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Home > Blogs > Anthony Harrington > Why geopolitics creates havoc with South Asia’s energy needs. Part 1

Why geopolitics creates havoc with South Asia’s energy needs. Part 1

Economic growth in Asia | Why geopolitics creates havoc with South Asia’s energy needs. Part 1 Anthony Harrington

The role of natural gas in India’s energy mix should, in theory, be a no-brainer – use as much of it as you can get, would be the summary version. The country is the world’s third largest producer of coal and coal currently accounts for 70% of India’s power generation. However, India, in common with other developing Asian economies, is under considerable global pressure to switch as much as possible of its energy requirements away from coal to other sources, with natural gas high up on the list, along with renewables and nuclear power.

Insufficient energy reserves

The logic of the argument for gas rests on conventional wisdom which has it that natural gas is far cleaner than coal. There are issues with the degree to which gas is cleaner than “clean coal” techniques in power generation, if the carbon footprint of the whole extraction and transport cycle is taken into account, but the issue of natural gas and India is complicated enough without building in additional wrinkles. Besides, India needs energy in whatever form it can get it to continue its present growth trajectory.

The problem for India, and for South Asia generally, is that the region’s energy reserves are insufficient to meet demand today, with the shortfall worsening rapidly as one projects forward. According to a recent report, “Regional Energy Security for South Asia”, by six Asia energy experts, funded by USAID’s South Asia Initiative for Energy (SARI), the six countries of the region need to grow their energy sectors by at least 2-3% over GDP simply in order to sustain their economies.

Which brings us to the challenge of how, exactly, this is to be achieved as far as the contribution of natural gas to the energy mix is concerned. The issues are twofold and boil down to a) global competition for gas, in which South Asia is seen as a bit part player rather than a big hitter, despite the presence of India, and b) geopolitical factors in which wildly contradictory US policies play no small role, but are absolutely not the only issue.

Global energy competition

Why contradictory? On the one hand, the US would like all developing countries, and India in particular, to adopt the greenest possible approach to solving their energy requirements and on the other, the US wants to punish one of the biggest energy resource countries in the region, Iran, for its nuclear strategy, and seeks to change Iran’s strategy through sanctions. In particular, sanctions against its oil and gas export capability.

This policy has complicated India’s long-running, and currently aborted (though never say “never”), effort to become the third member in the so-called “peace pipeline”, which would bring gas from Iran’s South Pars field through Pakistan to India – a project that has been negotiated and re-negotiated ever since the Iranians proposed the idea to Pakistan and India in the mid-1990s.

The three would-be partners have every incentive to make this happen. The advantage for the Iranians of securing a profitable export route for South Pars gas is obvious. For their part, India and Pakistan both need to import increasing amounts of gas going forward – in India’s case, according to estimates by JP Morgan the requirement is expected to grow almost 140% by 2015, from 1.4 million cubic metres per hour (mcmh) in 2010, to 3.4 mcmh. Pakistan would benefit both from being able to draw gas from the pipeline and from substantial transit fees.

The deal looks like a win-win all round – apart from, of course, US sanctions. The US knows it should welcome India securing a fresh source of imported gas to add to its fuel mix, but it just hates to see the Iranians profiting while the country is still, allegedly, going flat out to acquire nuclear bomb making capability – particularly in the light of Iranian President Mahmoud Ahmadinejad’s well-documented instability and propensity to indulge in rhetoric about wiping Israel from the face of the planet.

Even without US pressure, the deal had a few other geopolitical headwinds to resolve, not least of which are: a) the long running history of hostility between India and Pakistan; b) well founded concerns over Pakistan’s ability to secure the pipeline across its own territory; and c) doubts over Iran’s status as a stable long term partner with the maturity to agree a major contract without endlessly seeking to renegotiate prices upwards.  As one Indian politician, cited in an April 2011 article in Pakistan Today, rather splendidly put it: “If we are to invest $6 billion in a pipeline and then attach $30 billion of industry to one end of it, we have to be very sure about supply.”

Part 2 looks at the recent history of the IPI project and alternatives.

Further reading on economic growth in Asia:

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Tags: energy imports , gas reserves , India , Iran , Pakistan , pipeline , price capping , South Asia , US sanctions
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