Mani Shankar Aiyar is a career diplomat. Those skills are perhaps his best asset when it comes to his current responsibilities. These include negotiating a controversial $4 billion gas pipeline with Iran and Pakistan; securing oil and gas contracts to meet India's growing hunger for energy; and defining India's energy relationship with China
EM: Most countries are worried about the impact of the rise in the price of oil on economic growth. India, along with the US, Japan and China, will be one of the biggest consumers of oil in the future. Are you concerned about this?
MSA: I think it's best to put this in perspective by sharing with you a few figures. India today is importing 76% of its crude oil requirements; this is projected to grow to 85% in the year 2025. It might actually be even higher. Our consumption of oil is among the fastest growing in the world. This is not a reflection of our failure as much as our sense of pride that economic growth in this country is projected to be high in the future.
Our domestic production of crude oil is around 33 million tons, and this is likely to grow to about 50 million tons. The current availability of gas in this country is 90-95 million standard cubic meters per day, 90% of which comes from domestic sources. Even if we grow this impressively to about 200 million standard cubic meters per day in the next 20 years, this will only meet half our requirements. So our demand for oil and gas imports is going to be high.
EM: Can you outline the key elements of the energy security strategy that you have in mind?
MSA: Coal meets half our requirement for energy at present, and our dependence on fossil fuels is likely to continue. India has large reserves of coal, but the ash content is high and the transport costs make it cost inefficient. Nuclear energy meets about 6-7% of our requirement, and this will possibly decline relative to coal. The share of natural gas in our fuel basket is around 7%, and we expect that to grow to around 20%. We will have to import gas, and the market for LNG [liquefied natural gas] is fiercely competitive. There is a shortage of ships to transport it, and the investment required to build LNG terminals makes it an expensive option, but we must get what we can. We must also get gas by pipeline, and we are pursuing four sources at present.
The first is the pipeline from Iran through Pakistan to India. The second pipeline is from Turkmenistan, Afghanistan, Pakistan to India. We need to go ahead with this and rope in more suppliers like Uzbekistan, Kazakhstan, Russia, Azerbaijan. When I discussed this plan with General Musharraf [of Pakistan] he seemed to want to go ahead with it. The third is a pipeline under the sea from the Gulf to South Asia. Not much progress has happened on this because of technological problems it has encountered. This is an option for later. The fourth is from Myanmar to India through Bangladesh. We are talking to Bangladesh about this, and even if it is difficult to get the gas to India because of the narrow delta in the Bay of Bengal, we could fuel a power plant in Myanmar and export power to north-east India from there.
I am convinced the Bay of Bengal is the North Sea of South Asia. We have found significant reserves here – in the Palk Straits and Krishna Godavri, for instance, and we may find some more in the Sunderbans and in the Andaman and Nicobar, where we have recently awarded two blocks for exploration.
EM: So you are looking to diversify where India sources its oil and gas from, perhaps away from the Persian Gulf?
MSA: Saudi Arabia supplies 26% of our crude imports. I have a personal assurance from them that they will meet our incremental demand for the next 20 years. We must also look at other sources. We must break from the past where the Asian oil market has become a residual market that got what was left over after the needs of North America and Europe are met.
EM: The United States government has expressed its displeasure over the so-called peace pipeline from Iran to India. Will this become a flashpoint in India's relationship with the US?
MSA: The importance of this pipeline cannot be overemphasized. Abandoning it would be tantamount to abandoning our obligation to energy security; and that is part of our national security. I do not know if the pipeline will become a flashpoint in our relations with the United States; that is up to them to decide. We are also going to import LNG from Iran; there are issues related to pricing and we are discussing this with them, getting the gas through a pipeline will be cheaper.
EM: Indian and Chinese companies are keen on acquiring or investing in oil and gas assets overseas. Both are keen competitors in that sense, most recently in the bid for PetroKazakastan. How do you see India's relationship with China evolving in the energy sector?
MSA: As partners. We may compete sometimes for assets, but I believe we must forge a common understanding with them as partners. I strongly believe that we need to build a hydrocarbon relationship with China. I have even suggested that the gas pipeline from Iran may be extended to China. My team has just returned from a visit to China and they have got an encouraging response from the Chinese side. In the 50th year of the Panchsheel agreement, I think it is appropriate that we move towards each other, and I look forward to my visit to China later this year to take this forward.
EM: You talked of the need to develop an Asian oil market. Can you outline what you have in mind?
MSA: I strongly believe that we need to build a regional cooperative network between Asian oil producers and consumers. I hosted a roundtable meeting of west Asian oil ministers in January, which got an excellent response. We discussed the need to invest in refining and storage of oil to ensure sustainable supply to the region. I plan to host a meeting with north and central Asian suppliers soon.