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Mainstream, VOL L, No 14, March 24, 2012

India-Russia-China Pipeline: A Tribute to BRICS

Tuesday 27 March 2012

SANJAY DESHPANDE and MANENDRA SAHU

The twentyfirst century is witnessing a slow shift in power from the West to the East. The fast growth in ‘emerging economies’ like Brazil, Russia, India, China and South Africa, commonly referred to as BRICS, is responsible for this change. The growth in these economies is taking place when the nations of Europe are still struggling to come out of the 2008 economic meltdown. In the days ahead, the group of BRICS is going to become much stronger. A close co-operation is desirable among them on various global issues and energy is one such important issue. However, the realities in the energy sector is full of contrast: while Russia is a net exporter of energy, India and China are net importers of energy. Is the contrast in the energy scenario advantageous or disadvantageous? The contrast in their energy scenario allows them to integrate closely as it has been taking place between Russia and China. Similar cooperation can be extended in the case of India, Russia and China. The present study looks into the feasibility of the India-Russia-China (IRC) pipeline and the advantages and challenges associated with it.

IRC: Energy Scenario

THE energy scenario, as mentioned above, is full of contrast. Russia is an energy superpower with the largest gas reserve as well as producer in the world. The estimated gas reserve in Russia is 1680 Trillion cubic feet (Tcf) which represents a quarter of the world’s total gas reserves. Russia produces 19.3 Tcf of gas and exports around 7.3 Tcf of gas. In the case of oil production, Russia is one of the topmost producers, competing with Saudi Arabia to become the top oil producer in the world. Russia produces 9.9 million bbl/d of oil and consumes only 2.9 million bbl/d and rest of it is exported around the world. The energy scenario for India is diagonally opposite to that of Russia: if Russia has abundant of oil and gas, India is one of the most energy starved nations of the world. India has limited availability of oil and gas domestically. Against the requirement of 3.2 million barrels/day of oil, the domestic availa-bility is 950 million barrels/day; as a result it imports more than two-thirds of the oil require-ments from around the world. In the case of gas, the domestic availability is 1.8 Tcf of gas as against the annual demand of 2.3 Tcf of gas. India’s dependence on imported energy is not going to come down in the near future.

The energy scenario in China is not much different from that of India, it is also heavily dependent on the import of energy. The oil consumption of China is estimated at 8.3 million bbl/d against the production of around four million bbl/d. Thus, China imports more than half of its domestic oil requirements from abroad. This demand is likely to go up along with the growth in economy and its domestic reserve of 20.4 billion barrels of oil will not be able to meet the requirements. It is expected that China will import about 72 per cent of its crude oil by 2035. At present, China imports oil from across the world and Russia is its fourth largest oil supplier. China has forged a special relationship with Russia in the energy sector. China has made investment in energy assets in Russia. In 2005, Rosneft, the Russian national oil company, invited a Chinese oil company to jointly explore Venisky Block in Sakhalin 3. In 2006, Rosneft established joint venture with another Chinese company to explore in energy rich areas in Irkuts Oblast. China even funded Rosneft to buy oil asset of Yukos, a bank-rupt oil company in Russia. The Chinese bank provided a loan of $ 6 billion for the purchase to be repaid in crude deliveries.

The East Siberia Pacific Ocean (ESPO) pipeline provided the next big opportunity to China. Russia has constructed the ESPO pipeline to carry oil from the East Siberian oilfield to the oil terminal at Kozmino on the Pacific Ocean. The pipeline in several places comes close to the Chinese border which gets the opportunity to draw oil from the ESPO pipeline. In February 2009, both the countries decided to construct a spur pipeline which will draw oil from the ESPO it and take it deep into China. The pipeline would start from the Russian station Skovorodino and go upto Daquing in China. It was further decided that the pipeline would be constructed with Chinese loan which Russia would pay back in crude oil in the next 20 years. The pipeline was opened in January 2011.

IRC: Advantages

THE pipeline offers diversification of energy resources both for India as a customer and Russia as a supplier. India at present imports around 64 per cent of its oil need from the countries of the Middle East. Saudi Arabia alone provides 18 per cent of India’s import, followed by Iran which provides 11 per cent. The other Middle East countries together provide around 34 per cent of oil. The overdependence on Middle Eastern sources is critical as it is a conflict-prone area and any disruption in oil supply would have serious repercussion on India’s energy security. As a result India has taken steps to as much diversify its supply as possible; it has invested in oil assets across the world, from Latin America to Africa and from Central Asia to South-East Asia. The strategy is yielding result: India’s dependence on the Middle East is slowly coming down. However, the present level is far too high and it should be brought down. The abundant Russian resources provide an opportunity to India for diversification.

Russia too is actively looking for diversification of its customer base away from Europe. At present, Russia’s export is highly geared towards Europe which consumes around 80 per cent of Russia’s oil exports with Germany alone consuming around 700 thousand bbl/d alone. The Nether-lands, Poland, France and Italy too are major Russian oil consumers. Russia realises its over-dependence on Europe and wants to diversify its customer base away from Europe, mainly in Asia. In its policy document ‘Russia Energy Strategy 2020’ it predicts that the production in Western Siberia, which serves the European market, would reduce from 71 per cent to 61 per cent at the same time production from Eastern Siberia and the Far East will increase from two per cent to 20 per cent which will primarily serve the Asian market. Thus, Russia would like to significantly increase its customer base in Asia and India as a sizeable and growing market would offer chance to integrate with Russian resources.

India in the past tried to get direct energy supply through pipelines from energy rich areas but this could not materialise because of two factors, outside interference and terror threat to these proposed pipelines. India had an ambitious plan of an Iran-Pakistan-India (IPI) pipeline which was expected to bring gas to India. The project was stalled because of outside powers who were interested in isolating Iran and regularly inter-fered with the idea of the IPI project. The project also suffered from the dubious role of Pakistan. The project would have brought millions of dollars as transit fee to Pakistan and large quan-tities of gas too, but it failed to provide any assurances for the project. The other ambitious project was the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline which was planned to bring gas from the energy-rich Caspian Sea region to India. This suffered from terror threat from the ongoing conflicts in Afghanistan and Pakistan. It suffered due to outside interests too as many multinational oil companies tried to dominate the pipeline. These two projects were extremely beneficial and technically viable but outside interest, terror threat and the dubious role of Pakistan stopped these. All these factors could be mitigated in the IRC pipeline.

The plan to bring energy from the Caspian Sea region need not be shelved as the IRC offers additional opportunity to connect them via the proposed pipeline. The Caspian Sea region at present is connected by pipeline with both Russia and China and could be linked to the proposed pipeline. Russia has extensive pipeline infra-structures in the Caspian Sea region which were laid decades back and are functional. China entered the Caspian Sea area much later in comparison to Russia but has built up a strong presence in the area. China built the pipeline which originates in Aktyubinsk in Kazakhstan and travels via Attrayu on its way to its final destination in China. These pipelines could be linked to the IRC pipeline to bring energy resources from the Caspian Sea region.

Conclusion

IT is noteworthy that energy is a compelling factor. It is a basic necessity, no nation can survive without it; as a result, it has forced many nations to shed hostility and adopt cooperation. China had a bitter rivalry with Russia, they even fought a war. The reality at present is different; they are cooperating and investing in each other’s energy sector. In the case of Japan, the Russo-Japan war was fought over the Sakhalin Islands but today Japan is an investor in the Sakhalin Islands.
However, the biggest example of energy as compelling factor is seen in the ‘Druzbha’ (friend-ship) pipeline. In the middle of the Cold War, the then West Germany, a NATO member country, cooperated with the Soviet Union to build the pipeline which brought Soviet energy to Europe. The US opposed the pipeline fearing that the Soviet influence would grow with the pipeline. West Germany went ahead with the proposed pipeline against the wishes of the US and other allies. Thus energy as a compelling factor is responsible for altering international relations. The proposed IRC pipeline too falls in a similar category, may it become a new ‘Druzbha’ pipeline. Once the pipeline comes into existence, it will be a great tribute to BRICS.

Dr Sanjay Deshpande is the Director, Centre for Central Eurasian Studies, University of Mumbai, and Dr Manendra Sahu belongs to Centre for African Studies, University of Mumbai.

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