The Risk of Gas Pipelines

Energy security is not something that a country that is not energy independent can ever completely achieve.

India has to import energy — whether it is oil, or natural gas, or even nuclear fuel — and therefore it can never in the conceivable future be anything but be at the mercy of suppliers. Which necessarily means that India has to think really hard about how to mitigate the risks of disruption of its energy supplies from abroad.

Giving its sworn enemy — Pakistan — even a small lever to tighten the screws on India is not a very smart idea. Even without real screws to turn, the terrorist state of Pakistan does cause much havoc in India fairly routinely. I wrote about the brain-deadness of the idea of the Iran-Pakistan-India gas pipeline nearly four years ago in April 2005. The post, The Iran-India Pipe-bomb, ended with

“Listen up, kuffars,” the Pakistanis would reply, “and listen up real good. If you don’t toe the line as we say, some terrorists will blow the effing pipe up. We will disclaim all responsibility, of course. The US – you know, our big-daddy who calls us the “frontline state against terrorism” – will realize how important a job we are doing against terrorism and will immediately announce the gift of a few dozen F-18s and military aid amounting to $2 billion. I hope you are getting the picture, you silly sons of bitches.”

Well, admittedly a crude rendition of what perhaps happens in diplomatic meetings but I think it is essentially what will happen if India is stupid enough to build a pipeline to deliver it essential energy through a state that has repeatedly demonstrated that it is willing to be a suicide bomber. A few years ago, they were on the verge of lobbing a few nukes at India. Were they concerned that they would be vaporised as well? Not really. After all, if they get nuked in retaliation, they will go straight to heaven but they would have destroyed the kuffar state in the end.

In June of 2005, The Acorn wrote an open letter to India’s petroleum minister and said:

. . . your enthusiasm for pipeline projects that traverse Pakistan before reaching India is ill-advised both on economic and strategic grounds. While ushering in peace with Pakistan is a desirable goal, it is important not to allow the atmospherics of the current peace-process to become a crucial determinant of India’s long-term investments in energy. Let me outline an alternative approach that will achieve your energy security objectives, without necessarily having to put India’s hydrocarbon jugular in Pakistan’s unreliable hands.

. . .

I invite you to consider building a state-of-the-art port with an integrated oil & gas processing terminal along India’s west coast, which is connected to major Indian cities with modern highways and/or domestic pipelines. Such a port will allow India to import oil & gas not only from Iran, but also from any other exporting country. The technology to carry oil & compressed gas on ships is mature, and if Indian ports are able to efficiently handle the seaborne traffic, such a project will provide all the capabilities of the overland pipeline, and more.

The Iran-Pakistan-India pipeline restricts India to a monopoly supplier and a monopoly transit provider. This is not a very good scenario for any purchaser. My proposal, on the other hand, takes a free market approach. India will be able to purchase oil & gas from competitive international markets, from multiple vendors and through multiple shipping lines. No single supplier or government will be able to squeeze India commercially. The Indian navy can be relied upon to take care of those who try rougher methods of persuasion.

I bring up all this ancient history because of Rajeev Srinivasan’s article of 8th Feb 2009 in liveMINT where he cautions, “Before we invest in overseas gas pipelines, we should look at how Russia has held Europe to ransom.”

Yes, he too proposes the same alternative strategy that The Acorn had advocated so passionately years ago:

. . . India should consider new technologies. LNG terminals and refrigerated LNG tankers, for example, do not depend on geography. LNG terminals can accept LNG ships from anywhere. In other words, switching costs are minimized, and there is no threat of disruption by a transit nation. The cost of every stage in the LNG value chain has dropped so much in the last decade that its end-user price is now comparable with that of gas piped overland.

Nations can wield tremendous power by leveraging their natural resources. India, looking to make itself energy independent, would do well to imbibe these lessons. Otherwise, ironically, it will become even more of a hostage to others’ whims.

Perhaps Rajeev read The Acorn or perhaps he independently arrived at the same rational strategy. But is there anybody out there in the Indian government paying attention to the wisdom of The Acorn or of Mr Srinivasan?

Categories: Random Draws

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