Friday, June 18, 2004

India, China and Energy Security

India and China have been witnessing a steady increase in their energy consumption for many years. Increasing economic growth characterized by high industrial activity has been the main reason behind it. Though consumption of coal accounts for a major share of the total energy use, imported petroleum takes an irreplaceable position in the energy mix of both India and China.
Until 1993, China was the world's fifth-largest oil producer and was a net exporter. Driven by a surge in economic growth, however, China's growth in oil consumption is now running close to 8 percent a year and, as a result, that country is now a major importer. (1) Meanwhile, India, the world's second-most-populous country, is also experiencing year-over-year consumption growth in excess of 8 percent, and has recently replaced France as the sixth-largest oil-consuming nation in the world. (2)
The key energy-related issues for these two countries are increasing energy dependency on imported oil, growing environmental concerns due to the dependency on coal, transportation and supply problems, and regional geopolitics.
China is the second-largest energy consumer in the world after the United States. A study projects that China's energy consumption will equal that of all the Organization for Economic Cooperation and Development (OECD) countries combined by the year 2020.
The geographic position of China is an advantage for its energy strategy. China borders Russia and the energy-rich Central Asian states on one side, and on the south it has the South China Sea, which is the main energy transportation route to Korea and Japan. Though China is planning to maintain production of about 3.1 billion barrels a day to limit its energy imports, depending only on domestic oil reserves will not be a long-term practical option. Moreover, China's plans for the establishment of strategic reserves to store up to 18 million tons of oil will keep its energy imports on for the near future. The west-east pipeline, which is to be built from Kazakhstan to Xinjiang and then to Shanghai, will bring the energy from Kazakhstan to the east coast of China.
Asia-Pacific: Nearly a third of world energy demandThe total Asia-Pacific energy demand is expected to be 31.4 percent of total world demand by 2005, and India and China will have the lion's share in it. While China has managed to spread its tentacles in the energy-rich regions of the world, India has been less successful in this regard. The main reason for this difference is the long-term political and economic policies of these countries toward their neighbors. Though China had border problems and political differences with Russia, now it is trying its level best to rope the Russians into building an oil pipeline to Chinese markets. China's interest in the Russian weapons trade is also a part of its long-term strategy to improve the strained relationship with the aim of accessing the energy market.
India is comparatively in a weaker position regarding these aspects. Russian and Central Asian energy is important for the Asian region, but the geographic position of India does not provide an opportunity to tap this source, as does China's. Even a direct pipeline from Iran to the northwest coast of India through Pakistan's coastal area has not been put into practice because of Pakistan's opposition to it. The pipeline plan from Central Asia faces similar problems, Pakistan being a geographic barrier to India.
The Indian energy sector is mainly dependent on coal; imported petroleum and other energy resources include nuclear and renewable resources. Petroleum products were introduced as an alternative to the less efficient, more polluting coal energy. Petroleum products are thus strategically important. Though natural gas is India's most important potential alternative to coal, the effective exploration and distribution infrastructure is yet to develop. As per the present situation, oil is the main imported-energy source.
Estimates indicate that oil imports to India will meet 75 percent of total oil-consumption requirements in 2006. (3) Since the energy import is mainly from the Middle East, volatility in that region's political situations will have a great influence on supply vulnerability. This vulnerability in the supply of energy resources affects energy security and thereby weakens national security at large. In this regard China has been in a much more advantageous position than India. It has been successful in diversifying energy resources, as well as developing a network of energy suppliers in spite of their foreign ventures and investments.
Though the economic growth rates of China and India are different, their energy-consumption growth is almost same. Moreover, as mentioned, both are imported-energy dependent. The energy strategy of these two countries will have a crucial role in their energy security. A Strategic Petroleum Reserve (SPR), which China is planning, alone may not provide any tangible relief to any energy shortage or oil shock. Developing alternative energy resources will have a greater importance than an SPR. India and China have great potential for renewable energy, nuclear energy, hydrogen energy etc. It is important to promote investment in these areas so as to avoid the fear of any supply shortage from abroad. While privatization of the energy field is promising, for an efficient domestic production and supply of oil the role of external and internal pressure groups in controlling the oil market should be carefully watched.
Kazakhstan: China's entry to Central Asian energyChina has been keen to develop its access to Central Asian energy resources, especially focusing on deepening relations with Kazakhstan. Since Kazakhstan is China's major entry point to access Central Asian energy, this region is of special importance to China. Moreover, China has been working very hard in Xinjiang (East Turkestan) to suppress ethnic or insurgency movements that might otherwise cause disturbances in the region in future.
There is vast potential for regional energy cooperation in South Asia. Subregional cooperation among the contiguous countries - Bangladesh, Bhutan, India and Nepal - is more promising. (4) While India has a huge market for energy, these neighboring states could be potential energy suppliers. Nepal and Bhutan have good hydroelectric potential and Bangladesh has natural-gas resources. If the political atmosphere is favorable, and other issues such as production, development, transportation etc are taken care of, these resources can be of much more use to the Indian energy sector than any other foreign energy import. These energy resources along with Myanmar's resources can be extremely important, and the northeastern states of India will chiefly benefit from it.
The politics of the world's energy sector has been witnessing the United States' attempt to dominate it for the past few years. The Gulf wars have sent a strong message to developing countries such as China and India of the danger of their heavy dependency on Middle East oil and the growing influence of Western powers in that region. This development has tremendous influence in shaping the energy policy of India as well as China.
China and India, as two big powers in Asia, will be the main energy consumers of the region. Burgeoning industrial growth and other energy-consuming activities are part of their economic development. As both these countries have similar patterns of energy use, their energy strategies may also have similarities. Any traditional approach to attain energy security may not be a solution to any kind of forthcoming energy shock or shortage of supply. That requires a comprehensive plan to act in a multi-dimensional way - investing in energy resources abroad, developing existing domestic energy resources, inviting foreign direct investment to develop renewable resources, and above all creating a well-structured network of regional energy cooperation.
Both India and China should look forward to creating an "Asian Union", ie, a Greater Asia that is economically, technologically and politically competent in the world, where the "energy security" of the Asian region will be free from the clutches of any political volatility of any region or any Western power.

(1) Published on the Obele Oil Corp's website.
(2) TERI, India's energy security, New Delhi, 2000.
(3) Ibid.
(4) Regional Energy Cooperation in South Asia, published in the World Energy Council Report, 2003.


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