Do we have a new energy Cold War?

By Bhamy V. Shenoy Jul 1, 2007, 12:09 GMT

Ever since Russian President Vladimir Putin signed a pipeline deal in May this year with the presidents of Kazakhstan and Turkmenistan to transport their gas through Russia to Europe, there has been a cacophony on the new energy Cold War. Is this really an energy war? And is it even new? How is India placed to play its role in this energy war?

Towards the end of 2000, the US and the European Union (EU) were successful in convincing Azerbaijan, Georgia and Turkey to sign a multi-country transit pipeline called 'Baku-Tblisi-Ceyhan' to move oil from Azerbaijan to the world market through Georgia and Turkey. Oil companies themselves had more than enough capital to construct this pipeline.

But it was the visible hand of the US, which made this pipeline possible. Russia wanted the pipeline to be built in its land to ensure the movement of crude oil through its ports. The oil pipeline was followed by a gas pipeline called South Caucasus, though it was not clear how Turkey could absorb all that gas. When these pipelines were announced or even completed, no one heard of any energy war. Why do we hear it now when Russia is involved?

Before the formation of OPEC in 1960 and even a few years later, when the so called seven sisters (i.e. Exxon, Mobil, Chevron, Texaco, CFP, Shell and BP) along with other multinational oil companies but mostly from the US were acquiring attractive acreage to look for oil and gas, no one considered those activities as part of any energy war. As far back as the beginning of the 20th century, the imperialist Winston Churchill had realised the strategic importance of oil reserves and was ensuring that the UK was well placed by facilitating the government owned BP to acquire oil bearing acreage in the Middle East at attractive terms. But now when China and India are going around the world trying to acquire access to oil and gas reserves at competitive prices, this is considered as indulging in a New Energy Cold War.

Despite the possibility of high oil prices, most long-term world energy forecasts are predicting that world oil demand will go up from 86 million barrels per day (MMBD) in 2007 to more than 115 MMBD by 2030, an increase of 30 MMBD. The world gas demand is also likely to go up by a similar amount. With the concentration of oil and gas reserves in a few countries, which are also unstable, there is great uncertainly in securing oil and gas supplies during times of disruptions caused by geopolitical problems. Also, during the last four years since the increase in crude prices, a massive amount of wealth has been transferred to some of these unstable countries. Such a tremendous amount of wealth in such a short time is bound to create security problems in the future in ways we may not be able to predict now.

On the part of oil and gas importing countries, the US, China, EU, former countries from Europe that were under Soviet Union control and India, there are serious concerns regarding their energy security. At the same time, oil and gas exporting countries like Venezuela, Russia, and the Organisation of Arab Oil Exporting Countries are positioning themselves to be in a strategic situation to impose their political will. We have already seen the use of oil and gas weapons by Russia in countries like Ukraine (to influence the election results), Byelorussia (now known as Belarus, where they were able to get interest in gas pipeline asset), Georgia (failed to get the transit pipeline assets) and Armenia (succeeded in acquiring gas assets).

Russia was also able to buy gas from Turkmenistan at a lower price and sell it at a higher price to Europe since the land locked Turkmenistan did not have any other alternative to transport its gas. It is surprising that despite having been in such a helpless position before, Turkmenistan is falling into the cold embrace of Russia.

After the collapse of the Soviet Union, Turkmenistan could not export any gas through Russia since it was not allowed any access to the pipeline system. Of course, the new president of Turkmenistan has kept the door open for OECD countries to build a trans-Caspian pipeline (TCP) , a project that failed to materialise for want of a strategic vision on the part of former president Turkmenbashi and also the lack of adequate diplomatic finesse on the part of the US and EU. However, in the changed environment of New Energy Cold War, the US may push for TCP despite having even less economic returns now.

India's efforts in getting gas through pipelines so far have not been very fruitful. Now that LNG economics has improved considerably, India should develop a full-fledged LNG policy as part of an integrated energy policy. Just like China, India should also try to have at least 60 to 90 days of strategic petroleum reserves within the next 10 years. While working on oil diplomacy with exporting countries like Russia, Venezuela, Iraq, Iran, Nigeria, Sudan and Myanmar, it should also consider joining the International Energy Agency either as a full member or as an associate member. Of course, the best strategy for India to be prepared for energy war is to minimise the consumption of energy every possible way.

(Bhamy V. Shenoy is an international energy expert. He can be contacted at bhamysuman@hotmail.com)

© 2007 Indo-Asian News Service