by Arunabha Ghosh
In 1911, Winston Churchill, then first lord of the Admiralty, made the decision to change the Royal Navy’s primary fuel from coal (which was mined locally in Wales) to oil imported from Persia. Thus began the period of great powers seeking energy sources from overseas and, by extension, energy security.
A century later, China and India are leading the growth in new demand for oil and gas, and other energy and non-fuel mineral resources. In 2009, China became the world’s largest energy consumer. In the first decade of the 2000s, the share of these two countries in global fossil fuel trade more than doubled in value terms (to 10.8 per cent) and tripled in weight terms (to 14.3 per cent).
Recognising these shifts, President Xi Jinping has called for China to “revolutionise energy production and consumption”. He wants China to use the Silk Road Economic Belt and the 21st century Maritime Silk Road to expand oil and gas cooperation in Central Asia, West Asia, the Americas and Africa. Backing up this vision are China’s state-owned oil companies, financial institutions and expanding military capabilities.
Meanwhile, India has to ask whether its commercial, diplomatic and military weight are in tune with its energy needs in the coming decades. Between now and 2030, Indian energy demand is projected to increase more quickly than any other G20 country. Prime Minister Narendra Modi, in Canada last week, also called for an energy revolution. In 10 of his 15 foreign trips, energy-related diplomatic and commercial outcomes have featured.
So far, much focus has been on nuclear power, hydropower and renewable energy. Key nuclear breakthroughs included understanding on liability with the United States; a civil nuclear agreement with Australia; calls in France for expediting the Jaitapur plant and manufacture of nuclear plant components in India; deal with Canada to purchase uranium; and Russia agreeing to build 10 more reactors.
On hydropower, India and Bhutan agreed to jointly achieve a target of 10 Gw (Mr Modi laid the foundation stone for the 600-Mw project in Kholongchu). In two visits to Nepal, agreements were signed for the Upper Karnali and the 900-Mw Arun III hydropower projects. India also started supplying an additional 70 Mw to Nepal on the government’s request.
Renewables and sustainable development have also attracted attention. The Japanese are to conduct feasibility studies for a 10-Mw canal-top solar photovoltaic plant in Gujarat. The United States will partner India in developing smart cities in Ajmer, Visakhapatnam and Allahabad, in addition to strengthening the Partnership to Advance Clean Energy, launching a Clean Energy Finance Forum, and supporting off-grid clean energy. Germany committed to support India’s aggressive target of 175 Mw of renewable energy by 2022, particularly for solar rooftop and green energy corridor projects.
Building on this vigorous energy diplomacy, oil, gas and coal will also need attention. Daily oil imports will triple for India by 2035. During Russia President Vladimir Putin’s visit, India signed agreements on long-term oil and gas cooperation, including liquefied natural gas (LNG) supplies and studying the viability of a pipeline connecting Russia and India. ONGC Videsh and PetroVietnam signed agreements for new projects, notwithstanding tensions in the South China Sea.
However, India will need to build its institutional capacity to deal with the complexities of greater integration into international energy markets. First, India is exposed to both supply risks (war, strikes, or political upheavals in oil exporters and deliberate blockades) and market risks (price volatility). Secondly, while its investments in equity oil have so far had limited impact in reducing exposure, India has been slow to engage in regimes designed to manage resource dependencies, remaining outside all major multilateral and plurilateral energy regimes. It will need allies in these forums, including the G20, where an Indian presidency could shape international cooperation on energy security. Thirdly, India’s resource needs and environmental challenges will interact with greater complexity. Hydroelectricity is affected during times of drought; oil (a major source of agricultural energy) has an impact on food inflation; and climate change will multiply risks, making energy infrastructure vulnerable to extreme weather events.
Fourthly, the intersection between maritime and energy security is a potentially serious source of friction. Ninety-five percent of India’s trade by volume depends on maritime routes. India’s broader region encompasses three of the most important choke points for world oil flows: the Straits of Malacca, Hormuz and Bab el-Mandeb (between Yemen and Somalia). But India or China cannot protect sea lanes unilaterally (oil transit volumes through the Strait of Malacca alone will rise to 45 per cent of global trade in 2035).
The National Security Council Secretariat is the natural forum to analyse and develop responses to these complexities. But it must draw officials of all responsible ministries as well as external actors (former diplomats, academics, think tanks) to build a cadre of more strategically focused officers.
Responding to critics, Churchill reassured Parliament that Britain should be dependent on “no one country, no one route and no one field”, arguing in July 1913, “safety and certainty in oil lie in variety and variety alone”. India’s energy diplomacy is certainly demonstrating a quest for variety, both in energy sources and the countries from which to secure them. But if it does not wish to muddle through a complex brave new world of energy, its institutional apparatus has some way to go before it can move beyond high-visibility bilateral transactions to long-term efforts to build up resilience in India’s overseas energy engagements.
This article was first published by Business Standard Limited on 21 April 2015 and is a part of Dr Arunabha Ghosh’s monthly column ‘Inflection Points’. You can also read the article here: http://www.business-standard.com/article/opinion/arunabha-ghosh-build-capacity-for-energy-diplomacy-115042001189_1.html