Energy In India’s Back Yard

August 2013, Vol. 240 No. 8

Sanjay Kaul, President, University of Petroleum & Energy Studies in India

The recent visit of Myanmar’s pro-democracy leader Aung San Suu Kyi and Bangladesh’s opposition leader Begum Khaleda Zia almost went unnoticed. Despite the Indian government’s red carpet welcome, the media and analysts seemed to miss the significance of this move toward a more energy secure future and geopolitically stable neighborhood.

We have already missed an opportunity to work together in order to integrate the three South Asian nations with a common energy link, but much can be done to create other such prospects. First, however, it is essential to evaluate the critical misses, conduciveness of the current situation and ongoing efforts before identifying additional opportunities.

Critical Misses

The Myanmar-Bangladesh-India (MBI) pipeline was one such failed critical initiative. Discussions on the proposed pipeline began in the early 2000s. However, India and Bangladesh could not reach a consensus, purportedly due to the latter’s preconditions, and dialogue ceased in 2005. Bangladesh wanted to import hydroelectricity from Bhutan along with a reduction of tariff barriers and its trade deficit.

India did not agree because of the precedent this would set for future negotiations and because there were also talks of obtaining gas from Iran and Turkmenistan via the Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipelines, respectively.

In subsequent years, after failed attempts to discover captive gas, Bangladesh became more flexible and a tri-party agreement was ultimately signed in 2010. This was too late because a new Chinese-Myanmar partnership to supply gas and related oil via two pipelines from the Shwe gas field had been implemented.

Ironically, Indian entities GAIL and OVL owned nearly 30% equity in the project. India’s stake, though substantial, had only been from a profit-making standpoint. The extracted gas will go to China rather than making its way to India. The estimated gas in the Shwe field could not satisfy the demands of both Asian giants; hence, although the agreement was ultimately signed between Myanmar, Bangladesh and India, Myanmar is still reluctant to proceed with the project.

Myanmar has one of the world’s largest natural gas reserves. The “Myanmar gas rush” is not due to reserves currently being exploited, but rather speculation about the largely untapped gas reserves. Estimates range from a conservative 11.8 Tcf by BP to 22.5 Tcf by Myanmar’s energy minister, to a whopping 90 Tcf by some sections of the Myanmar government, which would make it the world’s tenth-largest gas reserves holder. According to the U.S. Energy Information Administration (EIA) Myanmar produces about 420 Bcf, exporting more than 300 Bcf.

The missed opportunity reflects India’s problems with a multi-country natural gas pipeline project, not only in this particular case, but also in its ability to respond to fierce competition while relying on an unpredictable transit state, and a lack of state funding.

Another miss was New Delhi’s irresolute stand on the military regime in Myanmar. This may be debatable as India was fighting cross-border extremism from its western neighbor. Kachin, the northern-most state of Myanmar, was allegedly the “university of terrorism,” hiding the ULFA and other insurgent groups. New Delhi, in any case, wanted tacit support of the military regime to deal with them.

In yet another miss, Indian companies could not match the bids made by South Korean, Chinese and Japanese entities. In 2006, India’s GAIL lost out to South Korea’s Kogas and Marubeni Japan on a preliminary bid for transporting LNG into India. Later, however, the project was indefinitely postponed, most probably due to cost involved and lack of a proximate LNG terminal. The absence of a coordinated effort by Indian public and private firms, combined with limited funding as compared to Chinese and other state-owned firms, have prevented Indian firms from playing a more aggressive role. This is the primary reason why India’s presence in Myanmar is not comparable with Chinese involvement.

Conduciveness Of Current Situation
Today’s situation calls for enhanced pro-activism on the part of India to engage with Bangladesh and Myanmar; there are more than a handful reasons that this is a favorable time.

• U.S. sanctions on a half-century Myanmar military rule ended with pro-democratic steps of the dictatorial regime, which relinquished power and gave way to a civilian-nominated U Thein Sein government.

• Bangladesh has a pro-India Awami League government, led by Sheikh Hasina, who has been at the helm for two years.

• In terms of energy policy post 2005, Bangladeshi leaders realize natural gas reserves will be depleted soon and see a need to look for options. This has galvanized a shift from a “domestic exploration focus” to a “collaborative exploration and feasible gas import” energy policy.

• Possibilities of gas from other prospects like TAPI and IPI have become relatively clearer; notably, insurgents in Pakistan’s tribal region recently blew up an indigenous pipeline.

• China’s growing geopolitical muscle has become evident in signing and implementation of Turkmenistan-China Natural Gas pipeline and Trans Myanmar-China dual pipeline (both of the source countries where India was a forerunner in negotiations).

• A 6.5% compounded annual growth rate (CAGR) of Indian gas demand has been accompanied by unexpectedly low domestic natural gas output.

• Myanmar wants to hold an auction for its oil/gas blocks later this year. EOI from foreign explorers are invited (existing drillers like Total and Thailand’s PTT Exploration & Production Pcl (PTTEP) are pumping more gas than they’re discovering. Myanmar’s known reserves dropped an average of 15% from 2007-2011, according to BP Statistical Review 2012 data.

• President Obama’s visit to Myanmar is seen as a U.S. effort to get closer to the new democracy in the strategically located region. The U.S. also sees India as a natural partner for the 21st century.

• There has been a history of resentment against China among the Burmese people. The latest example is the strong public opposition to a Chinese-built dam at Myitsone, which prompted President Thein Sein to halt the project in 2011. The electricity produced from the project was to be supplied to China.

Ongoing Efforts
The past couple of years have seen commendable traction on India-Bangladesh and India-Myanmar fronts – from Sheikh Hasina’s visit to New Delhi in January 2010 to Prime Minister Manmohan Singh’s May 2012 trip to Naypyidaw.

During Singh’s visit, 12 MOUs were signed for collaboration in a wide range of areas, including infrastructure, border area development, trade, IT, education and culture. This extended to a $500 million soft credit agreement and decision to undertake the trilateral Asian Highway, connecting Moreh in Manipur to Mae Sot in Thailand.

Accompanying him, Foreign Secretary Ranjan Mathai discussed the possibility of a pipeline when new discoveries were made in Myanmar. He said Indian entities must move quickly and more comprehensively to win licenses for exploration and production of virgin fields in Myanmar. Indian Oil & Gas companies, such as Essar, GAIL and ONGC are among 13 foreign companies involved in exploration and development efforts in Myanmar. The total investment by Indian PSUs is $1.6 billion.
New Prospects, Perspectives

The opportunity is ripe as these countries realize that while they may have great advantages with China initially, unless they have an equally strong channel with India, they will not be able to balance or leverage their interests in the long term.

A valuable experience that India should share with Bangladesh and Myanmar is the democratic learning curve. In fact, this sharing would serve as an opportunity for India to have a closer relation with the two nations.

A Mynamar-India pipeline would cost $2.5-3 billion and its passage through the northeastern part of India and associated development the benefits would certainly outweigh the costs. The Ministry of Development of North Eastern Region has plans to spend more than $100 billion toward achieving “North Eastern Vision 2020” during the 12th five-year plan for the region Funding should not be a problem. Apart from benefiting the transit states, the proposed pipeline may support rapid industrialization in Bihar, Orissa and West Bengal.

The developmental effect in northeast India may be similar to that of Chinese Yunnan province through which the Chinese-Myanmar pipeline passes. In addition to several community projects, such as schools, hospitals, electricity grids and clean water activities, the CM Pipeline is creating more jobs for local communities.

The workboat wharf, one such project, has employed nearly 100,000 people daily since December 2009. A water reservoir project has used 12,000 laborers daily since January 2012. With the pipeline project in full swing this year, more jobs will be created for the local community.

According to the EIA, transporting natural gas via LNG tankers is more economical versus onshore pipelines if the pipeline length is less than 3,800 kilometers – like the Myanmar-India pipeline. Also, since India is already in the process of developing regasification terminals and associated LNG import facilities, some of which are on the eastern coast. Examples include floating LNG terminals off the coast of Andhra. In India, the cost ranges from $650 million (Hazira) to $1 billion (Kochi). As a second option, India may also consider sponsoring development of an LNG liquefaction terminal in Myanmar.

There have been recent widespread inter-ethnic clashes between the Rohingya Muslim community and the Buddhists in the Rakhine region. The Shwe gas fields are located in that region; while India’s scope in Myanmar’s internal security is limited, this could be an opportunity for India to help Myanmar mitigate the issue and ensure socio-political stability.

India may consider opening up Bangladesh for energy trade. This has several indirect advantages for northeastern states, such as finding a port for to transport its exports and the potential for a port pipeline, which can be used to send crude by ship to the Vizag and Chennai refineries on the east coast. Even a large regasification facility at Bangladesh can provide LNG to terminals which are on the east coast.

Conclusion
Despite tenable historic and political compulsion for arm’s length relations with Bangladesh and Myanmar, it is extremely important to know the significance of the two nations in India’s energy security efforts. India needs to strive for better relations with both.

Author:

Sanjay Kaul is the founder and president of the University of Petroleum & Energy Studies in India. He is a management graduate with distinction from St. Xavier Institute of Management, Mumbai with more 25 years of professional experience with Chevron, Shell, PwC and Deloitte in the energy sector.

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