Wednesday, February 16, 2005

ANALYSIS: Troubles in the pipeline

+ Presumably the military rulers of Myanmar will overcome opposition to the pipeline. But it will still have to traverse Bangladeshi territory. Dhaka newspapers are full of statements from MPs and others questioning the idea of allowing energy transit to India. The Bangladesh government wants India to allow transmission of hydel power and transit of commodities from Nepal and Bhutan to Bangladesh through Indian territory in return for allowing transit. Bangladesh also wants to use this occasion to reduce its trade imbalance with India. +

15/02/2005

Troubles in the pipeline
SUDHA MAHALINGAM

Finding gas while prospecting offshore for oil is every driller’s nightmare — even if it’s better than drilling a dry hole. Offshore gas finds spell substantial investments to pipe the gas to the nearest landfall point, and further investments in either pipelines or LNG infrastructure to reach it to markets. The developer must find buyers willing to make long-term purchase commitments and in the case of LNG, build regassification infrastructure.

Yet, when Korean multinational Daewoo hit gas at a depth of 10,000 feet off the coast of Myanmar last year, it did not seem worried. It jubilantly announced that the gas find in the A-1 field of Shwe would earn $86 million in annual net profits for 20 years. Production would begin from 2009. Daewoo has 60 per cent stake in Shwe and is the operator of the field. India’s ONGC Videsh has 30 per cent, while GAIL and Korean Gas Corporation, 10 per cent stake each.

Energy ministers of Myanmar, India and Bangladesh met in Yangon in January and agreed, in principle, to lay a gas pipeline that would connect Shwe to India — the nearest market — through Bangladesh, which has already made a pitch for reciprocal concessions from India.

Since Shwe itself is located 290 km away from the shores of Myanmar, a trunk pipeline will have to be built first to connect the offshore field to Sittwe, the capital of Myanmar’s Arakan state. The pipeline will then pass overland through Chittagong in Bangladesh all the way to Mizoram. From there, it is to be extended to Tripura to unlock the latter’s gas fields stranded for want of markets and finally reach West Bengal. The devil is in the details. Four routes are being considered. No information is available about the total distance the pipeline will have to traverse before it reaches consumers in West Bengal, but it is unlikely to be less than 1,000 kms— quite a distance, unless the size of the deposit is large enough and the delivered price, affordable.

Sittwe itself gets electric supply from diesel gensets, rationed and only after sunset. There are other areas in Myanmar which can use this gas to fuel their developmental aspirations. Besides, the local people’s experience with earlier pipelines has not been happy. The controversial Yadana-Yetagun gas pipeline built and operated by Unocal, which supplies gas to Thailand since 1998, was built despite local opposition and has been under scrutiny of US courts for alleged human rights violations.

Presumably the military rulers of Myanmar will overcome opposition to the pipeline. But it will still have to traverse Bangladeshi territory. Dhaka newspapers are full of statements from MPs and others questioning the idea of allowing energy transit to India.

The Bangladesh government wants India to allow transmission of hydel power and transit of commodities from Nepal and Bhutan to Bangladesh through Indian territory in return for allowing transit. Bangladesh also wants to use this occasion to reduce its trade imbalance with India.

India may well agree to these demands in pursuit of its anticipated energy security. But what itmight want to rethink is the proposal to allow Bangladesh to re-draw its own gas at different points of the pipeline in its territory. Russia had a similar arrangement with Ukraine which provided transit for Russian gas to European markets. Russia faced the vexing problem of Ukrainians helping themselves lavishly to its gas without paying for it. Russia eventually built a brand-new pipeline by-passing Ukraine, this time, 2000 m under the Black Sea, even if it meant higher costs. Perhaps India should seriously think of an undersea pipeline to directly link Shwe to West Bengal or Orissa.

Finally, there is the issue of the price of gas. Reportedly, Soe Myint, director general of the energy planning department in Burma’s energy ministry, indicated a price of US $ 4-50/ mmbtu. And this, he said, was not the delivered price, only the price at landfall point, namely, Sittwe. Unocal sells Myanmar gas to Thailand at US $ 4.26/mmbtu and perhaps Myanmar thinks Shwe should fetch a higher price. OVL and GAIL should encourage Daewoo to go for it. As shareholders, they would benefit from the high prices. But India must stay away from such steeply priced gas and, in the bargain, spare itself the agony of transit headaches!

The writer is with Centre for Policy Research, New Delhi. The views expressed here are personal