficulty in conducting surveys, let alone drilling through the basalt cover.

The second onland conundrum is that when Gondwana smashed into Eurasia throwing up the highest mountain ranges in the world, it simultaneously buried the vast fossil wealth of the sea that had separated Gondwana from Eurasia. Notwithstanding a very determined exploration programme, the sub-Himalayan region has not yet yielded oil or gas. Cairn Energy, who have made massive discoveries in the Rajasthan desert (earlier abandoned by Shell and ONGC), have formulated the hypothesis that this failure is perhaps because the political boundary between Nepal and India has had the unintended effect of damaging the geological integrity of the sub-Himalayan basin. Cairn have, therefore, acquired blocks on the Nepal side of the border and entered into a joint venture with ONGC, which holds blocks on the Indian side.

Offshore, while we are yet to strike hydrocarbons in the Arabian Sea, we have long had a measure of success in the Gulf of Cambay and the Bay of Bengal.

Therefore, the most important challenge to India’s energy security is networking its indigenous hydrocarbons knowledge base with the best available anywhere we can get it.

The second objective is to network the world’s experience with indigenous experience. This means forging partnerships with oil majors and others to prospect in an improved policy framework. The decade-old New Exploration Licensing Policy rounds have not only stimulated a burgeoning Indian private sector in exploration and production, they have brought in many international players. Indeed, NELP-V in 2005 attracted as many foreign bids as the four NELP bids put together. A much larger number of blocks are proposed to be offered in NELP-VI (2006). At the same time, we’re moving towards an “Open Acreage Policy” so that, in addition to ourselves offering blocks which others can bid for, exploration firms could suggest blocks in which the petroleum community, domestic and international, might wish to start exploration. After more than half a century of exploration, less than 20 per cent of potential resources in our 26 sedimentary basins have even begun to be explored.

It is only after giving priority to these domestic concerns that the question of oil diplomacy abroad arises. The key would be to both tie up and diversify the sources of crude imports, and to work towards bringing oil prices for ourselves to more reasonable levels, in normal times and in times of irrationally spiralling international prices.

To diversify our sources, we have already started looking to West Africa and Venezuela. But over a 20-year perspective, the brighter prospect lies in strengthening our strategic partnership with Russia so that we can access East Siberian (i.e., North Asian) crude at Russia’s Pacific ports. Second, we should avail of the recently constructed Baku-Tblisi-Ceyhan pipeline and the imminent Samsun-Ceyhan pipeline to initially access Caspian and Black Sea oil from where it could be transported through relatively smaller carriers through the Suez Canal to the Indian Ocean, but more imaginatively by extending the pipelines to the port of Ashkelon in Israel from where it could be pumped through the existing Ashkelon-Eilat pipeline to the head of the Gulf of Aqaba and thence brought by very large crude carriers through the Indian Ocean to our ports.

At the same time, if we could work with Egypt towards laying a pipeline from the Mediterranean to the Red Sea, we could access large quantities of North African and West African crude at the Red Sea terminal and transport it to India instead of going round the Cape of Good Hope.

It is only by ensuring so many diverse ingredients available in the Indian Ocean area that we will be able to rid ourselves of the ‘‘Asian premium’’ which leads to our paying $1-1.25 more per barrel than what West European and US buyers pay for West Asian crude, notwithstanding our being geographically closer and the geopolitics of oil trading having changed so much that Asians consume more than two-thirds of West and Southeast Asian crude exports.

Mention of geopolitics brings one to the interface between foreign policy and quest of energy security. India would do well to adhere to its traditional fidelity to Panchsheel. We must eschew any confrontation that’d pit an OPIC (organisation of petroleum importing countries) against OPEC. What we need, as we agreed between ourselves and China when I was in Beijing in January 2006, is dialogue between producers and consumers, recognising that Asian energy security lies as much in security of supplies for Asian buyers as in security of demand for Asian sellers. Such mutual trade if reinforced by mutual investment will lead to mutual interdependence, a guarantor of true energy security.

India took the initiative in convening in New Delhi a round table in January 2005 of principal West and Southeast Asian suppliers (Saudi Arabia, UAE, Kuwait, Iran, Qatar, Oman) with principal Asian buyers (India, China, Japan, Korea). This was followed by a second round table in November 2005 with the same principal Asian consumers (plus Turkey) and the principal North and Central Asian suppliers . We thus have the tentative beginnings of a cooperative relationship which should make it possible, without a sense of rivalry, to establish an Asian equivalent of the International Energy Association (which provides a common forum for OECD importers) as well as to lay the tentative foundations of an Asian Oil and Gas Community which might lead to the Asian Economic Community which Prime Minister Manmohan Singh has predicted will come into existence as an “area of prosperity”.

We are fortunate to be placed at the vortex of an extended neighbourhood which has some of the largest gas resources in the world. To the west lies Iran from where we are attempting to bring gas by pipeline through Pakistan. To our north lies Turkmenistan, which has projected ample gas resources in the uncommitted Daulatabad gas field near the Afghan border. Consideration could be given to augmenting available supplies there from Uzbekistan, Kazakhstan, Azerbaijan and the Astrakhan littoral on the Russian shore off the Caspian. The proposed North-South energy corridor which would run from the Kazakhstan port of Akhtau to the Iranian port of Chah Bahar on the Arabian Sea is another exciting prospect. India is attending, as an observer, for the first time at ministerial level, the ADB-sponsored steering committee on the Turkmenistan-Afghanistan-Pakistan pipeline to explore the prospects for extending it into India.

To our east lie Bangladesh and Myanmar, both with high potential in natural gas. The central task of our oil diplomacy is going to be that of bringing Myanmar gas through the Northeast, and possibly through Bangladesh, into India. Besides feeding east and northeast India from Myanmar, north India from Central Asia and west India from Iran, we also need a series of LNG terminals along both the east and west coasts of peninsular India to access gas as LNG from points as disparate as Qatar, Australia and Sakhalin.

The challenge is formidable but the prospects are exciting.

Mani Shankar Aiyar, Union minister for panchayati raj and sports and youth affairs, held the petroleum and natural gas portfolio from May 2004 to January 2006