Not a pipedream: back to Iran gas pipeline option

OPEC is in the news again as the world holds its breath wondering whether output will be increased and oil prices decline from the current level of around $30 per barrel. Meanwhile, the oil import bill in India as in other major oil-importing countries, is straining the economy, with global oil prices having almost trebled in the past two years. There is consequently renewed interest within the government in large-scale imports of natural gas from neighbouring countries, with active negotiations between India and Iran. In fact, a high-level Indian team is in Iran at present to discuss a proposal developed in 1989 for the supply of natural gas from the southern region of Iran to India through Pakistan. Gen Pervez Musharraf has also expressed his support for an onshore pipeline. However, concerns about the security of supply of large quantities of gas to India, dependent on transit through Pakistan, remain high. Hence, several other options for import of natural gas are being explored. The ministry of external affairs (MEA) is taking a particular interest in this option mainly because Foreign Minister Jaswant Singh knows this subject well. The question is often asked, why are we so eager to import natural gas when we have enough coal in this country? The answer lies in the fact that the Indian economy has to develop as a multi-fuel one. Given current trends, we can anticipate substantial increases in consumption of coal and oil, with the prospect of oil consumption itself reaching upwards of 350 million tonnes by the year 2025 and coal production in the range of one billion tonnes a year. Our interests in ensuring stable and secure supply of energy favour gas and moving away from the path of growing dependence on oil imports. There are also major environmental benefits in the use of natural gas, which could become a major source of energy over the next 30-40 years, by when renewable sources of energy should take up a large share. It is Iran which is interested in the large-scale supply of gas to India. The geographical location of Iran's reserves makes India,perhaps, the only major market that it can service. It is in Iran's and Pakistan's individual interests to think of a gas pipeline all the way to India because the size of India's imports would allow for economies of scale. India's options for a pipeline from Iran are not limited to the land route. Our current preference is for getting Iranian gas bypassing Pakistan's land area and preferably laying a pipeline offshore along a shallow sea route. The other option would be to lay a deep-sea pipeline far from Pakistani territory, but the technology for this and maintenance arrangements still raise many doubts, because deep-sea gas pipeline technology has not yet been tried on this scale anywhere in the world. Still another option for India is to import gas from Iran as LNG. Our security establishment is naturally against the overland pipeline option involving Pakistan, but there are means by which our interests and the reliability of supply can be secured. First, the pipeline can and should be financed largely by international stakeholders, so that the financial loss, if any, from supply disruptions is borne by other players also, who are in a position to put pressure on Pakistan. US companies would need to be engaged, even though current US sanctions against Iran make that questionable. Second, it is entirely possible for India to get into an arrangement for supplies larger than its own needs, and part of the gas received could be converted into LNG and supplied to Japan and Korea, making them major stakeholders. Also, an arrangement can be worked out whereby part of the gas that is supplied to India is used for power generation close to our western borders, and electricity produced supplied entirely to Pakistan. Such a mutually interlocking agreement would prevent Pakistan disrupting the supply of gas. Also, the contractual arrangement should be such that India pays only for the gas that is actually received, and the penalty clauses for disruptions on Pakistani territory could be severely punitive. Concurrently, Iran would also be in a position to pressure Pakistan, because it would lose revenue for supplies that do not take place. In essence, therefore, the option involving transit through Pakistan overland need not be dismissed outright. If Pakistan is serious about doing business according to international rules and ethics, it would have to withdraw sponsorship of terrorist activities. Nobody can deny that with the current state of damaged relations between India and Pakistan, any bold initiative would hardlyfind favour among politicians and experts dealing with security issues, but the urgency of natural gas imports requires India to take every possible supply option seriously and to go the extra mile in exploring the finer details of how imports can be arranged. In fact, we have lost a lot of time over the last 11 years in not pursuing these options seriously. There are two reasons why our efforts in some of these areas have lacked determination and perseverance. First, the country has not elevated energy issues to a level of, say, economic reforms, and we really do not have an energy policy. The other reason lies in the fact that for much too long it was believed that natural gas being in limited supply should be reserved only for petrochemicals, fertilisers and so-called value-added products, but not used as a fuel. It is curious that when committees chaired by distinguished officials were stressing this point, the former Soviet Union, at the height of the cold war, was going ahead with its massive pipeline deal to supply natural gas to western Europe. The prime minister set up a group for Hydrocarbon Vision 2025, which has come out with a forward-looking report for the hydrocarbon sector. But this in some sense would be incomplete unless a similar matching vision with clearly identified actions is developed for the energy sector as a whole. Any such vision would clearly identify the benefits of India importing substantial quantities of natural gas from its neighbourhood, and this can become a part of the agenda and plans of the ministry of external affairs, the energy-related ministries and, of course, the finance ministry.