India needs to open its eyes to the substantial benefits that it stands to gain from intra-region energy trade. Instead of looking to Russia, East Asia, Latin America and Africa for its burgeoning energy needs, India would serve itself well to tap the vast energy resource opportunities that lie in its immediate vicinity.
Political differences, unstable governments and a worry over the rise of India have all stunted the development of intra-region energy trade. K Ramanathan, a distinguished fellow at the Tata Energy Research Institute (Teri), says, “There is a need to rebuild trust in the region through bilateral energy trade before considering multilateral energy trade.” It is largely this lack of trust that has thus far prevented serious intra-region trade from taking place.
By exploiting the complementarities in the region, the supply of energy to India could be diversified. This would lower the risks borne by high dependence on Middle-Eastern oil. Furthermore, bilateral trade could indeed increase trust in the region and this could lead to the formation of a long-term, integrated energy trading bloc of 1.5 billion people, the largest in the world.
Currently, intra-region trade covers only 5 per cent of the total trade in South Asia, making it the world’s least integrated region. This is surprising, given the commonalities in language, culture and history that bind the region. Moreover, the region shares similar concerns over the procurement of adequate energy to power its growing economic development.
India’s neighbours have a rich variety of energy endowments. Yet only modest bilateral cross-border trade in electricity has taken place between India, Nepal and Bhutan. Cross-border gas pipelines have not been utilised at all.
According to a USAID report, “South Asia has an economic hydropower potential of over 190,000 MW (Bhutan 23,760 MW, India 84,400 MW, Nepal 43,000 MW, and Pakistan 40,000 MW), which, when developed, would provide an excellent opportunity for energy trade within the region to bridge the demand-supply gap.”
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The Bhutan model can serve as a roadmap for the other countries in the region. Bhutan exported goods worth Rs 2,148 crore to India in 2008, predominantly electricity. India’s investment in the Bhutanese energy sector, by helping to build hydroelectric projects such as Tala, Chukha and Kurichhu, has reversed the nation’s imbalance of trade with India. This is a model that hydroelectric-rich Nepal could mimic.
Pakistan and Bangladesh have natural gas resources that could be exported to India, although Pakistan’s resources are rapidly depleting. India, in turn, could share its coal technologies to develop the untapped coal reserves in these countries.
Looking further, at Myanmar and Central Asian countries, even more opportunities arise. Myanmar also has reserves of natural gas that could be exported to India. Iran is known for its significant oil and gas reserves. The Central Asian nations are all endowed with oil, gas or coal reserves that could be used to bridge India’s energy gap.
Projects are in the pipeline. The Iran-Pakistan-India project involves the import of natural gas by Pakistan and India from Iran over a 25-year period. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas project, which would lead to natural gas being transported into India and Pakistan through Afghanistan, is being discussed by the nations’ leaders. For electricity, the CASA 1000 (or Central Asia South Asia Electricity Trade and Transmission Project) would allow 1,000 MW of electricity to be imported to Afghanistan and Pakistan. The infrastructure from the project could be used by India to import electricity from Tajikistan and the Kyrgyz Republic in the long run.
Today, India is the world’s fifth largest energy consumer. In terms of its total primary commercial energy supply (TPCES), its dependence on energy imports has risen from 17.8 per cent in 1991 to 30 per cent. This is derived primarily from its dependence on the import of oil, which accounts for almost 72 per cent of its entire oil consumption.
This brings India’s energy security or the availability of an adequate amount of energy at an affordable price into question. External price shocks, blockages in supply and political instabilities that could disrupt its access to oil pose a threat to India’s development and economic growth.
Commercial primary energy consumption in India has exploded by 700 per cent in the last four decades. To maintain a GDP growth rate of 8 per cent over the next 25 years, India will need to quadruple its primary supply of energy and quintuple its supply of electricity. At this rate of growth, the dependence on imports in 2031 could be as high as 59 per cent.
India is not an energy-rich country. Apart from thorium, it does not have the quantities of uranium, oil or gas that can lead to self-sufficiency in the next decade. While coal is aplenty, the core basins are remotely situated and the quality of the coal that is available is poor.
Production of hydropower decreased from 40 per cent in 1971 to 14 per cent in 2005. Even if the capacity is fully exploited, it will do little to satisfy the exponential increase in India’s energy demand.
While developing domestic capabilities in coal, oil and gas, focusing on non-traditional and renewable energy and taking equity in oil exploration and production companies in other countries are ways to achieve greater energy independence.
India should look at the option of increased intra-region trade in energy. It has the opportunity to address the energy security needs of its own and also those of the region at its doorstep. Why look exclusively to the Middle East, when India can satisfy its energy needs at home?