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28 May 2014

PRADHAN, DOVAL MUST VISIT CHINA

Wednesday, 28 May 2014 | Rohit Bansal |
I wasn’t just surprised when the epic $400-billion deal among Russia and China last week went relatively unnoticed among our strategic community. I felt frustrated and worried.

Well, here’s the ‘why’ for those who just landed from the moon:

As Bank of America Merrill Lynch put it, China, the world’s largest polluter, is now a partner of Russia, the world’s largest gas exporter. This signals “a turn in Chinese energy policy away from coal, setting the stage for becoming the largest gas markets on the planet by 2035.”

$400 bn for 38 bcm per year over 30 years is 105 mmscmd or, for context, 80 per cent of the entire domestic production in India! And just so that the oil companies remain healthy to fight for another day, price at current levels there is around $11/ mmbtu.

This price, ex Chinese border, has made BankAm Merryl Lynch analysts to believe that “($11) will likely become the long-term floor for Asian and probably global LNG prices.”

“With LNG supply set to increase in coming year, it is likely that spot Asian LNG prices will end up moving to a band composed of a Chinese floor at around $11 and a Japanese ceiling at $16/MMBTu,” they aver.

Last week’s deal isn’t an isolated one. While our TV channels have been busy chasing petty domestic stories, Beijing’s leadership has forked twenty such LNG contracts world-wide and pipeline import agreements with 5 countries.

Despite such a massive import linkage set to quadruple in the next decade, China’s domestic sourcing will remain just as robust – the latter’s aggregate poised to continue exceeding the import number.

While our strategic community remains notoriously insular, Dharmendra Pradhan, the incoming minister for petroleum and natural gas, and Ajit Doval, the national security advisor, should check how poorly we have chosen to fare in the last 10 years of UPA rule.

Our primary energy consumption is about is Rs 1500/ kgoe against global average of Rs 2500 kgoe and Rs 8000 kgoe in US and other developed countries.

Our energy elasticity is about 0.8. So, for 10 per cent GDP growth, energy supplies need to grow by 8 per cent.

Our total primary energy consumption is about 600 mmtoe. Coal accounts for about 50 per cent of our demand, but coal production has stagnated and hostage to high ash content.

Result? We now import 20 per cent of our coal.

Meanwhile, oil and gas account for about one third of our primary energy consumption.

We remain highly import dependent in both. In oil, our dependence is 80 per cent, in gas we are at about 40 per cent.

Domestic gas consumption is around 130 mmscmd. The TAPI deal (under prolonged discussions) would cost around $13/mmbtu at our borders – as against a paltry $8.4 that the Rangarajan Committee recommended. Out of this, our share would be around 35 mmscmd. Transnational pipeline imports from Iran/ Turkmenistan/ Oman have languished for over 20 years and there is nothing in sight.

So, here’s the parting question for Mr Pradhan and Mr Doval – if India’s own oil and gas resources are not developed, who will fuel the NaMo script of the India Story?

Are reckless imports a sustainable solution?

(The columnist works at the intersect of media, regulation and strategy on RIL. The views are personal. Tweets @therohitbansal).

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