The South Asia Channel

Will Iranian Gas Help Solve India’s Energy Crisis?

On July 31, 2012, India experienced the worst electricity blackout in history, as three of the country's five power grids failed. People traveling on metro systems and railways were stuck for hours, without a hint of when the power would be restored. Miners were trapped underground and hospitals left without power. In total, around 670 million people in 22 states were affected.

As the summer of 2014 approaches, it appears that India has done little to shore up its energy supply. The country continues to experience a severe energy shortage. Conventional fuels like coal and oil feed 83 percent of the country's primary energy consumption. The price of crude oil imports is increasing exorbitantly, however, and domestic production of natural gas, often seen as the answer to dirty conventional fuels, has fallen due in part to shrinking production in the Krishna Godavari basin.

Even so, India is aggressively trying to increase the presence of natural gas in its energy mix. In such documents as the National Action Plan for Climate Change, India has committed to curbing its energy emissions resulting from the extensive use of petroleum and coal in the transportation and power sectors. And on an energy equivalent basis, natural gas is almost 80 percent cheaper than crude oil, which could help India preserve valuable foreign reserves.

These factors have prompted the government of India to go all out in exploring various alternatives, from putting more money and resources into exploring and developing shale gas, to securing Liquefied Natural Gas (LNG) import deals with countries like the United States and aggressively pursuing transnational natural gas pipelines.

One such measure is an undersea gas pipeline with Iran, which has the world's second-largest natural gas reserves after Russia.

This project, commonly known as Middle East to India Deepwater Pipeline (MEIDP), would funnel gas from the Middle East to the industrialized state of Gujarat, on the western coast of India. The pipeline would originate in Oman and allow countries like Iran, Qatar, Iraq, Turkmenistan, and Azerbaijan to also supply natural gas to the ever-growing Indian market. Dismissed as too expensive when it was first proposed in mid-1990s, the Oman-India underseas route now appears financially viable compared with the cost of projects to liquefy, transport, and then gasify LNG.

The relatively short timeline needed to complete the underwater project, Iran's large volume of surplus gas, and its eagerness to sign an international deal are all arguments in the pipelines' favor. Since the United States and Iran signed the Joint Plan of Action on November 24, 2013 that froze Iran's nuclear program, India and other countries have looked to reestablish energy ties with Iran. Iran, too, seems determined to restore economic and energy linkages with countries such as China, Turkmenistan, Turkey, and Russia.

Construction of the pipeline could be completed in two years, and the overall fast tracked project is expected to be finished over a five-year period. The development of deepwater systems to repair leakages, new and improved design methods for free-spanning, and new generation and large lay vessels to build the pipeline also make the project more viable. According to a feasibility study conducted by South Asia Gas Enterprise, the 1,400-kilometer pipeline would cost $4-5 billion and carry 31 million cubic meters of gas to India per day.

In addition to MEIDP, India has pursued three other pipeline projects: the Iran-Pakistan-India (IPI), the Turkmenistan-Afghanistan-Pakistan-India (TAPI), and the Myanmar-Bangladesh-India (MBI) pipelines. However, China is already signing contracts to source gas from Turkmenistan and Myanmar, and the existing fields may not be left with enough gas to export to India. While still viable in terms of the availability of gas, the IPI pipeline remains deeply troubled by operational and security issues.

India has not ruled out the IPI gas pipeline project. Indian External Affairs Minister Salman Khurshid said in January that India would rejoin the project given the "seriousness from all sides." Jahanpars Engineering and Construction, an Iranian firm, also offered to support the IPI project by providing $1.8 billion in funding and undertaking the entire engineering, procurement and construction work.

Yet the time, cost, and security issues involved with the IPI pipeline suggest India should continue to hedge its bets by pursuing the Middle East undersea pipeline. Last December, Iran cancelled a $500 million loan it had made to Pakistan to construct the Pakistani portion of the pipeline by the end of 2014, after Pakistan failed to find the necessary financiers to begin construction on the project. "If a contractor is chosen today and pipeline construction begins today, it will take four years to complete it," Iran's Deputy Oil Minister Ali Majedi said in explanation. "Should Pakistan fail to take gas by the end of next year, Iran will demand compensation under the terms of the contract."

Financing the IPI project in an integrated manner - as the Asian Development Bank and other stakeholders have done for the TAPI pipeline - presents a major challenge. Further such a pipeline would be at risk of terrorist attacks by Pakistan's Baloch separatist groups, which have recently bombed pipelines to disrupt supply.

Act fast, or forever hold your peace

India would do well to pursue this option quickly. China, with its insatiable energy appetite, is also eyeing Iran's huge natural gas reserves. The pipeline offers India many benefits: It would diversify India's energy resources and reduce its dependence on Pakistan, allaying security concerns. It would also bring new life to India's economic relationship with the Middle East, which until now has centered around crude oil imports.

Given its precarious domestic energy scenario and the ever-changing geopolitical conditions across the globe, India needs to act quickly and prudently to take advantage of this opportunity. With concerted and decisive action from its policymakers, India may just be able to keep the lights on.

Manish Vaid is a junior fellow with Observer Research Foundation and Tridivesh Singh Maini is associated with The Jindal School of International Affairs in Sonepat, India.