AS the cleanest and most efficient fossil fuel, natural gas is increasingly seen as the ‘bridge fuel’ between the earlier fossil fuels (coal and oil) and the next energy future. From wellhead to burner tip, the process of gas extraction uses up no more than 10% of its energy potential. Again, gas emits 60% less carbon dioxide than coal and 42% less than oil for a comparable unit of consumption; hence, it is an excellent option in a post-Kyoto world order.

Between 1970-2000, global demand for gas grew by 3% per annum versus 1.1% for coal and 1.5% for oil. Between 2000-2030, global gas consumption is expected to double: in 1970, gas consumption was 60% of coal; now it is nearly equal. By 2030, gas could constitute 30% of the global energy mix (when oil will be 37%).

On the supply side, the prognosis relating to gas is comfortable: present resources can meet current demand for 60 years. With progress in technology and robust exploration effort since 1980, proven world gas reserves have increased at 3.6% per annum, with volume tripling from 77 trillion cm to 179 trillion cm in 2004. With new discoveries, reserves could meet demand for 150 years at the present rate of consumption.

The Integrated Energy Policy document published by the Planning Commission in August 2006 takes a holistic view of India’s energy requirements to meet a minimum growth rate of 8% per annum up to 2031-32, i.e., the end of the 15th five year plan. The Planning Commission has pointed out that given the country’s commitment to eradicating poverty and empowering its people with education and health, rapid growth rates of around 8% per annum over the next 25 years are essential.

The report postulates that in order to reach growth rates of 8% per annum up to 2031-32: (i) India needs to increase primary energy supply by 3-4 times; and, (ii) electricity generation capacity in the country has to be expanded five to six times from 2003-04 levels, i.e., power generation capacity must increase from the current 160,000 mw to nearly 800,000 mw by 2031-32.

In this regard, imported gas, both as LNG and as piped gas, holds considerable promise. Gas is a flexible energy source that is ideally suited to a wide range of uses. It need not rely on new technologies to make it environmentally acceptable or economical in the power sector. Gas-fired plants have significant advantages over coal-fired plants – lower capital costs, higher fuel efficiency, shorter construction lead-times and lower emissions – so combined-cycle power plants will probably maintain a leading position in the power sector for many years.

In order to obtain gas for its energy, India is pursing three options in tandem: (i) development of domestic resources, (ii) pursuit of long-term LNG contracts, and (iii) participation in transnational gas pipelines projects.

All these efforts have met with some success. Both foreign and Indian companies have announced major gas discoveries, particularly in the Krishna-Godavari basin, and there are indications that the Bay of Bengal and the Andamans area have considerable gas potential. In regard to LNG, India has entered into twenty-five year supply contracts with Qatar and Iran. LNG from Qatar is being received from 2004.

 

However, it is India’s participation in two transnational gas pipeline projects on its western land frontiers, the Iran-Pakistan-India pipeline (IPI) and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline that has seized the imagination of strategic affairs and energy security writers, with robust discussions on these novel proposals (for India) taking place in seminar halls and newspaper columns.

The Iran-Pakistan-India (IPI) gas pipeline project has a sound commercial base as Iran has the world’s second largest gas reserves, particularly offshore in the South Pars and North Pars fields (which it shares with Qatar). A pipeline from the Iranian collection centre of Assaluyeh on the Gulf to the Indian border would be about 1900 km, which is well within the range of economical gas supply by pipeline vis-à-vis LNG. Pakistan is gas dependent, with gas constituting 50% of its energy mix, while India’s requirement of gas, presently 9% in its energy mix, is expected to increase very significantly, particularly to provide fuel for the plant power projects in northern, north western and central India.

 

Initial official level discussions in early 2005 between Iran and India led to considerable clarity on both sides with regard to the technical, commercial, financial and legal issues pertaining to the project, a good learning experience for the Indian side that was pursuing a transnational pipeline project for the first time in its energy history. These early discussions culminated in June 2005 with the visit of the Indian petroleum minister to Pakistan and Iran. During these visits, the three countries agreed that the project would be a ‘safe and secure world-class project’, and Joint Working Groups at Secretary/Deputy Minister level would pursue discussions pertaining to the project bilaterally.

During the bilateral JWG meetings in New Delhi in December 2005, it was agreed that sufficient progress had been made in understanding the various issues pertaining to the project and that it was now necessary to move to a tripartite format at official level. The first tripartite official meeting was held in Tehran in March 2006, followed by another in Islamabad in May. Since then, bilateral and tripartite meetings continue to be held regularly among the officials of the three countries.

Besides technical matters, on which agreement was arrived at fairly quickly, these meetings have addressed two other issues that are fundamental to the future of the project, i.e., the structure of the project and the price of the Iranian gas to be supplied to Pakistan and India. Considerable flexibility based on international experience is available to structure the proposed project to meet the various interests and compulsions of the three parties.

Not unexpectedly, the principal issue that has preoccupied the officials of the three countries over the last two years pertains to the price of the gas. Since this project is expected to have a viable commercial life of over 30 years, it is natural for the three countries to seek to obtain the best price formula in terms of their interests. The discussions have been protracted and tedious, with periodic media reports of internal differences and breakdown of talks. There have also been reports of Iran demanding price reviews on a more frequent basis (rejected categorically by India), and even suggestions that the project could be pursued without India, with the pipeline going from Pakistan to China instead! (Indian officials have been quoted as rejecting this option on the ground that China will not pay the high gas prices that India would accept.)

It has also become apparent that not only would issues pertaining to the project itself have to be addressed by the three countries, but factors even entirely extraneous to the project, but nevertheless influential, would have to be taken into account as well.

 

Ever since the project was taken up three years ago, the influential extraneous factor, i.e., US opposition to the project, has been regularly articulated both at high-level private meetings between Indian and US leaders (as also between Pakistani and US leaders) and in public remarks at press conferences and speeches by senior US officials and Congressmen. It is obvious that the pipeline project has become an important factor in US policy on Iran and US ties with the two South Asian countries.

The signing of the India-US Nuclear Agreement in July 2005 set the basis for an exceptional lifting of sanctions against India in the nuclear arena, thus heralding an unprecedented camaraderie between the two countries and the promise of a comprehensive ‘strategic partnership’ with significant long term foreign policy implications. Clearly, the pursuit of the multi-billion dollar IPI project is seen by some US political leaders and commentators as contradicting the spirit of the nuclear agreement and the nascent partnership. In this context, differences between the three partners in the IPI project with regard to the issue of prices have been seen in the media as a confirmation of India’s reluctance to pursue the project to avoid upsetting the Americans.

 

Attempts by Indian officials to convey to the media that such protracted discussions relating to gas price are par for course, have found few takers. In this atmosphere, the announcement in July 2007 that the three countries had actually agreed on a formula relating to gas price at the Iran-Pak border caused considerable consternation. Since then, India and Pakistan have been attempting to finalize the transportation tariff and the transit duties in respect of the gas passing through Pakistani territory to the Indian border. While there is agreement with regard to the transportation tariff, differences relating to transit duties remain (as also differences with Iran over the periodicity of the price review).

Over the last nine months, during which the US confrontation against Iran has reached new heights and US rhetoric against the project has become more strident, there have been suggestions in the Indian and international media that India is deliberately going slow on the project to avoid jeopardizing the finalization of the India-US nuclear agreement in the US Congress.

 

Media frenzy relating to US-Iran hostility and the US opposition to the project has all but drowned other voices that have looked at the project in positive terms. Thus, major international companies such as BP and Gazprom have said that they would like to participate in the project. A senior World Bank official has said that he sees the project as a ‘win-win project’ for Pakistan and India, and has expressed the readiness of the Bank to fund the project. After a visit to the US, in May 2007, Indian Foreign Secretary Shivshankar Menon categorically stated: ‘The nuclear deal and the Iran-Pakistan-India gas pipeline projects are two separate issues and both are needed to ensure India’s energy security.’

However, given that energy security is integral to the strategic interests of a particular country, transnational pipelines which involve a number of neighbouring countries, do have implications that go beyond mere commercial considerations. Indeed, the fact that they bind countries together on a long term basis on account of their shared energy interests has distinct political implications, as relationships of confrontation and conflict are sought to be replaced by interactions that promote common interests and mutual benefit, i.e. ‘win-win situations’.

The Gulf and Central Asia have a crucial place in the pursuit of India’s energy security interests. Both these regions attract considerable international attention on account of their significant hydrocarbon reserves. It is, therefore, not surprising that both regions are politically volatile in terms of their internal situation given the interplay of external forces that are competing in these regions for power and influence.

Iran has the world’s second largest oil and gas reserves. This, coupled with its geographical location, endows it with extraordinary geo-political significance. Iran’s geographical position provides an excellent opportunity for oil and gas pipelines to run from the Caspian Sea to the Persian Gulf and the Gulf of Oman.

Notwithstanding the US desire to squeeze Iran out of the Central Asian and West Asian energy and strategic calculus, Russia, China and India do not see any reason to toe the American line. In fact, each of these countries is separately pursuing energy and logistical linkages with Iran. The Chinese commentator, Wu Lei, has noted that China is hoping ‘to develop new energy silk roads between the energy heartland, the resource-rich Gulf and the Caspian Sea, and China.’

 

In fact, the IPI project too could bring in Russia and China as active participants. Senior Russian officials and corporate heads have repeatedly indicated the interest of their companies in participating in the project. Chinese commentators have also publicly stressed the need for India and China to pursue their own linkages with Iran. According to a Chinese scholar:

‘The US is trying to coordinate with all countries around Iran in order to isolate it… India and China have good relations with the US but must follow their own strategy on Iran. If India gives up on Iran in the hope of securing nuclear energy from the US, it may end up with nothing. You would lose your strategic pipeline and the US might also abandon the nuclear deal at some point in future. Pipelines from Iran and Central Asia are a strategic lifeline for Indian energy security.’

Following the destruction of the Taliban regime in 2001 and the emergence of the Karzai-led government in Kabul, India’s priority interests in Central Asia have shifted from security to business. However, India’s links with Central Asia have been limited by lack of physical access. To address this, the concept of a North-South Corridor was developed in 2002, in terms of which Russia, Iran and India would develop an energy transport corridor, which would begin in Mumbai and end up in Moscow.

Indian Foreign Minister Pranab Mukherjee was in Iran on 6-7 February 2007, while Manouchehr Mottaki, the Iranian Minister of Foreign Affairs visited India in November 2006. Mukherjee not only highlighted the importance of Iranian ties for India, but also described Iran as a factor for stability in the region. As Indian commentator, M.K. Bhadrakumar, noted: ‘India-Iran energy cooperation forms a crucial vector of emergent Asian security.’

 

In contrast with the frenzied scenario pertaining to Iran, during this period Indo-Pakistan relations have been remarkably free from acrimony. Indeed, throughout 2005-07, a high-level behind-the-scenes ‘peace process’ was underway which, according to media reports, made considerable progress in respect of the major issues blighting ties between the two countries. This process was suspended only a year ago as the political situation within Pakistan became increasingly uncertain. With the emergence of a popularly elected government in Pakistan, the ‘peace process’ is likely to be revived.

So far, the bilateral and tripartite discussions pertaining to the IPI project have certainly benefited from improved Indo-Pak ties, enabling the officials to discuss issues objectively and in an atmosphere of camaraderie, cooperation and mutual give-and-take. At the same time, the commitment of the three countries to a ‘safe and secure world class project’ will ensure that every aspect of the project, be it corporate structure or legal and financial arrangements or even the physical safety measures will be made an integral part of the project.

 

The principal lesson that can be drawn from the 35-year history of gas pipelines is that pipeline projects are successful only if they are founded on a strong commercial base and, at the same time, are effectively immunized from the vagaries of day-to-day political issues through arrangements based on government-to-government and commercial agreements. The principal reason we have been able to make considerable progress in regard to the India-Iran-Pakistan pipeline project is the consensual agreement between the governments of the three countries concerned to pursue the project purely on a commercial basis and not to permit any whiff of politics to influence the negotiations.

Over the last 35 years, during which thousands of kilometres of gas pipelines have been laid across all continents, the international community has developed laws, rules, norms and practices to ensure that pipelines can to a considerable extent be insulated from day-to-day politics and made ‘safe and secure’ on the basis of international best practice. Not surprisingly, today nearly 150 transnational pipeline projects, measuring 230,000 kilometres and valued at dollars 200 billion, are at various stages of implementation or planning in Europe, Africa, North and Latin America and, above all, Asia.

 

* The views expressed in the article are personal.