Commodities, Emerging Markets, Energy, Frontier Markets

Russia, India Inch Closer To $40 Billion Gas Pipeline

Moscow and New Delhi are discussing preparations for the construction of a pipeline to deliver Russian natural gas to India to help the South Asian nation meet is growing energy needs and avoid an energy crisis. read more here

Russia-India-Pipeline

Russian Energy Minister Alexander Novak said on Wednesday that he discussed the construction of the gas pipeline with India’s minister of oil and energy and that a working group had been set up and preparations were underway.

Russia sees a huge potential for pipeline gas supplies to India, Novak said during an interview with RT TV channel on Thursday.

“The potential is huge because as of today India consumes a relatively small volume of gas and a large part of the population needs modern energy consumption services. I think, in terms of energy resources consumption India will be growing faster than any other country. That is why the potential is huge there both in terms of natural gas supplies and liquefied natural gas supplies,” Novak told RT.

The pipeline between Russia and India has been said to cost around $40 billion and is likely to run through China’s restive Xinjiang province, however there has been talk of a route possibly through Afghanistan and Pakistan or Kazakhstan and Uzbekistan.

The idea for the pipeline, however, is nothing new as it has been on the drawing board for over a decade, although the groundwork was not laid until October 2013 during Indian Prime Minister Manmohan Singh’s visit to Moscow for the 14th India-Russia Annual Summit. Singh and Russian President Vladimir Putin announced during the summit that the two countries had agreed to establish a joint group to study the direct ground transportation of hydrocarbons.

“The project is economically beneficial to both India and the Russian Federation. Moreover, it will benefit Afghanistan and Pakistan, and when economic prosperity is on the table, differences tend to be forgotten,” M.K. Nair, Vice President of India’s Oil and Natural Gas Corporation (ONGC), told Russia’s TASS news agency during an interview last year.

Russia to India“There aren’t too many viable options for running an oil pipeline to India. The route through China is mountainous. If it goes through the Himalayas, it will turn into a diamond pipe. The route through Iran is more circuitous. If oil is shipped by tanker through the Black Sea, it will still be several times further. India’s proposed alternative route from Russia through Afghanistan and Pakistan is the shortest,” Sergei Pikin, director of the Energy Development Fund, told the newspaper Vzglyad last year.

The idea for the pipeline has also received political support from China. China’s Center for Strategic Studies in Energy Director Xia Yishan has said that “the project is beneficial for both India and China, as it would allow China to become an oil transit in addition to its ‘status’ of recipient of the Russian oil.”

Russian President Vladimir Putin (left) with Indian PM Narendra Modi (fight) on December 11, 2014 in India - Photo courtesy of The Russian Presidential Press and Information Office.

Russian President Vladimir Putin (left) with Indian PM Narendra Modi (fight) on December 11, 2014 in India – Photo courtesy of The Russian Presidential Press and Information Office.

Ties between India and Russia have been on the rise, notably in December of last year, Russian President Vladimir Putin made a trip to India where 20 high-profile deals worth $100 billion were signed with Indian Prime Minister Narendra Modi in the span of under 24 hours.

The Central Bank of Russia and The Central Bank of India have also been moving closer to an agreement to use their national currencies for trade settlements.

India has also proposed creating a free trade zone with the Eurasian Economic Union (EEU).

Russia is no stranger to major energy projects. In May 2014, China and Russia signed a massive $400 billion gas supply deal in which Russia will annually deliver 38 billion cubic meters of gas to China, the biggest contract in the history of Russia’s gas sector.

Russia China PipelineSealing a deal for the pipeline between Russia and India will help strengthen India’s intention to become a member of the Shanghai Cooperation Organization (SCO), from its current status as observer, and join member states China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

Substantial impediments will challenge the construction of the pipeline as up to 35 percent of its route through China runs through mountainous terrain of the Himalayas. Experts have widely cautioned against the feasibility of such a project.

Politics will also play a big role in the project as a route to India through China would become subject to the two states’ complex relationship, which has been fraught with border disputes and mutual suspicion, however evolving relations may yet hasten the pipeline’s development.

China India BorderDmitry Abzalov, a leading expert at the Russian Centre for Current Politics, has cautioned that “if a significant portion of the pipeline passes through the Middle Kingdom, there is a risk that it could be used to exert pressure on India.”

The pipeline from a security standpoint also carries a great deal of risks. Although China has a tight control over insurgency in its restive province, there is no guarantee that the disgruntled elements would not target and sabotage the pipeline.

Constructing the pipeline through China will be unavoidable, if India wants to avoid the terrorism risks in Afghanistan and Pakistan as guarding every foot of the pipeline would be impossible.

India CoalThe potential pipeline will help to meet India’s energy challenges and growing needs as the country tries to shift away from its heavy dependence on coal, which accounts for 60 percent of its energy.

Indeed, the administration of Narendra Modi will face challenges in addressing a number of problems in its aging power sector as the current infrastructure isn’t capable of providing sufficient or reliable supply.

Nearly 400 million people in India have zero access to electricity and a much larger proportion of the population is still affected by discontinuous power supply.

More from the Times of India:

Old may be gold, but certainly not in the case of Uttar Pradesh’s power sector. Half of the total power generation in India’s most populous state is done by power plants which have outlived their normal life and are, in fact, on crutches of government support. These power plants repeatedly develop snags and trip, forcing the state government to purchase power from outside sources at higher cost.

In an emergency note sent to the state government, state-owned UP Vidyut Utpadan Nigam (UPRVUNLL) has said that out of the total installed capacity of around 4900 Mw in the state sector, more than 2500 Mw is being generated by power plants which have exhausted their lifespan. This is almost 51% of the total installed capacity. The startling revelation crucially casts a dark shadow on power availability in the state at the time of peaking demand for power in the wake of high daytime temperatures.

The average life span of a power plant is around 25 years. But in UP, some of the power plants, like a 100Mw unit at Obra, are as old as 47 years old.

The Indian government set forth an ambitious plan to try to provide uninterrupted 24-hour electricity to every household by 2022, which will mark India’s 75th year of Independence.

According to an annual report published by India’s oil ministry, natural gas output is forecasted to increase by about 60 percent by 2019, however this will not nearly be enough to meet its growing domestic demand, in fact this will only be sufficient to cover less than 30 percent of the local gas demand by that time.

As the idea of the gas pipeline between the two nations has sat on the backburner collecting dust for over a decade, the real question is: how much more time will India allow to pass before it faces a full-blown energy crisis?

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