India Intelligence Report



 India’s Faltering Energy Strategy

  Gearing for the future, India is formulating a policy for development of Natural Gas Pipelines for cities and on November 16, met with a number of prospective providers including Exxon Mobil, BG, Shell, RIL, ADAG, TERI, BP ( India ), and Oil PSUs.


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Gearing for the future, India is formulating a policy for development of Natural Gas Pipelines for cities and on November 16, met with a number of prospective providers including Exxon Mobil, BG, Shell, RIL, ADAG, TERI, BP (India), and Oil PSUs. Also consulting with the Planning Commission, the Minister of Petroleum and Natural Gas Murli Deora floated a draft policy that had been previously circulated to the Gas Industry Group in June and July and since revised after accommodating their inputs.

The stated objective of this draft policy is to promote investment in natural gas pipeline and city & local natural gas distribution networks, facilitate open access for all players to the pipeline network on a non-discriminatory basis, and promote competition among entities to neutralize dominant player advantages. Trying to strike a balance between affordability of pipeline gas against profitability, the draft is trying to ascertain investor and consumer interest to use and deliver fuel that is environmentally friendly.

Deora reportedly discussed guidelines for:

  • application (Applicability)

  • Authorization process (Grant of Authorization)

  • scope of activity (Exclusivity)

  • bonding process and conditions (Bid Bond and Performance Bond)

  • right of use conditions (Conditions under ROU Acquisition)

  • operational conditions (Unbundling of Operation)

  • inter-connectivity of gas networks (Gas Grid Connectivity)

  • technical issues relating to health, safety, and environment

  • Role of State Governments

While the details of this conference have not been released, the Ministry is expected to incorporate the feedback from the Chief Executive Officers of these companies into its policy.

Also in October, Deora visited Russia, his first since he took over the Ministry in January, to intensify energy cooperation with Russia's Industry and Energy Minister Viktor Khristenko and also participate in an international conference "Moscow Energy Dialogue." This is the fourth meeting he has had with Russian officials-one with President Vladimir Putin on the sidelines of the Shanghai Cooperation Organization (SCO) in Almaty and with Khristenko in Doha in April, and Russian Deputy Prime Minister Alexander Zhukov in New Delhi in June. All these meetings are geared towards improving energy cooperation between the two nations.

To demonstrate its interest in keeping India engaged, Russia invited India to participate for "geological prospecting, development and production of hydrocarbons in the Timan-Pechora oil fields, in East Siberia and the Far East, in West Siberia, as well in the shelf of the Barents and Okhotsk Seas." Putin also reminded Prime Minister Manmohan Singh in December 2005 that India was a "long-term partner" and expressed interest to expand the scope of bilateral relationships beyond Shakhalin-1 project.

While these off-Russia meetings were useful, it does not demonstrate India's continued interest level in the Russian market (after all his predecessor Manu Shankar Aiyar had visited Russia three times within a year) and analysts think that Deora's last trip to Russia is to stave off this impression. Yet, Russian energy officials aver that "Indians are losing out to the Chinese" as they have a "natural advantage" of a "long common border" with Russia and that "they are also far more active" than the Indians.

Admittedly, there has been a lack of focus in India on energy expansion with Russia but there are examples of continued engagement at least in power generation but purely in the commercial front. The Bharat Heavy Electricals Ltd (BHEL) tied up with Russia's Power Machines to upgrade and modernize five generating units of the Obra Thermal Power Station in Uttar Pradesh and there is promise that the tie-up could be extended to other units in the country since most of the units in the station use power equipment produced by BHEL based on the design by the Russian firm Leningrad Metal Works. Power Machines supplies its equipment to about 87 countries and Siemens has 25% stake in the company. With BHEL is expanding existing manufacturing capabilities from 6000 megawatts (MW) to 10,000 MW.

Part's of Deora's defocus on Russia are a series of domestic policy making initiatives such as setting up an oil regulator, creating a policy for piped gas in cities, protecting consumer interests, and creating coal bed methane (CBM) gas production facilities. While these are very important initiatives to secure production and consumer interests, the strategy is missing the bigger picture.

For example, Deora's pet initiative to provide piped gas cannot go anywhere when the nation does not have natural gas. India's three main gas projects are not going anywhere. The Iran-Pakistan-India gas project is going nowhere and stalled over pricing, procedural, security, and diplomatic reasons. The Myanmar-Bangladesh-India pipeline is stalled because of Bangladesh's intransigence and can be solved only with a friendlier Government in place and a long-term diplomatic pact that is also beneficial to the world's poorest nation. The Turkmenistan-Afghanistan-Pakistan-India pipeline is a non-starter over procedural and security concerns. Given these constraints, India has to rely on new technology such as Coal Bed Methane (CBM) which brings with it a host of problems. While the CBM can give India huge reserves of gas, it requires large scale depletion of water tables and pumping out of moderately highly saline water with high sodium content can destroy the fertility of soil, affect crops, and health of those eating those crops. With most coal basins situated in highly fertile Indo-Gangetic plain, the cost to benefit analysis needs better scrutiny. Given all these factors, it is not clear why Deora's Ministry is spending so much time in creating a pipeline system when the supply sources are unstable.

Therefore, by focusing on tactical issues, India's energy strategy is faltering.