Asia's quest for energy security

The Asian Resurgence depends on energy cooperation in Asia. The 21st century will indeed be the Asian century only if Asian countries join hands in a continent-wide bid at bringing Asia together and keeping Asia together.

THE overarching aim of state policy in both India and China is the eradication of poverty. This requires attaining high rates of growth - and then sustaining these high rates over at least two decades. Higher rates of growth, however, necessitate high levels of energy consumption. Thus energy security becomes the key to poverty eradication.

Countries are unevenly endowed with energy sources. When China launched itself on the high trajectory of growth in the early 1980s, it was virtually self-sufficient in its energy requirements. But by the mid-1990s, the very fact of sustained high growth rates made it more and more imperative that sources of energy supply be found everywhere around the globe to ensure the uninterrupted supply of the energy required to sustain growth.

Equally, in India, where energy was once one of many requirements in short supply, increasingly it is being recognised that shortage of energy can disrupt our entire development effort. Hence the high priority being given, in both the domestic and the external dimension, to ensuring the country's energy security.

The parameters of energy security in India can be readily set out. We are already importing over 75 per cent of our crude oil needs. Even if we raise our domestic output by half - from nearly 35 million tonnes per annum at present to, say, 50 million tonnes - over the next two decades, owing to our high growth rates our import dependence will only rise to 85 per cent and beyond. As for natural gas, which is increasingly substituting for crude oil in many applications, we are short by 50 per cent of our current requirements. Even a doubling of current levels of domestic gas output by 2025 will leave us with the same level of relative deficit - 50 per cent or, perhaps, even more.

The specific figures for China may be less daunting, but the parameters of the problem remain more or less the same. China's energy security too calls for supplementing the domestic effort with engaging the globe.

It is, therefore, hardly surprising that almost everywhere in the world that an Indian goes in quest of energy, chances are that he will run into a Chinese engaged in the same hunt. The Chinese hunter has been rather more successful than the Indian on several occasions in the recent past. But the fact is that aggressive bidding by either party only pushes up the price of the asset to the advantage of the seller and the disadvantage of both bidders. In the end, whether the winner is China or India, the buyer ends up paying more - and sometimes substantially more - than might have been the case if bidding against each other had been replaced, or at least moderated, by prior consultation.

It is in search of such mutual cooperation to the mutual benefit of our two countries that I have come to Beijing. My visit has been carefully prepared. The outcome has, therefore, been gratifying. For I have encountered here a ready willingness at the Ministerial and the company level to engage China and India in a strategic and cooperative quest for energy security. For our part, we look upon China not as a strategic competitor but as a strategic partner. We both believe that the Memorandum of Understanding (MoU) entered into by Chairman Ma Kai and myself on January 12 lays a historic foundation for the all-round development of energy cooperation among our two great countries.

Our cooperation in energy is based on equal cooperation, mutual benefit, mutual respect and enhanced understanding. If those principles sound familiar, it is because they are. They were embodied in the Five Principles of Peaceful Co-existence - the Panchsheel - adumbrated by Premier Jawaharlal Nehru and Premier Zhou Enlai half a century ago.

Initially, the Panchsheel was conceived as a guide to bilateral relations between India and China but it was soon recognised that they had an application that included but went well beyond just India and China. Thus within two months of the original evocation of these fundamental principles, the Prime Ministers of India and China, in a joint statement issued in New Delhi on June 28, 1954 - I quote now from their Joint Statement" - reaffirmed these principles and felt that they should be applied in their relations with other countries in Asia as well".

It is this perception which persuades me to share with you my thoughts on applying the principles of the Panchsheel to India and China in Asia's Quest for Energy Security.

For the problem of energy security is by no means peculiar to the Asia giants, India and China. Many of the smaller countries of Asia - ranging from Turkey to Pakistan, Sri Lanka, and Nepal, and on to Thailand, Laos and Cambodia, and extending north-east to Japan and the Koreas - share with India and China, as net Asian importers, the need to ensure the security, stability and sustainability of oil and gas supplies. If that security is not assured, they too are in danger of faltering in their heroic endeavours to spring the trap of poverty and lead their peoples to the sunlit uplands of prosperity and social justice.

At the same time, it needs to be recognised that many Asian countries are major exporters of energy. Indeed, Asia is the fount of oil and gas in the 21st century. In North Asia, the Russian Federation's decision to operationalise its hydrocarbon resources in eastern Siberia and transport oil and gas by pipeline to the Pacific opens up a vast new source of energy for Russia's Asian neighbours and partners. We ourselves are 20 per cent investors in Sakhalin-I and are carrying a like amount for Rosneft. Commercial gas production began in October last year and commercial oil production is slated to begin in April this year.

From Kazakhstan, the West-East pipeline brings succour to China. Stretching west from the Caspian, the bounties of the Caspian Sea will soon be available at the Ceyhan terminal in Turkey. It takes only a little imagination to see that the extension of the BTC [Baku-Tbilisi-Ceyhan] pipeline to the Gulf of Aqaba will make available Caspian crude in unprecedented quantities to buyers in the Indian Ocean and Pacific Ocean littoral.

Qatar is emerging as the world's most exciting prospect for LNG [Liquefied Natural Gas] in the near term. Iran is bountifully endowed in the medium term. We are pushing forward with the proposed Iran-Pakistan-India pipeline. Also well-endowed with natural gas are Saudi Arabia and a host of other GCC [Gulf Cooperation Council] countries. Turkmenistan holds the promise of gas for South Asia if pipelines can be laid through Afghanistan into Pakistan and India. Substantial augmentation of supplies would be possible if feeder pipelines were laid to Turkmenistan's Daulatabad gas field from supply sources in the neighbouring states of Uzbekistan, Kazakhstan, Russia and Azerbaijan.

And as for South-East Asia, even as the region houses many net importers, so does it house very significant suppliers such as Myanmar, Malaysia, Indonesia, Papua New Guinea and Vietnam. Somewhat more distant but still within the Asia-Pacific region are the exciting prospects opening up in Australia, New Zealand and even some of the island-states of the South Pacific.

Thus the energy-short countries of Asia are located cheek-by-jowl in the immediate vicinity of their energy-abundant Asian cousins. Yet, if you compare a pipeline map of Europe with a pipeline map of Asia, Asia today looks almost naked. Why should this be so? Can we not bring together the energy-surplus and energy-deficit countries of Asia on to a common platform of Asian energy security?

We made a modest beginning in this direction last year. Just over a year ago, we gathered together in New Delhi at a Round Table interaction of ministerial representatives of the principal Asian consuming countries - China, Japan, the Republic of Korea and India - with the principal West and South-East Asian oil and gas exporting countries - Saudi Arabia, Iran, Qatar, Oman, UAE, Kuwait, Malaysia and Indonesia. You will note that all the exporters invited were OPEC [Organisation of Petroleum Exporting Countries] members.

We posed the question as to whether the way forward lay in confrontation or cooperation. The opinion was unanimous that even as net importers are preoccupied with the security, stability and sustainability of energy supplies, equally the net exporters are preoccupied with the security, stability and sustainability of energy demand. Therefore, we could secure Energy Security for All by promoting mutual interdependence in trade and investment in the oil and gas sector to ensure stability, security and sustainability in the Asian oil and gas economy. (Incidentally, such mutual interdependence in trade, technology and investment is precisely what the dozen or more Memoranda of Understanding already negotiated or being negotiated between our oil sector companies and Chinese oil sector companies, against the background of our government-to-government Memorandum of Understanding between Chairman Ma Kai and myself, are designed to achieve).

Moreover, it was decided at the New Delhi Round Table last January to reinforce the dialogue with a series of studies and to carry forward the Round Table dialogue into the future. The next informal interaction of the participants will be on the sidelines of the April 2006 Ministerial meeting of the International Energy Forum in Doha, followed later in the year or early next year by the formal convening of the second Round Table by our next host, Saudi Arabia with co-host Japan.

In all these endeavours, China has played a most constructive role. I would like to quote from the address of the Head of the Chinese delegation, who said:

"Asia, especially the Middle East, is the world's major oil producing area. Meanwhile, Asia is also one of the regions with the most rapid growth of oil consumption in the world. Asian countries have many commonly concerned issues in the oil sector and there is great potential for cooperation. I believe that it is of great importance to strengthen mutual investment in the oil sector among Asian countries, in terms of increasing oil supply capacity and safeguarding regional oil security."

Ladies and gentlemen, a minute ago I emphasised that all the Asian producers invited to the January Round Table were OPEC members. But let us also note that the bulk of non-OPEC oil supplies also comes from Asia and that the biggest potential for augmenting global oil supplies lies with these non-OPEC suppliers. Geographically speaking, while Asian OPEC members are to be found in West and South-East Asia, non-OPEC Asian oil producers are to be found in North and Central Asia.

We, therefore, felt the need to supplement our January Round Table with another Round Table convened in New Delhi in November 2005 to which we invited the principal North and Central Asian suppliers - the Russian Federation (who played co-host with India), Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan. The principal Asian consumers were the same - India, China, Japan, and the Republic of Korea, with the addition of Turkey. They broadly endorsed the approach to stability, security and sustainability through mutual interdependence in the Asian oil and gas economy adopted at the January Round Table and reviewed with great interest an absorbing presentation by a renowned international consultant on the Asian Gas Grid, which is also known as the Energy Silk Route or the Pan-Asian Global Energy Bridge. The Head of the Chinese delegation to the November Round Table stated - and I quote:

"Countries in Asia, where the most rapid economic development in the world is taking place, face common challenges on energy and share common interests as well... Following the principle of `equality and mutual benefit, win-win enterprise operation, government coordination, vast cooperation, diversified development, sincere treatment and enhanced communication', Chinese government is willing to strengthen dialogue, cooperation and exchange with other countries."

We thus find that China and India have a shared approach to Asian cooperation in the oil and gas sector, in keeping with President Hu Jintao's statement on the occasion of the Fiftieth anniversary of the declaration of Panchsheel, the Five Principles of Peaceful Co-existence, when he said:

"Jointly developing and deepening the long-term partnership between China and India on the Five Principles conforms to the fundamental interest of the two peoples and will continuously contribute to peace, development and stability in Asia and the world."

On the same occasion, Premier Wen Jiabao stated - and I quote:

"The Five Principles of Peaceful Co-existence have withstood the test of time. They have made a monumental contribution to the maintenance of peace and stability in Asia and the world over and the sound development of international relations."

A number of Chinese scholars have also expressed the view that energy security in Asia requires pan-Asian cooperation. For example, Shi Yaodong of the Development Research Centre of the State Council of the People's Republic of China has written - and I quote:

"Asian countries are not only facing a booming energy demand and market size in coming years, but continuing uncertainty of energy security and high oil price as well. Integration and cooperation, both in the field of economy and energy, are the right way to meet and deal with the challenges... it is urgent for Asian countries to establish an effective mechanism to lead collective action as soon as possible."

Pointing out that "Asia as a whole is a giant buyer in the world energy market but not a strong one", Shi Yaodong argues that:

"We are short of an effective collaborative mechanism to search for the common interests to secure stable and successive energy supply, to obtain lower price through strong bargains."

He, therefore, suggests that:

"Asian countries should speed up establishing the Asian Energy Community."

This recommendation virtually echoes Prime Minister Dr. Manmohan Singh's call for:

"The eventual creation of an Asian Economic Community or the `arc of prosperity' that I envisage to become a reality in the early part of the 21st century".

I believe there is an important lesson of history to be learned in this context. We can either behave like the Europe of the 19th century which played Kipling's Great Game between Empires to secure exclusive access to raw materials and markets that would deny access to rivals - that is what led, at bottom, to the terrible slaughter of the two World Wars - or we in Asia at the commencement of the 21st century could consider instead the example of the European Coal and Steel Community which has eventually resulted in the European Union of today emerging as one of the strongest economic entities in the world. Is it not possible that the establishment of an Asian Oil and Gas Community could progressively result in the realisation of the Indian Prime Minister's dream of an Asian Economic Community in the early part of the 21st century?

As a first step, the policy recommendation made by the Development Research Centre of the State Council of the People's Republic of China holds interesting promise. I quote from their Background Paper on Energy Security for China where they say at page 21:

"The creation of an Asian counterpart to the International Energy Agency through cooperation between China, India, Japan and South Korea along with other states could have an important role in coordinating the long-run energy import policies of these countries."

India stands ready to participate in such an Asian counterpart to the International Energy Agency - but only in the cooperative spirit of the Five Principles of Peaceful Co-existence. We believe China would be of the same view.

We note that the Background Paper goes on to say:

"India has been trying to initiate an energy dialogue among major Asian energy importers, particularly China, along with energy exporters, particularly Saudi Arabia, for this purpose."

While thanking the Development Research Centre for their supportive reference to our efforts, may I assure our Chinese hosts that what the January and November Round Tables have proposed is a kind of Asian counterpart to the International Energy Association, but a forum based on the Five Principles of Peaceful Co-existence rather than attempting to divide Asia between buyers and sellers.

Of course, there is need for major net energy importers like India, China, Japan and the Republic of Korea to get together from time to time to discuss their common issues. But the aim is not, and should not be, to pit an OPIC - an Organisation of Petroleum Importing Countries - against OPEC - the Organisation of Petroleum Exporting Countries. For the interest of all lies not in barren rivalry but in cooperative approaches that recognise the legitimate requirements of the other and provide for the reconciliation of differences. It is not by dividing Asia between buyers and sellers but by bringing buyers and sellers together on a common platform that the way ahead lies. For, as Prime Minister Rajiv Gandhi said here in Beijing on December 19, 1988:

"We believe, as you do, that the Five Principles of Peaceful Co-existence provide the best way to handle relations between nations. Bloc politics and spheres of influence lead only to conflict."

China has an excellent record of regional cooperation in Asia. So does India. Together, we can set the agenda for Asian energy cooperation. That is how the Asian Quest for Energy Security could lead to Asia regaining its traditional place - a place it has held for thousands of years of recorded history and lost only in the last two hundred years or so - in the vanguard of the advancement of human civilization. The Asian Renaissance brought us all to independence and liberation. Now, the Asian Resurgence depends on energy cooperation in Asia. The 21st century will indeed be the Asian century only if Asian countries - buyers or sellers - join hands together in a continent-wide bid at bringing Asia together and keeping Asia together. I am confident that we will.