It Won’t Be Easy for India to Log in to Central Asia’s Energy Story

Any new investor in the region must have deep pockets, the confidence to deal with dodgy political, legal and tax regimes and a sense of desperation to access the energy whatever the costs. As of today, only China fits the bill.

Prime Minister Narendra Modi’s visit to the Central Asian Republics has evoked much interest in India. Civilisational links and cultural commonalities apart, the prospect of a seat for India at the Shanghai Cooperation Organisation high table does warrants excitement. After all, being at the high table is protection against ending up on the menu.

Jokes apart, what seems to fire up the public imagination in energy-starved India are the possible energy ties that might emerge from this visit.

Next to the Middle East-Persian Gulf, the Central Asian Republics, virtually in India’s backyard as distances go, hold out alluring possibilities of satisfying India’s growing quest for energy. Even more importantly, this region could play a vital role in enabling India to diversify its hydrocarbon supply sources, so essential for energy security in our times.

All the five Central Asian Republics have their respective strengths. Kazakhstan, the ninth-ranking oil power in the world, is home to some 30 billion barrels of proven crude reserves, much of it yet to be tapped. It also has sizeable gas reserves. Turkmenistan is the world’s fourth largest gas giant, home to the Galkynysh gas field containing 26 trillion cubic meters of the fuel. Uzbekistan too has substantial gas deposits of its own apart from being a valuable transit territory. Tajikistan, sitting astride the Amu and Syr Darya basins, is Asia’s water giant. The country’s untapped rivers can generate more than 500 terawatt hours of electricity every year, enough to meet the entire electricity needs of all the five CARs as well as Pakistan, Afghanistan and even India, to a large extent – all this, without burning a single barrel of oil or cubic foot of gas. Kyrgyzstan has similar, if somewhat lower hydel potential. It is therefore natural that our expectations from the prime ministerial visit focus on energy relationships which will enable India to partake of the bounty in our backyard.

Tough geography, tougher geopolitics

Yet, when it comes to monetising Central Asia’s sizeable energy potential, what geology giveth, geography taketh away. Landlocked, in some cases, doubly so, and guarded by forbidding mountain ranges and impenetrable deserts, ferrying Central Asian Republics’ abundant energy resources to markets has been, for centuries, a formidable challenge. All world powers – the UK, Russia, China and in recent times, the United States, have invested much time, resources and effort in grappling with this challenge, to limited success.

In recent times, technology has come to the rescue, holding out the tantalising promise of pumping Kazakh oil and Turkmen gas through pipelines as far afield as Berlin, Beijing or Bombay. After all, we live in an era where the Blue Stream and Nordstream pipelines dredge the depths of the Black and Baltic Seas respectively, to bring Russian gas to Europe; where the Baku-Tbilisi-Ceyhan and the Baku-Tbilisi-Erzurum pipelines wind through a political maze dodging both Iran and Russia to flow Caspian oil and gas to the Mediterranean; where some of the planet’s longest oil and gas pipelines ferry Kazakh oil and Turkmen gas all the way to the Atlantic coast and the Pearl River Delta, traveling nearly 10,000 kilometres – almost a third of the circumference of our planet.

All this has inspired us in India to think of ways of sinking our teeth into this pie before it is swallowed up by China, Russia and the other powers that have already tasted it.

We are hoping that the Turkmenistan-Afghanistan-Pakistan-India pipeline would miraculously snake its way through war-torn Afghanistan and a restive and politically intractable Balochistan to bring us that much-needed gas so we can crank up our stranded turbines. We believe we can coax Caspian oil to flow into our refineries in Gujarat and Central Asian gas into our domestic pipeline networks on the west coast through undersea pipelines from Chabahar, Iran or in the form of liquefied natural gas. For many years, we have been talking of high voltage direct current (HVDC) lines from Tajikistan and Kyrgyzstan which would light up our homes and run our industries in northern India. We are looking at an inclusive Eurasian region shrunk by technology, one in which Iran, Russia and the Central Asian Republics join hands to form an energy ring around South Asia.

But in today’s world, the obstacles to bringing Central Asian energy to India have less to do with geography than geopolitics. We would like to believe that the republics, free from Russia’s political yoke for a quarter of a century now, would be anxious to extend their freedom to the economic domain as well; that the beleaguered Central Asian Republics would be anxious to diversify their markets and right the tilt in the balance.

Perhaps they would be, had it been that easy to achieve. Burdened by history and trapped by geography, the Central Asian Republics have very little freedom to manoeuvre. Historically, all the oil and gas pipelines emanating from the republics travelled north into Russia, whence the fuel flowed to Europe on Russian terms. This arrangement still persists and provides the major outlets for energy flows from the region. At best, all that the ‘stans’ can do is to bargain for better terms with their erstwhile ruler. The other factor favouring northward orientation of the republics is the shared ethnicity with Russia, one that receives much less appreciation than it deserves. Especially the Kazakhs see themselves as Eurasians rather than Asians and gravitate naturally towards Russia.

Needed, a strong stomach

What does it take to make an ingress into this cosy relationship cemented by history and fostered by ethnicity? The Central Asian Republics desperately need investments to monetise their full energy potential. Russia is no longer in a position to make these investments. Any potential investor in Central Asia has to reckon with their still evolving political and legal systems and their tax and contract regimes which are yet to stabilise. In short, any new investor in the republics must have the following attributes: deep pockets, supreme confidence in one’s own ability to deal with dodgy political, legal and tax regimes and a sense of desperation to access the energy whatever the costs.

Only China seems to fit the bill on all these counts. China has time and again paid little heed to the enormous costs involved in building incredibly long pipelines through difficult terrain to link Central Asian oil and gas to its eastern seaboard. Not only has China invested and constructed pipelines from Kazakhstan and Turkmenistan to Xinjiang, where demand is limited, it has embarked upon a five-phase trans-China connectivity project to its eastern seaboard. Two phases are already functional and the other three are under construction. The level of investments required for such a venture would have scared off any commercially prudent competitor seeking to lead the gas flows in any other direction. Chinese companies do not deem it irrational to buy gas dear, transport it thousands of miles and sell cheap in their domestic markets. Chinese national oil companies willingly go along with these schemes even as their political leadership deals with geopolitical maze to clear the way. In short, China is a risk taker par excellence. Finally, unlike India, China has the locational advantage of not having to transit through unstable Afghanistan or hostile Pakistan.

Can India match China in this regard? Will our national pipeline companies invest their own resources and build gas pipelines and electricity grids without waiting to spread the risks among a consortium of investors? Does democratic, if fractious India have the stomach to navigate the geopolitical maze and overcome our locational disadvantages to bring pipelines and electric grids to our borders and ensure their continued security? Will our domestic consumers be willing to pay the costs involved in these risky enterprises?

Even the United States, with its keen interest in the region, does not seem to support the construction of a BTC-type pipeline to bring Turkmen gas to South Asia, leaving the ADB to figure a way out of this complex labyrinth. CASA-1000, part of the US-sponsored ‘New Silk Road’ and a brainchild of Hillary Clinton, proposes to tap the electricity potential of Tajikistan to the benefit of South Asia but its fruition hinges on the active financial and physical commitment of the participating countries along the way. It is unlikely to see light of the day.

India’s options

This is not to say that India will have no energy opportunities in Central Asia. Investing in Central Asian oil and gas fields as part of an international consortium is one way of being part of the Central Asian growth story, even if these fields end up supplying China. After all, in Myanmar’s Shwe A1, Indian national oil companies have a stake in the gas field as well as the pipeline carrying the gas to Yunnan in China. Being equity partners in Central Asia will enable India to enter into swap arrangements elsewhere in the world, in regions which are much less explosive, geopolitically. Indian oil companies with their unmatched expertise in setting up refineries can help the Central Asian Republics establish refineries to add value to their crude before it is exported. India can also consider setting up fertilizer plants in Central Asia, whose output can be exported to our shores without having to build complex pipelines. After all, nearly a third of all gas consumed in India goes to make fertilisers.

India’s strategies in Central Asia should leverage the country’s strengths and find innovative ways to log in to the region’s growth story.

Sudha Mahalingam is an Independent energy analyst and former energy regulator