Pipeline Politics

I am no expert on either petroleum resources or on geopolitics.

Because of an interest in international business and globalization, however, I have from time to time looked into the geopolitics of major pipelines. Here are some things that have made an impression:

• Even in the thick of the Cold War, major pipelines bringing Russian (then Soviet) natural gas to Western Europe got built and functioned pretty well.
• In early 2006, some of these pipelines became very contentious. With rising prices and a very cold winter in parts of Eurasia, the accusations flew with vengeance: Russia is witholding gas from Ukraine, Ukraine is tapping gas in excess of its allowance and starving Italy of its quota, and so on.
• Follwing the American-led invasion of Iraq, oil and gas pipelines have been favorite insurgent targets. Supply chains in that petroleum rich nation remain severly disrupted.
• Militant attacks in Nigeria -- including attacks on pipelines -- forces Royal Dutch Shell to close key producing fields in that country.
• In January 2006, militant groups attacked and disrupted a pipeline in India's northeast.
  

The lessons I take from these are the following:

• Pipelines work under hostile conditions if the conditions represent the checkmate-stalemate positions of cold (not hot) war.
• Pipelines are highly vulnerable targets subject to attacks by insurgents and militant groups.
• In times of energy crunch (such as the Eurasian deep freeze of 2006), agreements on supply schedules may be violated.

Given these, is the ambitious project of building a pipeline from Iran to India via Pakistan, crossing some highly volatile regions of Pakistan, a good idea? This question is especially important since the project cost is in the US $15 to 20 billion range. For that price tag, a country the size of India can easily create a massive program to wean a substantial part of India's economy from petroleum-based energy to biofuels and other alternative forms of energy.

It just seems a wise move to spend mega-dollars on something that will have lasting benefits, rather than on a project subject to intense geopolitical risks.

Nik Dholakia
University of Rhode Island
USA

India: Cars, cars, everywhere... but energy policy?

At the beginning of 2006, India was one of the hottest car markets on planet earth. Korean car maker Hyundai considers India one of its fastest growing car markets and is planning to double its production in India. Hyundai offers a range of cars that appeal to a wide spectrum: from the middle class salaried worker to the rich elite. Top Hyundai models are seen as a status symbols.

Writing in BBC News Online on February 16, 2006, Karishma Vaswani reported that Ford was the fastest growing automotive firm in India in January 2006, outpacing General Motors and domestic auto producer Maruti Udyog. The auto assembly machines at Mahindra & Mahindra’s auto manufacturing plant just outside of Mumbai were humming all shifts, churning out SUVs and more.

India, however, is heavily reliant on imported petroleum. The country imports almost three quarters of its energy to meet the demands of its population of more than a billion people. This proportion is set to rise as energy demand is expected to double in the next five years. By 2020, the country may have to import all of its energy needs.

Indian petroleum companies are scrambling globally in their quest for crude oil resources. The country has been in talks with Iran and Pakistan to build a US$17billion natural gas pipeline from Iran, via volatile regions of Pakistan, into the booming markets of India. Concerned with Iran’s intransigence in its nuclear program, the United States is pressuring India to step away from such a deal.

While cars and two-wheelers cater to the massive and rising middle class, the poor -- still the largest segment of India's population -- also need petroleum derivatives. Kerosene is used by over 80% of India's people for cooking and heating of homes.

Massive government subsidies hold the prices of gasoline and kerosene at affordable levels. With escalating global petroleum prices, how long can this go on? Some observers estimate India's 3% share of global oil demand would rise to 10% by 2030.

While the consumer revolution is on, full blast, in India; there is scant evidence of a sound energy policy in place. The policies of aggressive oil field acquisitions abroad and of a Iran-Pakistan-India pipeline are fraught with all manners of geopolitical risks.

By contrast, Brazil has a well-developed sugar cane-based ethanol fuel policy in place (see the item "Brazil's Green Fuel Revolution" in this blog). Japan -- with near 100 percent dependence on imported petroleum -- has such a comprehensive national energy conservation policy that energy consumption has stayed at the 1975 levels. In Israel, solar energy has been used for heating water, for over four decades, even in the smallest of village homes.

For India, the time for formulating a comprehensive energy program -- based on alternative energy and conservation -- is running out. It is not that alternative energy initiatives are not in evidence in India (see the Unisun link in the sidebar of this site), but for a country of more than a billion people, even thousands of energy initiatives would not add up to make much national level impact. The epicenter for an energy policy in India has to be in New Delhi.

Nik Dholakia
University of Rhode Island
USA

Crops for cars?

Crops for cars? : Could a switch to biofuels ease the energy burden of a growing economy, and at the same time address a vital environmental issue? Venture capitalist Vinod Khosla seems to think so, judging by how far from the VC universe environmentalism usually is. Darryl D'Monte notes Khosla's vision for a sun-rise industry.

http://www.indiatogether.org/2006/feb/env-biocrops.htm

Brazil's Green Fuel Revolution

People in most parts of the world are wincing as they fill up their cars, trucks, autorickshaws, motorcycles, and scooters with gasoline. With crude oil prices hovering in the US $60-70 a barrel range, the prices at the petrol pumps already look shocking. The specter of what lies ahead in the future is scarier. Some oil industry analysts have suggested that political turmoil could push crude prices above US $200 a barrel.

One can almost imagine the distopian scenarios of marauding gangs with grenades and machine guns roaming the streets of various global urban centers, commandeering petrol pumps and fuel trucks.

There is one country, however, that is winking and smiling at all the global consternation about rising petroleum prices. That country is Brazil.

Over 80% of new cars now sold in Brazil today are equipped to use sugar cane-dervided ethanol as well as gasoline. Both fuels are available at almost all fuel pumps. Price of ethanol at the pump is about 60% cheaper than the price of gasoline. Global crude oil price would have to tumble from the prevailing levels of US $60-70 a barrel to about US $35 before gasoline in Brazil becomes compeptitive with ethanol.

In early 2006, USA president George W. Bush challenged Americans to break their addiction to petroleum, and to become free from dependence on Middle East oil. It could take a decade for USA to catch up with Brazil's "green fuel" revolution.

How did Brazil do it? Two simple policies stand out: (1) creating a dispersed system of growing, harvesting, and processing sugar cane into ethanol; and making this alternative biofuel available at fuel pumps; and (2) mandating that all new cars be equipped with engines that could run on ethanol.

Big, fast-growing economies of China and India have an important lesson to learn here. Put into place nationwide systems of producing and distributing biofuels now, or face the risks of economic activity getting paralyzed due to astronomically high petroleum prices.

Nik Dholakia, Ph.D.
University of Rhode Island
USA