Waiting for neighbourhood gas

Thousands of years ago, in the historic silk-route city of Baku on the banks of the Caspian Sea, ancients worshipped a phenomenon they could hardly comprehend: pillars of fire leaping skywards out of the ground. The flaming columns were in fact high-pressure natural-gas fields that had caught fire and could not be extinguished. We have traveled a long way since those times. Technology has enabled us to tame this gas, pipe it for burning in homes, offices and factories. More importantly, with the advent of the combined-cycle gas-turbine technology, humankind has learned to harness the full potential of natural gas, converting it into electricity, the most convenient form of energy. Being clean-burning, natural gas has acquired salience in a post-Kyoto world exercised over global warming caused by the indiscriminate burning of dirty fossil fuels such as coal and oil.

The ease with which natural gas can be transported by way of pipelines makes it essentially a regional or continental resource. While liquefaction technologies that allow for the fuel to be transported in containers have been around for several decades, and while the cost of liquefaction has been declining steadily over that time, liquefied natural gas (LNG) still accounts for no more than a tenth of the global gas trade. LNG remains an option only where pipelines cannot reach. The big gas consumers – the US and Europe – are crisscrossed by gas pipelines, those in the former carrying the fuel in from Canada and those in the latter from Russia, the North Sea and even Algeria. New pipelines are being built everywhere: the west-east pipeline in China, for instance, recently started supplying Shanghai with gas from Xinjiang, and the newly completed Blue Stream pipeline runs from Russia to Turkey under the Black Sea. Many other such lines are under construction in different parts of the world. For India, too, it is ideal that gas be supplied through pipelines from neighbouring countries, not least because the price of LNG is firmly linked to crude prices, which in the last two years have not only been volatile, but have distinctly moved to a more expensive bracket. Besides, once constructed, pipelines offer security of supply because piped gas, unlike LNG tankers, cannot be diverted by recalcitrant producer states to other markets.

Natural gas currently accounts for around eight percent of India's energy use. With its energy-intensive growth paradigm, and given technological factors, efficiency and environmental obligations, the country has a virtually bottomless appetite for natural gas, especially for power generation and fertiliser production, both of which together constitute over 80 percent of all gas consumed in the country. Gas is an ideal fuel for power generation because it is converted into electricity more efficiently than coal, diesel or fuel oils and, unlike these, also burns relatively cleanly. Unlike hydropower projects, the use of gas to produce electricity does not displace great numbers of people, and unlike the use of nuclear power it produces no hazardous waste.

Fortunately, the Indian peninsula is ringed by gas-rich neighbours on virtually all sides – Pakistan to the west, Iran a bit further to the west, Turkmenistan to the north, Bangladesh to the east, and Burma to the southeast. In the last few years, substantial offshore gas finds have also been reported by Indian companies in the Krishna-Godavari Basin off the country's east coast. It is estimated that this basin could contain up to 15 trillion cubic feet (tcf) of gas. When brought on-stream, such a reserve could take away the urgency to tap neighbourhood gas. But transnational gas pipelines promise to be to Southasia what they have proven themselves to be the world over: not only energy lifelines, but the cement for geo-political alliances and business ties. Also in favour of piping gas from neighbourhood countries is the fact that the Krishna-Godavari Basin finds are deep-sea, offshore fields: the technological challenge they pose and the cost of extraction renders neighbourhood gas an attractive alternative for the moment.

South Pars to Southasia
Of the three pipeline projects that are under active consideration by the Indian government, the Iran-Pakistan-India (IPI) pipeline is perhaps the most promising. Iran is home to the world's second largest deposits of natural gas – deposits in the South Pars offshore region alone are estimated to contain 500 tcf, a sixth of the world's discovered gas. Especially given the severe impact of international sanctions, energy exports are critical to Iran's economy. They currently account for 80 percent of the country's export earnings.

The logical markets for the South Pars field are the countries closest to Iran. Since those to the west, north and south have substantial reserves of oil and gas themselves, it stands to reason that Iran will have to look east – to Pakistan, India and China. That Iran and the Subcontinent share cultural and historical ties augurs well for clinching commercial relationships. Pakistan's economy, unlike India's, is already heavily gas-based. Its depleting domestic gas reserves spell a vulnerability that piped gas from Iran could mitigate to a large extent.

Southasia has been home to simmering hostility and conflict for many decades now, and this has severely affected the growth potential of both India and Pakistan. The building of transnational energy pipelines in other parts of the world has demonstrated the ability of nation states to put aside political and other differences in pursuit of what is never a zero-sum game. There is no reason why India and Pakistan should not be able to follow that example. As a precedent, the two countries have the specific instance of the Indus Water Treaty, which has weathered political differences and conflicts.

While there are various estimates being floated about the extent of investments required to build the 2700 km IPI pipeline, the least it would cost is USD 5 billion. Such a massive investment would create stakes in peace not only for the supplier and consumers of gas served by this pipeline, but also for the international community of financiers, bankers and energy companies involved in the project.

In 2006, there was considerable progress on the IPI project. After regular meetings between ministers and officials of the three countries to discuss its contours and structure, there is now some degree of consensus on the route to be followed. The pipeline from the offshore South Pars gas field will pass through Bandar Abbas and follow the coast of the Gulf of Oman to reach Karachi, and then move on to Munabao on the Indian border. The fact that this route follows Pakistan's road and rail networks means that security and maintenance will pose fewer problems. The pipe will be 56 inches in diameter, and will be able to ferry up to 60 million cubic meters (mcm) of gas per day to Pakistan and 90 mcm per day to India. This flow will continue for 25 years.

While Manmohan Singh commented on a recent visit to Washington, DC on the difficulty of financing the IPI pipeline, his statement was made in the context of the Indo-US nuclear deal and must be taken with a grain of salt. Disagreements with regards to pricing formulae are currently the main obstacle in the path of the pipeline. On this New Delhi and Islamabad are on the same side, an early indicator of how gas pipelines can bring antagonists together. While Iran might insist on linking the rate to the price of crude oil, both Pakistan and India would like to agree on a price range with a set floor and ceiling. In December, UK-based Gaffney, Cline and Associates was tri-laterally appointed to advise on the matter. At deadline there was no public information about the pricing formula recommended by the consultant, although on 26 January the three parties "finally" came to an agreement on the gas-pricing issue.

Pipelines everywhere
Another pipeline project on India's horizon involves the reserves in Burma's Arakan peninsula. India's public sector companies Oil and Natural Gas Corp (ONGC) Videsh Limited and Gas Authority of India Limited (GAIL) together hold a 30 percent stake in Shwe A-1, a field which is operated by Daewoo and said to contain 8 tcf of gas. Four routes have been identified by which Shwe A-1 gas might reach India, the nearest market. Two of them traverse the Chittagong tracts of Bangladesh and make their way west; one enters India by way of its border with Burma in India's Northeast; the last, involving an undersea pipeline to India's eastern shore, has been declared unfeasible due to the region's shifting seabed.

In 2005, a tripartite meeting of energy ministers of India, Burma and Bangladesh had agreed on building a pipeline to reach India by way of Bangladesh. Since then, however, India has been unwilling to cede the reciprocal conditions Bangladesh has placed. The proposal of late has thus been a pipeline that would enter through India's northeastern states, unlocking Tripura's stranded gas reserves along the way.

Opposition to the pipeline from groups both in Burma and in the Northeast, however, has been building steam. The proposed pipeline will traverse Arakan state, one of the poorest regions of Burma, where electric supply comes from diesel generators, that too rationed and only after sunset. This is only one of the areas in Burma that could well use the country's gas to fuel its own development aspirations. Further opposition comes from the fact that the Burmese people's past experience with gas pipelines has not been a happy one. The controversial Yadana-Yetagun pipeline built and operated by Unocal has supplied gas to Thailand since 1998. It was built despite opposition from local communities and has been under the scrutiny of US courts for alleged human-rights violations and use of forced labour. Whether due to opposition or to the difficulty posed by the terrain, an alternative proposal has emerged from Burma. The plan is now to build a power plant at Sittwe and transmit electricity to India instead of gas. If feasible, this is an eminently better option, since it would give the local people a stake in the project through the creation of employment opportunities.

The third pipeline project under consideration is the Turkmenistan-Afghanistan-Pakistan-India pipeline. Doubly landlocked Turkmenistan is home to one of the largest gas reserves in the region. Deposits are currently estimated to contain a staggering 100 tcf, but it is probable that reserves as yet undiscovered contain ten times as much. Until recently, Turkmenistan only exported its natural gas via a pipeline that traveled north through Uzbekistan and Kazakhstan on its way to Russia. A proposal for a pipeline originating in Dauletabad on the Afghanistan border and passing through Pakistan to reach India has been on the anvil for many years. The Asian Development Bank recently declared the project prima facie feasible. The 1680 km pipeline is to run through Herat and Kandahar in Afghanistan, the Pakistani cities of Quetta and Multan, and on to the Indian border town of Fazilka. The construction of the pipeline up to that point is estimated to cost USD 3.5 billion. If it is to be extended to Delhi, it will have to traverse another 600 km. The proposal had gained momentum as of November 2006 when, during his trip to New Delhi, Hamid Karzai expressed a keenness to facilitate an energy bridge to India.

The ultimate viability of the Turkmenistan pipeline will depend on the amount of surplus gas available in the country's fields, over and above what has been committed to other buyers. In the past, Turkmenistan has driven away two interested investors – Bridas of Argentina and Unocal of the US – because of its unstable and inconsistent policy environment. While Turkmenistan's ratification of the Energy Charter Treaty has introduced a modicum of certainty and stability, the sudden death of President Saparmurat Niyazov in December 2006 has left political equations disrupted. India and Pakistan may have to wait for the dust to settle before planning further.

Gas markets are such that yesterday's extortionate prices may appear reasonable today and downright cheap tomorrow. The sooner India, for one, can start accessing gas from its surrounding countries, the better it will be for its energy security. Politics does stand in the way, as Turkmen gas cannot really be accessed until Afghanistan stabilises, and even the IPI pipeline will require enormous confidence-building measures. Given its needs, however, it is vital that India do whatever it can to settle differences with its neighbours and start building those wonderful fuel lines.

~ Sudha Mahalingam is a senior fellow with the Delhi-based Centre for Policy Research.