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April 13, 2000


The Rediff Business Special/Amberish K Diwanji

Geo-political issues set to dominate proposed gas pipeline from Iran to India

Tehran is keen to lay a gas pipeline from Iran to IndiaConsider these:

  • Bill Clinton spends almost 45 minutes meeting Reliance Industries' chairman Dhirubhai Ambani, almost as long as the time the US President spent with the Indian Prime Minister. What do they discuss? A strategic affairs analyst says it is about gas pipelines and Central Asia, which interests both the Ambanis and the Americans.
  • Clinton pays the first ever visit by a US President to Bangladesh, seeking to exploit its newly discovered vast reserves. Bangladesh says only after ensuring that there are enough reserves for Bangladesh for the next 50 years will the gas be made available to the world. send this business special feature to a friend
  • A few days before Clinton is to leave India for Islamabad, a prominent Pakistan newspaper reports that Pakistan has agreed to a gas pipeline from Iran to India through Pakistan. Out in New Delhi, government officials haven't heard anything. So what was that report all about?

Petroleum and international politics are linked like Siamese twins. And India is slowly being drawn into the politics of energy since it meets a vast amount of its energy requirements through the import of petroleum and natural gas.

For the record, petroleum and natural gas are different products, but both are used for energy - both, like coal, are hydrocarbons. The major difference is that while petroleum reserves are more or less known worldwide, gas reserves are still to be exploited.

Will the proposed scheme take off? The 21st century, it is believed, will be driven by gas just as the 20th century was propelled by petrol.

What is even more important from New Delhi's perspective is that India's energy demand is rising. This can be met only through ever-increasing imports since domestic production is just the tip of India's consumption iceberg.

Gas will play an increasingly important role in meeting these requirements. And since India's captive power gas produces only 20,000 mw of energy -- 20 per cent of the requirement -- imports will have to meet the rest of the demand.

The largest reserves of natural gas are in Central Asia. There are also newly discovered gas reserves in Bangladesh, which have the potential to lift it out of poverty if properly exploited and marketed.

"Bangladesh's reserves are blocked by its politics, much of which is based on the fear of India. Hence, India will have to tread carefully. However, we must exploit the reserves of Central Asia through Iran," said Rajendra Pachauri, head of the Tata Energy Research Institute, New Delhi.

Enter Pakistan. A plan is on the anvil to run a gas pipeline from Iran through Pakistan to India. This suggestion was made over a decade ago. The pipeline is seen meeting the needs of, both, India and Pakistan.

Iran is keen to sell its gas. While its petroleum production is limited by the cartel rules of Oil and Petroleum Exporting Countries, or OPEC, there are no such strictures for gas yet.

There is only one huge market for Iran, and that is India. "Europe gets its requirements from Russia. Hence, Iran has always been keen to sell gas to India," said Pachauri.

He also recalled that an Iranian minister had once said that Iran would export its vast reserves only to Islamic countries. "And Iran considers India an Islamic country!" the minister had added.

But there is a problem. Unlike exporting crude, which can easily be shipped across in huge tankers, gas is best transported through pipelines. Hence, this idea of a pipeline from Iran to India which would also allow Iran to transport the gas from Central Asia.

The question is the route that the gas pipeline should take. Given the inherent instability of Indo-Pakistan relations, India has been insisting that the pipeline should come from Iran to India via the sea.

Pakistan, meanwhile, has insisted that the pipeline should go through its territory. India is wary over this, fearing that this will give unnecessary Islamabad leverage.

Gas: dictating political decisions Officials in the Ministry of External Affairs, or MEA, explained India's position. "We feel that even though laying a submarine pipeline is more expensive, in the long run it will benefit us. And anyway, it was Pakistan that always had strong reservations against allowing the pipeline through their country," the official said.

Experts, who first suggested the idea and have been connected with its feasibility, disagree over this issue.

"The objection was on the submarine pipeline, because even that pipeline would have run through Pakistan's economic exclusive zone - EEZ, which is 200 kilometers from the shore. The Pakistani navy objected fearing that such a pipeline will allow the Indian navy to get too close," he said.

Till a few years ago, even the submarine pipeline could only run in waters a few hundred feet deep, which meant primarily over the continental shelf. But, today, there is a sea change. Advances in deep-sea technology have made it possible to actually lay a deep-sea pipeline, which would be out of Pakistan's EEZ.

"However, while we know this technology is now available, it is expensive and still in its infancy. It will be a few years before it is used," he said.

MEA officials feel that in the long run it will be better for India to completely bypass Pakistan. The fear clearly is that in the event of "war", Pakistan will actually turn off the tap, leaving India stranded!

However, experts say that if the pipeline were to run through Pakistan as per an agreement, it becomes very difficult for any country to actually break the agreement. History is witness to this fact.

For instance, the Indus Water agreement between India and Pakistan, signed in the 1950s survived the 1965, 1971 and the 1999 skirmishes.

Even MEA officials concede that except in a rare case, Accords are very difficult to break. "All through the Cold War, pipelines carrying petroleum and gas from former Soviet Bloc countries to the West were never turned off. So there is this precedence and we realise that it will be difficult for Pakistan to act tough," he said.

Analysts added that any pipeline constructed would be through an international consortium, which would have a lot of money at stake.

"These international financiers will put immense pressure to ensure that the pipeline continues to function. And in the agreement, let there be stringent penalty clauses in case Pakistan tries any hanky-panky," he said.

And certainly, if Pakistan turns off the gas pipeline, India can play havoc by blocking the river Indus's water, said Pachauri.

Yet, experts feel that the report in the Pakistani press, about Islamabad allowing a pipeline through Pakistan, is probably 'planted'.

"With India exploring the deep sea option, Pakistan is worried that it could lose a lot of revenue. Hence, the need to get a pipeline from Iran to India through Pakistan. This will also give Pakistan a chance to buy the gas," he said.

It is known that the Ambanis are keen to buy crude for their upcoming refinery -- which will be one of the world's largest refineries -- but the Ambanis also have a reputation of moving upstream.

Now that they have a refinery, it is believed that they could be eyeing oil and gas and, hence, need America's help. After all, American giants such as Unocal and Shell are active in Central Asia, too.

Regarding Bangladesh's reluctance, experts are convinced that once India starts buying gas from Central Asia, Dhaka will soon be keen to sell its gas to India.

"Let them see how other countries are benefiting and they'll be willing, too," he said, but added, "Certainly the US interest should help them overcome their reluctance and their fear of India," he added.

But for all this to come true, India has to decide whether it wants a pipeline under the seabed or on Pakistani soil.



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