RK Batra Delhi
India does not seem to have a comprehensive pipeline strategy
While coal has been the major component of India's energy basket, gas, currently at around 9 per cent, could well grow to about 15 to 20 per cent if India is able to meet demand. Gas supply is currently around 88 million standard cubic metres a day (MMSCMD), which includes both domestic gas and imported liquefied natural gas (LNG), whereas demand is estimated to be around 179 MMSCMD. However, once gas is freely available this demand is likely to be found to be a conservative one. With large gas discoveries in the KG Basin off India's south-eastern coast, the domestic gas position is to improve considerably but the need for imports will continue given growing demand in all sectors. India's extractable coal reserves will get exhausted in 45 years. India is now importing increasing quantities of coal and acquiring coal mines abroad. Though, under the Kyoto Protocol, India is not required to cap its greenhouse gas emissions, there is already considerable pressure on India to reduce its carbon footprint. Natural gas is therefore a welcome substitute for coal in the power and industrial sectors apart from being a feedstock for fertilisers.
India already has three LNG terminals on its west coast and is constructing a fourth one, which will be commissioned by 2012. A number of transnational pipeline proposals have been mooted from time to time but for various reasons have either stalled or are making slow progress. They are the Myanmar-India, the Turkmenistan-Afghanistan-Pakistan-India and Iran-Pakistan-India gas pipelines.
China has been looking to source gas from the same gas rich countries as India and has been far more successful, albeit for different reasons. Despite India having a 30 per cent share in the A1 & A3 offshore blocks which were to feed gas to the Myanmar-India pipeline, China was allocated the total quantity of gas available and is to lay a 2380 km pipeline to import the gas. The award of the gas contract was attributed to China having vetoed a draft resolution tabled in the UN Security Council to ease repression and release political prisoners in Burma. Though this may well be the case, there is no doubt that India got bogged down looking at various pipeline options and was perceived as a slow mover. Also, it would appear that complacency set in with GAIL being initially nominated as the sole marketer of the gas.
The Argentinian company Bridas was the first to propose the Turkmenistan-Afghanistan-Pakistan (TAP) project in 1992. However, due to US pressure the project was re-allocated in 1996 to an American company Unocal which later pulled out of the project when the Taliban took over. The project was revived in 2002 when the heads of states of the three countries signed an agreement to implement the project. Gas from the Dauletabad field was to be fed through a 56" diameter pipeline, 1680 km in length, and with a capacity of 90 MMSCMD to join up with Pakistan's domestic gas network. The Asian Development Bank (ADB) was appointed the lead development partner. The cost of the project was pegged at $3.3 billion. A number of steering committee meetings were held and it was felt that for the project to be viable, it should be extended to India. India agreed to be an observer and only recently became a member, after which the project was renamed as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project. The cost has now escalated to over $7 billion. India's stated reluctance has been that it was not sure the gas reserves in Dauletabad were adequate. Unstated has been the politically unstable situation in Afghanistan and related security fears. It is commonly held that the writ of the government of Afghanistan runs mainly in the capital city of Kabul and not in the badlands elsewhere.
The reserves were originally estimated at 1.7 TCM. In an audit carried out by DeGolyer & MacNaughton along with Gaffney Cline in 2003, the estimated reserves were raised to 4.5 TCM, more than sufficient to meet a demand of 90 MMSCMD over 30 years. Nonetheless, in 2008 Gaffney Cline was asked to make an independent assessment of all of the country's gas reserves. Six years have thus passed with very little progress.
In sharp contrast to the TAPI pipeline, China first negotiated with Kazakhstan a gas pipeline to China in 2003 that became known as the Central Asia China gas pipeline. In 2006, Turkmenistan agreed to join in supplying gas to China followed by Uzbekistan in 2007. The price of gas is expected to be around $4.00 per mmbtu at the Turkmenistan/Uzbekistan border. Starting from the Bagtyarlyk gasfield in Turkmenistan, the pipeline will, in the first phase, link up in 2009 with the existing West East gas pipeline from the Tarim Basin to Shanghai and other markets. The Chinese have independently verified the volume of reserves at Bagtyarlyk at 1.3 TCM. In the second phase, the capacity will be increased to 80 MMSCMD to be completed by 2010. As the capacity of the West East pipeline is restricted to 30 MMSCMD, a parallel pipeline will be laid which will not only feed the area around Shanghai but also Guangzhou in south-eastern China. Thus, in a relatively short period of time, China has not only struck deals to buy gas from the three central Asian countries but would also have built this long distance pipeline. The speed with which it has moved has been quite impressive.
Iran has the second largest gas reserves in the world and the Iran-Pakistan-India (IPI) gas pipeline was first mooted as far back as 1989. However, there was very little progress thereafter, as it was felt that Pakistan could interfere and stop the flow of gas to India. In 2003 BHP Billiton was commissioned to make a detailed assessment of the project and proposed a 44" pipeline be laid from Asalouyeh in South Pars field extending 1115 km across Iran, 760 km in Pakistan and a further 600 km in India at a cost of $4 billion. At its full capacity, Pakistan would use about 60 MMSCMD and India 90 MMSCMD. BHP Billiton subsequently revised the cost to around $7 billion because of increase in steel prices and diameter of the pipeline. Meanwhile, a contract that India had entered into for supply of LNG from Iran came unstuck because Iran claimed that it has not been given the final seal of approval by their Supreme Economic Council. The fact that India at the same time cast its vote against Iran in the IAEA on the nuclear issue and gas prices had gone up substantially in the international market were not mere coincidences.
The indicated price of gas at the Indian border is around $5 per million British thermal units (mmbtu) against an earlier expectation of around $2/ mmbtu, excluding transit and transportation fees payable to Pakistan. But this was when crude oil prices were around $60 a barrel. Whether Iran will ask for a higher price now that crude oil is upward of $100 a barrel remains to be seen. Iran has proposed that gas prices be revised every three years, something that India, in particular, is unhappy about.
India has dragged its feet for over a year on the Iran-Pakistan-India gas pipeline. Despite the bonhomie shown when Petroleum Minister Murli Deora met his Pakistani counterpart Kwaja Asif in April this year, the transportation and transit fees proposed by Pakistan remained sticking points. Meanwhile, Iran has laid a pipeline, IGAT-7, for domestic use from Asalouyeh to the eastern town of Iranshahr, which will be extended 100km to the Pakistan border to meet Pakistan and India's requirement. The spare capacity of this pipeline is 60 MMSCMD and therefore the availability stands reduced to 30 MMSCMD for each country. For India, this is one-third of what was originally planned and considerably diminishes the importance of the pipeline, unless its capacity can be augmented later to restore the supply to the original figure. Strangely, through all these developments, the cost of the pipeline continues to be touted at $7 billion, despite its length in Iran having been reduced by about 1000 km and for a much lower throughput.
On a visit to China in April 2008, Pakistan's President Musharraf suggested that China could be a partner in the project, if India backed out. While some see this as an effort to get India to move faster in the matter, the China factor needs to be taken more seriously. Considering the extent to which it is prepared to pipe gas over long distances, as in the case of Turkmenistan and Myanmar, it is not inconceivable that a pipeline could be laid from Pakistan along the Karakoram highway and through the Karakoram pass into western China. China would only be too pleased to get access to the vast gas reserves of Iran.
Of the two pipeline proposals from Turkmenistan and Iran, the Iran-Pakistan-India pipeline is more likely to fructify. First, Iran can easily supply the relatively small quantity of 60 MMSCMD to Pakistan and India; second, it has only one transit country for India as opposed to two for the Turkmenistan pipeline; third, Pakistan has an equal stake in the quantity of gas to be supplied; fourth, the new elected democratic government in Pakistan is better placed than its predecessor to tackle and quell the unrest in Baluchistan province through which the pipeline will pass. Finally, there is the possibility of increasing its capacity later. For this to happen, India will need to move more decisively and quickly than it has in the past to sew up the deal, unmindful of US pressures. In trying to keep all parties happy, it may end up displeasing everyone.
In conclusion, though India is surrounded by countries that have abundant gas reserves, it has not been able to tie up a single project in over a decade. Geopolitics has played a dampening role and security of the pipelines and of gas supply has been an important factor. Infrequent meetings with long gaps of the concerned countries haven't helped. Pipelines can operationally and financially be structured to ensure that any disruption in supply does not carry a heavy penalty. Sabotage of a land-based pipeline can, to a large extent, be prevented; first, by burying the pipeline well below the ground; second, by having an optical fibre sensing facility to detect any break or leak in the line; third, by an overhead satellite monitoring system; fourth, by pipeline patrolling. Positioning repair teams at regular intervals and limited underground gas storage can take care of short-term supply disruptions.
One perplexing aspect of all the long pending pipeline proposals has been the diffidence of the Government of India to negotiate upfront the well-head price of gas. For example, there is no information on the pricing of Turkmen gas. With no commitment on prices, the supplying countries have enjoyed the benefit in the last few years of rising international gas prices. Also, increases in steel prices have led to doubling of the cost of pipeline infrastructure. Gas at $5 or even $9 per mmbtu is considerably cheaper than oil at $100 a barrel ($17 per mmbtu). India's long-term energy needs require that it accesses all energy forms from multiple sources to enhance its energy security. Success in importing gas by pipeline from neighbouring countries will depend on recognising that the period of cheap energy is over and the opportunities that exist today may not be there tomorrow. If India has a pipeline strategy, it is not readily apparent.
The writer is Distinguished Fellow at TERI. The views expressed are his own