Mani Shankar Aiyar on India's Energy Crisis

There can be no Energy Security for the Aam Admi without first securing Energy Security for the Nation. Therefore, this article falls in two parts: the first, and longer, section deals with Energy Security for the Nation; and the second, briefer because it is more to the point, with Energy Security for the Aam Admi, for whom there must be equitable distribution of whatever energy is available, especially in an economy whose accelerating growth is widening income and wealth inequalities as we have not seen since Independence.

Energy Security for the Nation

In 1996, Dr Vijay Kelkar, said, “What petroleum was to the 20^th century, natural gas will be to the 21^st.” We are today more energy insecure than we were when Dr. Kelkar made this profound observation. This article is, therefore, a kind of red alert being sounded because the Integrated Energy Policy, first circulated as a draft in 2004, is yet,  gathering dust as a mere academic exercise, with little or no action. It is essential that we shrewdly take forward the Oil Diplomacy, for the Integrated Energy Policy displays a woeful sidelining of the external dimension of Energy Security which is the key to opening the door to assured National Energy Security.

The fact is that domestic energy sources will have to be heavily complemented by the external sourcing of energy, considering that the same Integrated Energy Policy projects in Table I an external requirement of over 90 per cent crude oil; the external sourcing of up to 57 per cent of our natural gas needs; and another similar import requirement of up to 57 per cent coal, amounting, on average, to some 58-67 per cent of our energy requirements in 2031-32 if we are to sustain 9 per cent annual rates of GDP growth. It requires dedicated energy diplomacy, aimed at making National Energy Security at least as important as National Security per se. 

Happily, the international and domestic scenario is so rapidly changing in our favour that if we seize this moment, we might still overcome; if we miss the moment, it may not come again.

If we get over the 20^th century syndrome of seeing oil as the driver of all hydrocarbon prices and focus instead on the current behaviour of LNG prices, we may discern the beginnings of a break in the nexus between oil prices and gas prices. For, of late, even as crude oil rises, gas prices fall. So, while domestic oil prices in the US have doubled, domestic gas prices in the US have been slashed by half!

How has this divorce between oil and gas prices happened? I would suggest three principal reasons.

First, where, during the Greenspan boom, the US LNG entry point of Henry Hub was snapping up every available LNG shipment and driving prices skywards, today LNG ships are roaming the oceans begging for buyers. In consequence, even as the growth in North American energy demand has fallen following the most severe recession since the Great Depression, the world’s principal LNG suppliers and the world leaders in piped natural gas – Qatar and the Russian Federation respectively - are now stranded in a buyers’ market.

Second, Europe and China are emerging as major producers of shale gas. Over the next decade, shale gas from Europe’s oldest gas play, North-West Europe, running from eastern Denmark through Sweden and thickening to north and east Poland, is likely to emerge as a major shale gas producer. While significant European shale gas supplies may take the better part of this decade to come on the energy scene, the prospect itself is changing expectations in global energy markets.

Third, with the United Kingdom leading the European move to shift transport away within the next ten years from fossil fuels to electricity, hybrids and bio-fuels through tough new legislation recommended by their Parliamentary Committee on Climate Change, Asian oil and gas suppliers will have to find replacement markets from among Asian consumers, principally Japan, China and India.

The move in the West away from traditional hydrocarbon sources abroad to new unconventional domestic sources is principally because the New York Metal Exchange has elbowed out OPEC as the principal determinant of international oil prices. Western technology has started turning inwards in search of domestic energy resources rendered suddenly viable, stable and reliable by the rise in prices of imported alternatives. Inevitably, this means Western buyers are exploring domestic shale gas reserves in North America and the European Union as the preferred incremental alternative to sourcing from Russia and West Asia.

In these changed circumstances, for Asian suppliers of oil and natural gas the Asian Resurgence emerges as the only Ray of Hope. Therefore, I hold that the hour for the Asian Oil and Gas Community has struck. Are we ready to take the lead in oil diplomacy, as we once were?

The domestic scenario in India, though, does not induce much confidence. Dabhol, which Government took over from Enron, languishes, while the two completed LNG terminals we have, and the associated pipelines to take the gas inland, are dedicated to owners Petronet at Dahej and Shell at Hazira, so no other Indian importer, present or potential, has access to these terminals or the pipelines.

This depressing picture is complicated by the drying up of investor interest in domestic gas exploration. Reliance’s then recent find, at the Bay of Bengal, the largest gas find of the year the world over, had suddenly brought the offshore east coast of India into focus as a region with hydrocarbons potential, especially as the hydrocarbons potential of the eastern littoral of the Bay of Bengal in Myanmar, the Sea of Andaman further south and the northern littoral of the Bay in Bangladesh also found international attention to rival the Reliance boost to India’s image. Also, at about the same time, Cairn had made significant oil finds onshore in western Rajasthan. Therefore, the image of India, as a hydro-carbons deficient nation, began to be reassessed.

But foreign and even domestic private sector interest in exploration has plummeted due to the number of Blocks offered rising from 20 in NELP V (2005) to 55 in NELP VI (2006) to 57 in NELP VII (200) and soaring to 70 in NELP VIII (2010) but the Blocks awarded sharply declining from 52 in NELP VI to 41 in NELP VII and down to 31 in NELP VIII, with ONGC picking up almost all blocks while private bidders, Indian and foreign, are simply shying  away. Alas, NELP has lost its momentum, and the sooner we shift to an Open Acreage Policy, especially for shale gas, the better for our Energy Security. Indeed, unless we do what the west is so vividly doing, shift from coal to oil to natural gas and shale gas, there is no way we can meet Jairam Ramesh's offer of a 20 per cent reduction in our carbon footprint by 2020.

Which brings me to the international dimension of our quest for energy security.

The civil nuclear deal effectively derailed the momentum of the Iran-Pakistan-India gas pipeline. The proposal is still on the table but its snail’s pace is in stark contrast to the deliberate speed with which the agreement on the Iran-Pakistan segment of the pipeline has been concluded. To think that on a matter so vital to India’s immediate energy security needs, we are still stuck at the starting line five years after the Cabinet authorised negotiations between India and Pakistan and India and Iran. Indeed, why only IPI, Iran-Pakistan-India; why not IPIC: Iran-Pakistan-India-China? It will also give such a boost to the economies of North-East India that once the North East Region’s growth rate doubles from the present rate to the present all-India average, we will overtake China’s GDP growth rate. Alongside we need to factor in the transit fees payable to India by China if the pipeline is extended to China.

The bottom line of our Energy Security Policy must be the nation-wide and Government-wide realisation that whether or not we ourselves are hydro-carbons rich, our immediate and proximate neighbourhood is the richest hydrocarbons repository in the world. What we need to do is bind these giant Asian suppliers and consumers into a continent-wide Grid of Peace, Friendship and Cooperation.

Five years ago, understanding the imperative but groping for the answer, all – I stress every one – of the major oil and gas producing and consuming countries of Asia came to New Delhi in January and November of 2005 to launch a forum for the exchange of views and information among themselves. In the meanwhile, the International Energy Forum in Riyadh was inaugurated – the first forum of producers and consumers designed to work towards a New World Order in Hydrocarbons. Of course, it was no more than a beginning, a tentative reaching out of Asians to each other, but a historic beginning nevertheless.  Opportunities are enormous when taken into consideration the prospective pipeline projects with Myanmar, Bangladesh, China, and the Turkmenistan-Afghanistan- Pakistan-India pipeline (TAPI). 

Polluting hydrocarbons would not matter if we had ample alternative sources of fuel. Other non-conventional and renewable sources have their great attraction, be it solar, wind or tidal energy, or even geo-thermal energy, underground coal gasification, gas hydrates, bio-fuels, hybrid fuels and electrical transport. But until technical innovation makes them much cheaper and storable and transportable, fossil fuels will continue to dominate the energy scene.

Nothing, absolutely nothing, counts more than the mindset in determining the pace of technological innovation. The Integrated Energy Policy stresses this. I suggest, the entire Dehra Dun establishment of ONGC be de-linked from the Corporation and placed under a separate management that could spearhead technological innovation and knowledge networking. Linking the Dehra Dun establishment to the Petroleum University and the Indian Institute of Petroleum in the same city, and the new Rajiv Gandhi Petroleum Institute in Sultanpur as well as the renowned Indian School of Mines at Dhanbad, we need to foster petroleum degrees and research in all our IITs or better still establish a series of Indian Petroleum Technology Institutes to rival our IITs.

Moreover, knowledge networking across the globe should be a critical national goal to be pursued with vigour and verve. We need an Energy Revolution as much as we needed the Green Revolution, and like the Green Revolution, technology and more technology, both domestic and imported, would be the spark that lights the Revolution.  

Energy Security for the Aam Admi

Fact no.1 is that the most recent National Sample Survey shows that 39.8 per cent of rural and 6 per cent of urban citizens of this great country of ours have no access to electricity at all, that makes 350-400 million Indians plus many hundreds of millions more who are subjected to arbitrary power cuts and frequent load-shedding. Another 400 million at least – probably nearer 600 million - have some access to energy but will lose it if we let the market alone determine the prices of essential petroleum products. And our current administered price regime disproportionately benefits those remaining 200 million Indians who can and should pay market prices. The stability of our democracy demands differential pricing of essential articles of daily consumption, including essential petroleum products such as kerosene and LPG.

The basic argument against subsidies is leakages. All leakages in our subsidy system are systemically the consequence of our relying on the same administrative system that has failed in all departments to deliver development to the people because 85 paise in the rupee goes into administrative costs.

Not until kerosene is taken out of Civil Supplies departments – which have long proved their corruption and inefficiency  - and entrusted instead to elected community-run institutions, such as local women’s self-help groups under the overall supervision of village panchayats  responsible to the intended beneficiaries in community-wide meetings of the Gram Sabha, as has been experimented so successfully in Chhatisgarh, can we even begin ensuring the availability of a little light to drive away the darkness of the village night for hundreds of millions of our poor villagers and slum dwellers.

LPG should be charged at full rates from all urban consumers not living in slum areas and provided virtually free to tribals and other forest-dwellers, and all those living in remote and difficult locations such as desert and mountain habitations, so that the environment is protected from poverty-driven degradation and these totally energy-deprived fellow-citizens of ours are given a modicum of what we, the urban middle classes, take for granted. Smart cards might help in determining both inclusion and exclusion.  

Diesel should be subsidised only for transport trucks and buses – and paid for from whinging cesses imposed on buyers of diesel cars as part of the initial purchase price at a rate equivalent to the estimated cost of diesel subsidies over the lifetime of the car.

Petrol should be totally de-regulated.

When international crude prices rise, equitable burden sharing between upstream companies, central and state governments, and the consumer should provide the guiding principle. We can move to the Integrated Energy Policy principle of market-determined prices for petroleum products as soon as we reach US levels of prosperity or Norwegian levels of equity, whichever is earlier.

I want to conclude on a note of warning which I hope does not sound too alarmist. We have entered the sixth decade of our Industrial Revolution. History teaches us that the giddy success of a few contrasted with the trailing behind of most that any Industrial Revolution augurs, shakes the foundations of the political system, democratic or autocratic, which has engendered the Industrial Revolution about six to eight decades into the Industrial Revolution. Therefore, this decade, and the coming decade or two are, without doubt, the most dangerous decades in which the dilemmas of development and democracy will be played out in our country.

We are now entering those decades. That is why Energy Security for the Aam Admi must be integral to Energy Security for the country. An economic order in which India prospers but Indians do not, cannot long endure. Unless we rise to the occasion, our successes in democracy and development may prove ephemeral, our future imperilled.