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How India can ensure fuel security

Last updated on: April 1, 2013 12:45 IST

How India can ensure fuel security

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T N Ninan

India needs to interpret energy security broadly - and that includes building a navy that can ensure that the sea lanes to the country are protected, say T N Ninan.

Videocon is bidding to sell its stake in a large Mozambique gas field, and intends to use the windfall profits so gained to repay debt.

It, however, intends to retain its interest in some Brazilian oil fields, the intention being to swap South American oil with substitutes closer home in order to feed the domestic market.
The government-owned Oil and Natural Gas Corporation (ONGC) does the same with its share of Sakhalin oil, from off Russia's Siberian coast.

Indian companies have also been prospecting for oil and gas, and buying up coal mines, in places as far apart as Vietnam and Sudan, Australia and Central Asia - all of it to fuel a domestic economy which meets most of its energy needs with imports.

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Photographs: Reuters.
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There are those, including energy experts, who question such investments, especially by state-owned companies (private companies seeking profits from carbon sources are deemed to be OK) - on the ground that energy is easily traded, and therefore investments in dodgy places with a view to producing them for shipping home are unnecessary use of time and money.

In theory, this is fine. But remember that China is busy shutting India out of one energy market after another, often by using state policy and financial muscle in India's neighbourhood (as with Myanmar gas, Central Asian oil and gas, etc).

It also leads by a mile in the so-called race for African resources. And it wants to stop India prospecting for oil in the South China Sea.

In the face of such pre-emptive "resource nationalism", can India assume freely traded energy supplies?

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Consider also the counterfactual. When companies vertically integrate production chains, so that a steel plant like Posco also ties up iron ore supply, or a Tata power plant ties up Indonesian coal, that is considered risk mitigation - though it might not always work out that way (ask both Posco and Tata!).

Nevertheless, the question stands: how is such risk mitigation different from securing energy supplies for a country?

Bear in mind also that the United States is talking of not allowing the export of shale gas, so as to retain the competitive advantage of cheap energy and thereby help to revive manufacturing activity in the US.

How is that different from the argument that India should not export iron ore or bauxite; they should be used preferentially to develop domestic manufacturing.

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Photographs: Reuters.
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The forecasts are that, before 2020, India could be importing as many barrels of oil a day as the United States. India, already one of the largest importers of oil, will need to import much more over the years, while the US imports less.

When the US felt vulnerable about energy supplies, it was busy pushing the interests of its oil majors, using the Central Intelligence Agency (CIA) to topple governments, or sending gunboats to tame recalcitrant countries.

In a world with more evenly distributed power, such tactics are no longer feasible.

But those who think that a free market for energy is a fact of life should recall why Japan attacked Pearl Harbour in 1941 - because the US had imposed an oil embargo on Tokyo, which needed to act before the embargo took effect.

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The one fact of life that will be unchanged into the foreseeable future is that India will remain hugely import-dependent for energy, while rival countries are booking sources of supply, or blocking other sources through trade embargoes (as with Iran).

India, therefore, needs to interpret energy security broadly - and that includes building a navy that can ensure that the sea lanes to the country are protected.

That is why you needVideocon and Essar, Reliance and Tata, ONGC Videsh and anyone else interested, to invest in energy overseas.




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