India needs energy, and the US

As a rapidly developing country, India's energy needs are likely to balloon over the coming decades. How and in what areas these needs materialise will depend on five major factors.

First, these energy needs will be driven by India's quest to maintain the high levels of economic growth (around 6 to 7 per cent annually) that it has enjoyed since 1994.

Second, much will depend on India's ability (or lack thereof) to locate and use existing domestic gas and petroleum reserves.

The third will be the ability of the Indian political system to address certain structural inefficiencies which contribute to significant loss and wastage.

Fourth, it will also depend on its ability to adopt new and more energy efficient technologies. And fifth, much depends on India's ability to secure external sources of energy.

Already India is the world's sixth-largest consumer of energy. Most estimates suggest that to sustain its current average annual growth rate it will need to increase its energy consumption by about 4 per cent annually.

Currently, domestically mined coal meets close to 70 per cent of India's energy needs; after China and the United States, India is the world's third-largest producer of hard coal. Oil supplies about another 30 per cent of the country's energy.

Currently, India imports more than 60 per cent of its annual oil needs, or slightly more than 1.4 million barrels of oil per day. At current rates of economic growth this figure is likely to rise to as much as 5 million barrels per day by the year 2020.

Unless India obtains or develops alternative sources of energy, in 15 years it will have to import close to 90 per cent of its petroleum needs.

The danger for coal

India is working on securing alternative sources of energy in cooperation with other countries. These efforts are focused on oil, natural gas, and nuclear energy. But each of these potential sources presents complicated geopolitical challenges.

As India entered the global energy market, it encountered an important competitor, the People's Republic of China, one of the fastest-growing economies in the world, a rising military power with a vast appetite for oil and other raw materials -- and the financial resources to satisfy that appetite.

India sees China as its principal competitor in this global quest for energy. Indian officials are loath to admit publicly the existence of such competition, to avoid possible political friction with their behemoth northern neighbour.

This public silence, however, masks a number of private misgivings that persist despite apparent improvement in bilateral relations in the past decade.

First, despite significant efforts, the two sides have made glacial progress on their long-standing border dispute.

Second, Indian policy makers remain wary of China's close ties to India's bête noire, Pakistan.

Third, the Indians have become increasingly concerned about China's significant diplomatic and military relations with Myanmar (Burma) in recent years.

Fourth and finally, both India and China see themselves as great powers in Asia and would like to extend their influence beyond their respective shores. Although some analysts in India's strategic community do harbour hopes of potential cooperation between India and China in their global quest for energy resources, these hopes represent the triumph of fond wishes over harsh realities. India is in a fundamentally competitive if not conflictual relationship with China.

China is already well ahead of India in the search for new energy sources. Since 2000 the China National Petroleum Corporation has invested $45 billion in this search, while India's Oil and Natural Gas Commission has invested just $3.5 billion. The vast foreign-exchange reserves available to China's state-owned oil firms have enabled them to undercut India's efforts to obtain oil beds.

For example, in 2004, the Chinese firm SINOPEC edged out ONGC Videsh (the international arm of ONGC) to acquire an oil-exploration block from Shell Oil in Angola. Furthermore, as recent events underscore, the Sino-Indian competition for new energy sources in Central Asia is well underway.

In early July 2005, India was granted observer status in the Shanghai Cooperation Organization -- a forum for meetings and consultations between China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. New Delhi was keen on obtaining this status to increase its access to and influence in the oil-producing states of Central Asia.

Kazakhstan, the host of the 2005 meeting, is one of the states in which New Delhi has considerable interest, not least because of the vast Tengiz and Kashagan oil fields and the Kurmangazy and Darkhan exploration blocks. ONGC Videsh has formally bid for participation in all four areas.

Yet just as India was granted observer status in the SCO, the group, at China's behest, also invited Iran and Pakistan to participate as observers. The inclusion of Pakistan, in particular, is fraught with considerable significance for India, as it gives Pakistan further ability to exert influence in the region.

India's emergent role in Central Asia may lead to an intensification of the Sino-Indian rivalry, but it is highly unlikely to bring India into conflict with the United States. India's attempts to obtain natural gas from Iran, however, are far more contentious from the American perspective.

India has had extensive discussions with Iran about the construction of an undersea and overland pipeline to carry natural gas to India from Iran's South Pars field. This pipeline would be about 2,700 kilometres long (about 1,687 miles) and would cost about $4 billion to build. Some 760 kilometres (475 miles) of this pipeline would pass through Baluchistan in southern Pakistan. Once operational, it could transfer as much as 90-95 million standard cubic meters of gas per day.

Despite strong interest by both Iran and India in building this pipeline, it is by no means a done deal. Indian security analysts have expressed misgivings about having such a strategic asset pass through the territory of a long-standing adversary: Pakistan.

Moreover, it is far from clear that Pakistan is going to acquiesce to the construction of the pipeline through its territory. In an effort to address these concerns, India has proposed that Iran and Pakistan be responsible for the construction, maintenance and safety of the pipeline until it reaches the India-Pakistan border.

That way, both countries not only would stand to gain from its operation but would lose substantially from any sabotage or cessation of its operation. In any event, India and Iran have yet to even reach an accord on the unit price of the gas to be delivered.

Even though this project is only under discussion, the United States had made its displeasure about it known to India. The US concern, it appears, is that Iran would use the substantial gas revenues generated to fuel its ongoing nuclear weapons programme.

Such a concern, though reasonable from the American standpoint, will have little or no resonance in India, especially if the United States cannot offer India a viable alternative. In the end, the Indians may choose not to pursue the pipeline but import natural gas from Iran using tankers. At this stage, it is for US policy makers to decide whether it is worth making this issue so prominent as to impede the steady and dramatic improvement that has taken place in India-US relations over the past few years.

The other contentious issue in India-US relations related to energy involves the possible construction of another natural gas pipeline -- this one bringing gas from Myanmar (Burma) and Bangladesh into the Indian state of West Bengal.

India has sought to build this pipeline not merely to address its energy needs but also to counter Beijing's growing influence with the military junta in Yangon (Rangoon), Myamar capital. For well over a decade India chose to isolate the Burmese junta, but faced with a growing Chinese presence in Burma, India has begun to reverse its course.

This change does not imply any fondness for the State Peace and Development Council's brutal form of rule in Burma; it is merely a pragmatic attempt to ensure that the Chinese presence in Burma does not seriously impinge any further on India's regional strategic interests.

India, however, has yet to persuade the paranoiac Bangladesh Nationalist Party-led regime in Bangladesh to allow this pipeline to be built. Bangladesh's anxieties stem from its overall distrust of India and its obsession with husbanding its one major natural resource, natural gas.

Once again, it would behove the United States not to hobble the construction of this pipeline. Bangladesh desperately needs the revenues that the pipeline would generate, and the project might grant India some leverage with the Burmese.

That said, it is far from clear that the current government in Bangladesh will be able to break its mindset and agree to the development of its natural gas fields and the building of a pipeline across its territory. In the face of this attitude, and after years of negotiation, the American energy firm Unocal recently withdrew its proposals for the development of Bangladesh's gas fields.

Part II: 'India's appetite for energy is unlikely to be curbed soon'

Professor Sumit Ganguly, Professor of Political Science and Director of the India Studies Program Indiana University, Bloomington, made this speech as an expert witness at Senate panel hearing convened by Senator Richard Lugar on the energy needs of India and China and its implications for the US. He was recently named head of the CIA's South Asia arm.