ME vs WE: Geopolitics of Energy Cooperation in South Asia

After giving an overview of the energy markets in South Asia, the article identifies the impediments in the process of regional cooperation for win-win scenario and argues for a proactive approach for energy cooperation in the region.

J.P.Singh and Vinay Pannu

ME vs WE,

Updated On: 12/18/2005

ME vs WE,

Energy Economy of South Asia

Importance of energy for development and well being of the masses does not require second mention. But, the energy markets throughout the world depict an imbalanced picture in terms of demand and supply, particularly, in the context of developing countries of the South Asian Region, i.e. Bangladesh, Bhutan, India, Nepal, Pakistan, Sri Lanka and Maldives. Such imbalance is having heavy toll on the development of this region. 

The Energy Mix
The South Asian Region is home to a quarter of the world’s population. The region is currently experiencing a rapid growth in energy demand, concomitant with economic growth and industrialization. Adequate energy supply is, therefore, a major challenge facing the economies.

The fuel structure amongst the countries of the region varies significantly. The Energy Information Administration (EIA) estimates that South Asias primary energy consumption[1] increased nearly 58% between 1991 and 2000. In 2000, South Asia accounted for approximately 3.9% of world commercial energy consumption, up from 2.8% in 1991. Despite rapid growth in energy demand, however, South Asia continues to average amongst the lowest levels of per capita energy consumption in the world, but among the highest in terms of energy consumption per unit of GDP. 

Not counting non-commercial sources of energy like animal waste, wood, and other biomass, South Asias commercial energy mix in 2000 was 44% coal, 34% petroleum, 13% natural gas, 7% hydroelectricity, 1% nuclear and 0.1% ‘others’. There are significant variations within the region. Bangladesh’s energy mix, for instance, is dominated by natural gas (68% in 2000), while India relies heavily (53%) on coal. Sri Lanka is overwhelmingly dependent on petroleum (78% in 2000), while Pakistan relies on natural gas (45% in 2000), petroleum (41%), and hydroelectricity (12%); and the Maldives is 100% dependent on petroleum. The Himalayan countries of Nepal and Bhutan have high shares of hydroelectric power in their energy consumption mix. In recent years, natural gas has been growing in importance as a source of energy in South Asia, especially for use in power generation, fertilizer and petrochemical production. 

South Asia contains reserves of only 5.2 billion barrels of oil, around 0.5% of the world total. In 2000, the region consumed around 2.5 million barrels per day (bbl/d) of oil, and produced 0.80 million bbl/d, making South Asia a net oil importer of around 1.7 million bbl/d. The vast majority, around 740,000 bbl/d, of South Asias oil production comes from India, including its offshore Bombay High field, which accounts for about one-third of total Indian oil output. Most of the remainder, around 58,000 bbl/d, of regions oil production comes mainly from Pakistan. Most South Asian crude oil imports come from the Middle East, and this is likely to remain the case for years to come. South Asias oil imports are expected to grow sharply as production remains about flat while demand soars. 

Growing demand for transportation fuels and increased industrial power demand have been major factors behind the growth in South Asian oil consumption in recent years. Between 1991 and 2000, South Asian oil consumption grew by about 47%. 

Natural Gas
Natural gas usage has increased rapidly in South Asia, growing about 72% between 1991 and 2000. Natural gas is seen as playing an important part in supplying new power plants in the region, plus as a means of diversifying away from expensive oil imports. 

At the beginning of 2002, South Asias proven natural gas reserves totaled around 58.6 trillion cubic feet (Tcf), or about 1% of the world total, with potentially larger resources suspected but unproven. The region consumed and produced around 1.99 Tcf of natural gas per year in 2000. Around 43% of this was accounted for by Pakistan, 40% by India, and the remaining 17% by Bangladesh. Bhutan, the Maldives, Nepal, and Sri Lanka do not currently produce or consume any natural gas. If long-term projections of rapidly increased gas demand for South Asia are correct, the region will require either significant increases in production, imports, or most likely both. Gas imports to the region would require construction of infrastructure - either pipelines or liquefied natural gas (LNG) facilities. Without such infrastructure, natural gas supplies could be constrained, and increased reliance on other fuels could result. 

An obstacle to the expansion of natural gas usage in South Asia is the regions inadequate domestic gas infrastructure. Indian proposals to import, for instance, will require that supporting infrastructure be in place before such imports can proceed. Cross-border gas pipelines also would hinge upon the successful construction of domestic gas pipeline systems first. 

South Asia contains 86 billion short tons of coal, or around 15% of the world total. Currently, coal accounts for 44% of South Asias energy consumption. Nearly all of this is produced and consumed by India, the only South Asian country with significant coal reserves, and the worlds third largest coal producer after the United States and China. Power generation accounts for about 70% of Indias total coal consumption, followed by steel and other industries. Indias coal consumption is expected to increase to 546 million short tons (Mmst) by 2020, up 48% from 369 Mmst in 2000. 

Coal currently plays a relatively minor role in Pakistans energy mix (5% in 2000), but the discovery of large volumes of low ash, low sulfur lignite in the Tharparkar (Thar) Desert in Sindh province is expected to have a positive impact on consumption levels. Bangladesh and Sri Lanka have small coal reserves, and consume very less coal.

As is the case in many developing countries and regions, South Asia continues to rely heavily on biomass, i.e. animal waste, wood, etc. for its energy needs. As of 1995, for instance, biomass accounted for 56% of the regions final energy consumption, and 46% of its primary energy use. Also according to the IEA, around 20%-30% of South Asias biomass use is animal waste, with another 20%-30% made up of agricultural residues, and only small amounts of charcoal. Biomass generally is burned directly using traditional, low-efficiency equipment. Biomass is consumed mainly in rural areas of South Asia. The IEA has projected South Asian biomass use to be approximately flat through 2020. 

In 2000, South Asia generated 633 billion kilowatt hours (Bkwh) of electricity. Of this, around 81% was from conventional thermal power plants, 17% from hydroelectric plants, and 2% from nuclear, and less than 1% for ‘other renewables’ like wind and solar. Also in 2000, India accounted for the vast majority (86%) of regional electricity generation, followed by Pakistan (10%), Bangladesh (2%), Sri Lanka (1%), Nepal, Bhutan, and the Maldives (1% total). Regional electricity generation is expected to increase significantly in coming years. While natural gas use had been expected to increase at the expense of coals share, this is much less certain given the delays and problems in supplies of imported natural gas to India. Nuclear and hydro are expected to increase their shares, particularly hydro in case of Nepal, Bhutan and Sri Lanka, with oil maintaining an approximately constant share. Non-hydroelectric ‘renewable’ capacity, i.e. wind, solar, ocean, biomass, geothermal, is small at present, but is increasing; with wind power considered the most promising. 

Electricity demand in South Asia is currently outstripping generating capacity, except in Pakistan, and the region as a whole is characterized by chronic electricity shortages. The main reasons for this situation are- shortfalls in building new power plants; low plant load factors due to aging generators and poor maintenance of equipment at existing plants plus low-quality coal in many cases; and losses of power due to poor-quality transmission lines and theft. South Asia’s rapidly rising electricity demand has heightened the need for additional investment by independent power producers (IPPs). However, bureaucratic obstacles and underdeveloped regulatory policies guiding such investment have led to construction delays as well as to foreign investor disillusionment, and most large IPP projects in the region have been delayed or cancelled over the past years. Electricity rates are widely subsidized in South Asia, and state electricity companies are faced with the challenge of paying IPPs their asking price for power while simultaneously providing low rates for electricity to their customers, and losing a substantial percentage to theft. Meanwhile, the IMF, the World Bank and Asian Development Bank have encouraged liberalization of South Asian power sectors, including reduction of subsidies. Meeting future electricity demand promises to pose a major challenge for South Asia. 

The Impeding Factors

A review of the extensive literature on the energy scenario in South Asia indicates that regional co-operation in energy has been impeded by three factors:

1. Limited base of exportable resources

2. Relative scarcity of financial resources, and

3. Populist rhetoric and political suspicions arising from collateral issues and past wrongs

Although all these factors have strategic importance, but the last factor has become crucially important when seen in the backdrop of contemporary international geopolitics and the strategic role that South Asia has and is to play in it. 

In the Pretext of Economic Rationality

A lot has been discussed and written on the energy cooperation between the countries of this region highlighting the political gamut, which has been hindering the prospects of cooperation in this field. The literature on this topic highlights the off sight play and the factors which influence the positive political thinking but to serve the domestic constituencies. In the “pretext of economic rationality” the political parties in opposition and various other interest groups in these countries argue against co-operation. 

The economics of populism that guides the political irrationality on the part of various groups in the South Asian region is destined to be detrimental to their own political interests and aspirations in the long run. Additionally, the continuing non-cooperation having heavy negative implication on the economy of these countries may dilute the role that this region is capable to play in the international polity. 

The Way Out

Contemporarily, the geo-politics of energy in South Asia depicts a loose- loose situation but cooperation may convert it in to a win-win scenario. The logic behind it is simple. Countries with surplus reserve can export to neighbor and in return they benefit from technology transfer and foreign currency earnings. For example, India can help in exploration in Bangladesh and can give technical support to build hydro power plants in Bhutan and Nepal. In turn these countries can supply gas and power to India respectively.

The geo-politics of energy in South Asia, however, cannot be discussed in isolation to other issues that has repercussions on the political equations between the countries of this region. For example, tensions between India and Pakistan, water politics between India and Nepal, issue of Chakama immigrants plus water issues between India and Bangladesh etc.

Additionally, in the back drop of contemporary global geopolitics guided by energy interests at the one hand and regional groupings of the countries in pursuit of common economic interests (like European Union) on the other, the cooperation between South Asian countries becomes even more important.

The need of hour on part of political parties of these countries and other pressure groups is to break the vicious circle of misdirection on energy issues that is having a heavy toll on cooperation and development in the region. Need is to be proactive by envisioning the future that poses intricate challenges. A holistic framework for energy cooperation asks for multi pronged strategy by multi players revolving around diplomatic initiatives as well as creating an environment of responsiveness and cordial among the masses in these countries. This is to be two way process meaning top down as well as bottom-up approach. The initiation will come from the heads of countries as well as from the common man.

An asking for proactive stand by political parties and pressure groups may sound preaching propaganda, but authors want to put it as a prologue to the warning that, in case, the cooperation in South Asia, in general, and energy cooperation in the region in particular was not happens, the repercussions destined to be serious. Not only the economies and societies of the region will suffer, the political groups responsible for the disaster will be mercilessly thrown out from the public domain by the public itself. 

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