Wednesday, December 28, 2005
Much ado about gas
India is a nation that is trying to grow prodigiously. Since mid-1990s, India has consistently clocked a growth rate of more than 6% per annum in terms of GDP . This growth rate has even touched 8% in some years. I have been told that this growth rate makes India the second fastest growing economy in the world behind China. India is a nation of a billion souls. Unfortunately, it is also a country in which 350 million people do not have the financial means to have two meals per day. Endemic poverty has characterized India since British took control in the 19th century and systematically destroyed all the domestic industries. They used India as a resource base for feeding their own domestic industry with raw materials and cheap labor.
As the economy is growing, India needs more energy to meet its requirements. Energy consumption in India is increasing not only because of the demand from the industry to increase their manufacturing capacity but also because of the increase in the per capita consumption by the normal people. India does not have enough resources to satisfy this growing thirst for energy within its borders. Petroleum accounts for about 34% of India's total energy requirements. In 2005, India consumed 2.4 million barrels per day approximately. Out of this, 0.8 million barrels per day were produced by various oil companies from different oil fields within India. The deficit of 1.6 million barrels per day was imported from all around the world, mainly middle-east.
¶ 12:27 PM As the economy is growing, India needs more energy to meet its requirements. Energy consumption in India is increasing not only because of the demand from the industry to increase their manufacturing capacity but also because of the increase in the per capita consumption by the normal people. India does not have enough resources to satisfy this growing thirst for energy within its borders. Petroleum accounts for about 34% of India's total energy requirements. In 2005, India consumed 2.4 million barrels per day approximately. Out of this, 0.8 million barrels per day were produced by various oil companies from different oil fields within India. The deficit of 1.6 million barrels per day was imported from all around the world, mainly middle-east.
Another important component of the energy resources for India is the natural gas. Consumption of natural gas by the Indian economy has increased by leaps and bounds. India consumed 0.96 trillion Cubic Feet (Tcf) of natural gas in 2003. This figure is projected to reach 1.4 Tcf in 2010 and 1.8 Tcf in 2015. India's domestic natural gas supply is not likely to keep pace with demand, and the country will have to import much of its natural gas, either via pipeline or as liquefied natural gas (LNG).
Keeping the above facts in mind, it was imperative for Government of India (GoI) to formulate an energy security policy. In the mid-1990s, somewhere around 1997, India proposed the idea of a direct transit route for natural gas from Iran to India. Some news reports suggest that it was the Iranians who had first proposed this venture. Irrespective of the origins of the idea, the point to note is that this idea evoked considerable interest on both sides. The proposed 1,750-mile pipeline would cost $4 billion and be able to transport natural gas from Iran to India through Pakistan by the end of the 2010. Some of the reports that I have read in the public domain state the length of the pipeline to be more than 2200 miles costing as high as $6 billion.
Let us first see why the project is a dream come true for Indians as well as the Iranians. Here are the reasons:
1) Iran is OPEC's second largest oil producer and holds 10 percent of the world's proven oil reserves. It also has the world's second largest natural gas reserves (after Russia). By some estimates, Iran can supply India's natural gas demand for another 200 years at competitive prices.
2) Indian economy desperately needs to diversify its sources for energy. This not only ensures competitive prices but also provides an insurance against unforeseen events like war, international politics etc.
3) Iran needs the money to shore up its economy. Oil and natural gas are its principle exports to the outside world.
4) Iran also needs to explore new markets in order to reduce its dependence on the existing markets that can be influenced by United States pressure.
5) The project is technically simple. It consists of construction involving high pressure pipes. This kind of project has been executed in various parts of the world.
Unfortunately, nothing in this world is ever simple. There is an old Chinese saying that states "beware of what you wish for." Hence, a brilliant idea conjured up by the Indian and Iranian technocrats is undergoing trial by fire. The first stumbling block surfaced on account of the inevitability of the geography of the region. In-between India and Iran lies the Islamic Republic of Pakistan - a nation that depends on anti-India rhetoric to justify its existence on the face of this planet. India has already fought three wars and a mini war with Pakistan over Kashmir in the last sixty years. "Kashmir banega Pakistan" is a slogan that is embedded in the hearts and minds of Pakistanis. If an overland pipeline is to be constructed, it has to go through Pakistan. There is no way India can avoid that. Pakistanis were jumping up and down in joy after looking at India's predicament. It seemed poetic justice for them that India has to lean on the goodwill of the Pakistanis in order to buy enough of energy security for the growth of the economy.
After evaluating the risks associated with the project, many Indian technocrats came to the conclusion that it might not be a bad idea to build the pipeline through the sea instead of Pakistan. This will reduce the insurance costs that the project would need and provide gas continuously even at the time of disputes with Pakistan. If an undersea pipeline is built it will do away with the necessity of building infrastructure for storing gas reserves in case Pakistan decides to turn off the knob in the pipeline going to India. This saves a lot of money. However, the savings incurred from paying reduced premiums on insurance and not building additional infrastructure still does not compensate for the extra capital investment needed to build an undersea pipeline. From the perspective of environmental factors, it is better to build the pipeline on the ground rather than under the sea.
After looking at the financial, technological, and environmental perspectives related to the project, India had to fall in line and agree to include Pakistan as the third member in this project. The question before India was how to persuade Pakistan to provide some assurance about the supply of gas irrespective of the roller-coaster like relationship between the two countries. The transit fee that Pakistan will get for allowing gas to go to India from Iran through the pipeline is substantial. Estimates of this money range from $220 million per annum to $600 million per annum. Is this money good enough to make Pakistan think about cooperating with India regarding supply of gas through pipeline from Iran irrespective of the political climate in the Indian subcontinent?
Another thorn in the neck of this entire endeavor is the relationship between India, Israel, Iran, and Uncle Sam - the United States. India and Israel are good friends. Israel is the second largest supplier of military hardware to India after Russia. They have helped India develop various aspects of military hardware in joint collaboration with Defense Research Development Organization (DRDO) laboratories, Indian Army, Air Force, and Navy. India has launched Israeli satellites in space using its own launch vehicles. I believe, India has a lot to learn from Israel in the areas of management of military and terrorism. In terms of scientific and technology power, Israel is second to none in Asia.
For reasons that are beyond the scope of the current article, Iran hates Israel and the feeling is reciprocated in kind by Israel. Amazingly, the animosity between Israel and Iran manages to make India-Pakistan hate fest look like a child's play. Recently, Iranian President Mahmoud Ahmadinejad verbally attacked Israel by denying that the Holocaust ever occurred and suggesting that Israel should be relocated to Europe. The Islamic republic leader in October said Israel "must be wiped off the map" and also described the country as a "tumor". I must confess that Indian leaders are not this insane to utter such nonsense in front of the international press. Iran beats us to that. To cut a long story short, India has to balance her interests with Iran and Israel in a very careful manner. We have to walk the thin rope like a trapeze artist in a circus without a net to catch us if we fall.
Iranians have not endeared themselves to the United States while trying to develop nuclear weapons covertly. It is not the first time in history that a nation is developing nuclear weapons covertly. Uncle Sam turned a blind eye to the development of nuclear weapons by Pakistan during the 80s and the 90s. This was because the Pakistanis were a frontline ally of the United States in the war against Soviet Union in Afghanistan. Pakistan utilized this opportunity to extract its pound of flesh. In order to contain India strategically and make it perpetually sweat with the fear of a nuclear holocaust, Chinese played their cards and supplied the Pakistanis with all the critical components of the nuclear technology. Later on, Dr. A.Q. Khan, father of the Pakistani bomb, operated a nuclear Wal-Mart under the nose of CIA and supplied nuclear technology to the countries who are virtually the paragons of international cooperation - North Korea, Libya etc. All these events did not bother Uncle Sam as US had no stake in these horrendous developments.
Unlike Pakistan, United States has no control over Iran. The main fear of the Uncle is that if Iran gets in possession of nuclear weapons, many in its leadership would be crazy enough to actually use them either on Israel or on US itself. I do not doubt for a moment that if Iran gets even a dirty bomb, Israel will be in trouble. The concept of possessing nuclear weapons lies in adhering to the concept of deterrence. If ever a nation is crazy enough to actually use a nuclear weapon on another nation having the same, the resulting large scale destruction makes waging a war meaningless. I do not know whether Iran recognizes this. If yes, its leadership has provided no hint about it. Anybody who analyses the different proclamations by the Iranian leadership, always gets the impression of them being crazy "mullahs" bereft of a rational thought process. Iranians have to seriously think of a better and a more civilized way to draw attention of the world towards them. Anything is better than the current rhetoric that their top leadership employ.
The above mentioned reasons have forced United States to try to isolate Iran from the international community. It has enforced regulations that prohibit American oil and gas companies to invest in the thriving Iranian oil sector. United States wants India to strengthen the American hand by rejecting the gas pipeline offer by Iran. The economic ramifications of such an action by India will force Iran to rethink about the nuclear weapons development plan within the country. However, India has till now avoided buckling to the American pressure. The thirst for oil and selfish reasons have till now prompted India not to overtly side with the Americans. United States, in return, has dangled the carrot of civilian nuclear cooperation during the last visit of our Prime Minister Dr. Manmohan Singh to the Washington. If the nuclear cooperation agreement floated by the George W. Bush administration is given a green signal by the United States Congress, India will be forced to choose between nuclear energy and the conventional fossil fuel energy to quench her thirst. At that time, Teheran will be left with no cards to play in order to dissuade India from succumbing to the charms of Washington D.C.
After laying down the various geo-political forces at work to support or oppose the construction of the pipeline, it is pertinent to ask some questions. These questions reveal the unanswered aspects of this mammoth project.
1) What happens if the Security Council of United Nations passes a resolution initiated by United State condemning Iran for pursuing nuclear weapons and imposes economic sanctions against it? These economic sanctions might force the international community and companies to stop trade with Iran. What will India do?
2) How will India ensure continuous supply of gas through the pipeline during heightened political tensions with Pakistan? What guarantees are being provided by Pakistan? Will Pakistan face any punitive measure if it fails to keep its part of the deal?
3) What happens if terrorists within Pakistan try to disrupt the gas supply? Who is going to pay for the damages? What is the responsibility of the Govt. of Pakistan in order to ensure the safety of the pipeline?
Judging by the recent news reports in the media, it seems that GoI is intent upon pursuing this project. I have no idea about the kind of forces working to push this project through. I hope that the people who are in the position to take decisions regarding this project are not going ahead based on certain "isms" or kickbacks. This kind of project generally warms the hearts of the leftists in India as they get a chance to take a swipe against "the great satan" - United States. The foreign and Indian construction contractors must be salivating at the prospect of making money by winning the bids for construction of the pipeline. It will be quite naive to think that these contractors will not lobby to see this project being approved for the sake of their bottomlines. Moreover, the civilian nuclear cooperation carrot dangled by the United States in front of India has run into rough weather in the United States Congress. US has always been an unreliable partner of India. To be fair, I must also add that India has also been an unreliable partner of US. Ideologically, it is quite strange that the two largest democracies in this world do not trust each other when it comes to basic issues like foreign policy, military, and nuclear cooperation.
If I would have been a private investor and had to invest in this kind of project that is fraught with political and security risks, I would have thought twice about it. It is very important for the GoI to take their steps cautiously. There are many things that can go wrong. If something goes wrong and the money invested by GoI goes down the drain, it will be very difficult for the government to explain the reasons behind their actions to the people of India. The agreements signed between Iran, India, Pakistan, and any other party must be watertight legally. These agreements should contain punitive measures liable to be applicable to any country that does not keep its side of the bargain. The execution of the punitive measures in case of failure to live upto the promises should be handled by some kind of an international body agreeable to all the three nations. In the meantime, let us keep our fingers crossed and hope for the best. If the project is a success, India can sleep easy with respect to energy crisis that the country might face in a few years.
Keeping the above facts in mind, it was imperative for Government of India (GoI) to formulate an energy security policy. In the mid-1990s, somewhere around 1997, India proposed the idea of a direct transit route for natural gas from Iran to India. Some news reports suggest that it was the Iranians who had first proposed this venture. Irrespective of the origins of the idea, the point to note is that this idea evoked considerable interest on both sides. The proposed 1,750-mile pipeline would cost $4 billion and be able to transport natural gas from Iran to India through Pakistan by the end of the 2010. Some of the reports that I have read in the public domain state the length of the pipeline to be more than 2200 miles costing as high as $6 billion.
Let us first see why the project is a dream come true for Indians as well as the Iranians. Here are the reasons:
1) Iran is OPEC's second largest oil producer and holds 10 percent of the world's proven oil reserves. It also has the world's second largest natural gas reserves (after Russia). By some estimates, Iran can supply India's natural gas demand for another 200 years at competitive prices.
2) Indian economy desperately needs to diversify its sources for energy. This not only ensures competitive prices but also provides an insurance against unforeseen events like war, international politics etc.
3) Iran needs the money to shore up its economy. Oil and natural gas are its principle exports to the outside world.
4) Iran also needs to explore new markets in order to reduce its dependence on the existing markets that can be influenced by United States pressure.
5) The project is technically simple. It consists of construction involving high pressure pipes. This kind of project has been executed in various parts of the world.
Unfortunately, nothing in this world is ever simple. There is an old Chinese saying that states "beware of what you wish for." Hence, a brilliant idea conjured up by the Indian and Iranian technocrats is undergoing trial by fire. The first stumbling block surfaced on account of the inevitability of the geography of the region. In-between India and Iran lies the Islamic Republic of Pakistan - a nation that depends on anti-India rhetoric to justify its existence on the face of this planet. India has already fought three wars and a mini war with Pakistan over Kashmir in the last sixty years. "Kashmir banega Pakistan" is a slogan that is embedded in the hearts and minds of Pakistanis. If an overland pipeline is to be constructed, it has to go through Pakistan. There is no way India can avoid that. Pakistanis were jumping up and down in joy after looking at India's predicament. It seemed poetic justice for them that India has to lean on the goodwill of the Pakistanis in order to buy enough of energy security for the growth of the economy.
After evaluating the risks associated with the project, many Indian technocrats came to the conclusion that it might not be a bad idea to build the pipeline through the sea instead of Pakistan. This will reduce the insurance costs that the project would need and provide gas continuously even at the time of disputes with Pakistan. If an undersea pipeline is built it will do away with the necessity of building infrastructure for storing gas reserves in case Pakistan decides to turn off the knob in the pipeline going to India. This saves a lot of money. However, the savings incurred from paying reduced premiums on insurance and not building additional infrastructure still does not compensate for the extra capital investment needed to build an undersea pipeline. From the perspective of environmental factors, it is better to build the pipeline on the ground rather than under the sea.
After looking at the financial, technological, and environmental perspectives related to the project, India had to fall in line and agree to include Pakistan as the third member in this project. The question before India was how to persuade Pakistan to provide some assurance about the supply of gas irrespective of the roller-coaster like relationship between the two countries. The transit fee that Pakistan will get for allowing gas to go to India from Iran through the pipeline is substantial. Estimates of this money range from $220 million per annum to $600 million per annum. Is this money good enough to make Pakistan think about cooperating with India regarding supply of gas through pipeline from Iran irrespective of the political climate in the Indian subcontinent?
Another thorn in the neck of this entire endeavor is the relationship between India, Israel, Iran, and Uncle Sam - the United States. India and Israel are good friends. Israel is the second largest supplier of military hardware to India after Russia. They have helped India develop various aspects of military hardware in joint collaboration with Defense Research Development Organization (DRDO) laboratories, Indian Army, Air Force, and Navy. India has launched Israeli satellites in space using its own launch vehicles. I believe, India has a lot to learn from Israel in the areas of management of military and terrorism. In terms of scientific and technology power, Israel is second to none in Asia.
For reasons that are beyond the scope of the current article, Iran hates Israel and the feeling is reciprocated in kind by Israel. Amazingly, the animosity between Israel and Iran manages to make India-Pakistan hate fest look like a child's play. Recently, Iranian President Mahmoud Ahmadinejad verbally attacked Israel by denying that the Holocaust ever occurred and suggesting that Israel should be relocated to Europe. The Islamic republic leader in October said Israel "must be wiped off the map" and also described the country as a "tumor". I must confess that Indian leaders are not this insane to utter such nonsense in front of the international press. Iran beats us to that. To cut a long story short, India has to balance her interests with Iran and Israel in a very careful manner. We have to walk the thin rope like a trapeze artist in a circus without a net to catch us if we fall.
Iranians have not endeared themselves to the United States while trying to develop nuclear weapons covertly. It is not the first time in history that a nation is developing nuclear weapons covertly. Uncle Sam turned a blind eye to the development of nuclear weapons by Pakistan during the 80s and the 90s. This was because the Pakistanis were a frontline ally of the United States in the war against Soviet Union in Afghanistan. Pakistan utilized this opportunity to extract its pound of flesh. In order to contain India strategically and make it perpetually sweat with the fear of a nuclear holocaust, Chinese played their cards and supplied the Pakistanis with all the critical components of the nuclear technology. Later on, Dr. A.Q. Khan, father of the Pakistani bomb, operated a nuclear Wal-Mart under the nose of CIA and supplied nuclear technology to the countries who are virtually the paragons of international cooperation - North Korea, Libya etc. All these events did not bother Uncle Sam as US had no stake in these horrendous developments.
Unlike Pakistan, United States has no control over Iran. The main fear of the Uncle is that if Iran gets in possession of nuclear weapons, many in its leadership would be crazy enough to actually use them either on Israel or on US itself. I do not doubt for a moment that if Iran gets even a dirty bomb, Israel will be in trouble. The concept of possessing nuclear weapons lies in adhering to the concept of deterrence. If ever a nation is crazy enough to actually use a nuclear weapon on another nation having the same, the resulting large scale destruction makes waging a war meaningless. I do not know whether Iran recognizes this. If yes, its leadership has provided no hint about it. Anybody who analyses the different proclamations by the Iranian leadership, always gets the impression of them being crazy "mullahs" bereft of a rational thought process. Iranians have to seriously think of a better and a more civilized way to draw attention of the world towards them. Anything is better than the current rhetoric that their top leadership employ.
The above mentioned reasons have forced United States to try to isolate Iran from the international community. It has enforced regulations that prohibit American oil and gas companies to invest in the thriving Iranian oil sector. United States wants India to strengthen the American hand by rejecting the gas pipeline offer by Iran. The economic ramifications of such an action by India will force Iran to rethink about the nuclear weapons development plan within the country. However, India has till now avoided buckling to the American pressure. The thirst for oil and selfish reasons have till now prompted India not to overtly side with the Americans. United States, in return, has dangled the carrot of civilian nuclear cooperation during the last visit of our Prime Minister Dr. Manmohan Singh to the Washington. If the nuclear cooperation agreement floated by the George W. Bush administration is given a green signal by the United States Congress, India will be forced to choose between nuclear energy and the conventional fossil fuel energy to quench her thirst. At that time, Teheran will be left with no cards to play in order to dissuade India from succumbing to the charms of Washington D.C.
After laying down the various geo-political forces at work to support or oppose the construction of the pipeline, it is pertinent to ask some questions. These questions reveal the unanswered aspects of this mammoth project.
1) What happens if the Security Council of United Nations passes a resolution initiated by United State condemning Iran for pursuing nuclear weapons and imposes economic sanctions against it? These economic sanctions might force the international community and companies to stop trade with Iran. What will India do?
2) How will India ensure continuous supply of gas through the pipeline during heightened political tensions with Pakistan? What guarantees are being provided by Pakistan? Will Pakistan face any punitive measure if it fails to keep its part of the deal?
3) What happens if terrorists within Pakistan try to disrupt the gas supply? Who is going to pay for the damages? What is the responsibility of the Govt. of Pakistan in order to ensure the safety of the pipeline?
Judging by the recent news reports in the media, it seems that GoI is intent upon pursuing this project. I have no idea about the kind of forces working to push this project through. I hope that the people who are in the position to take decisions regarding this project are not going ahead based on certain "isms" or kickbacks. This kind of project generally warms the hearts of the leftists in India as they get a chance to take a swipe against "the great satan" - United States. The foreign and Indian construction contractors must be salivating at the prospect of making money by winning the bids for construction of the pipeline. It will be quite naive to think that these contractors will not lobby to see this project being approved for the sake of their bottomlines. Moreover, the civilian nuclear cooperation carrot dangled by the United States in front of India has run into rough weather in the United States Congress. US has always been an unreliable partner of India. To be fair, I must also add that India has also been an unreliable partner of US. Ideologically, it is quite strange that the two largest democracies in this world do not trust each other when it comes to basic issues like foreign policy, military, and nuclear cooperation.
If I would have been a private investor and had to invest in this kind of project that is fraught with political and security risks, I would have thought twice about it. It is very important for the GoI to take their steps cautiously. There are many things that can go wrong. If something goes wrong and the money invested by GoI goes down the drain, it will be very difficult for the government to explain the reasons behind their actions to the people of India. The agreements signed between Iran, India, Pakistan, and any other party must be watertight legally. These agreements should contain punitive measures liable to be applicable to any country that does not keep its side of the bargain. The execution of the punitive measures in case of failure to live upto the promises should be handled by some kind of an international body agreeable to all the three nations. In the meantime, let us keep our fingers crossed and hope for the best. If the project is a success, India can sleep easy with respect to energy crisis that the country might face in a few years.
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How did India get its bomb? You forgot to mention about that.
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# posted by 
: Monday, January 02, 2006 2:09:00 PM
: Monday, January 02, 2006 2:09:00 PM<< Home
