Indian energy: A delicate balancing act
By Siddharth Srivastava, May 11, 2007 - Asia Times Online
News that a consortium of Indian companies has struck a huge gas find in Iran is likely to complicate matters further between India and United States.
The international arm of India's state-controlled gas explorer Oil and Natural Gas Corp, ONGC Videsh Ltd (OVL), has struck natural gas in the Farsi block of Iran, with the reserves estimated at 10 trillion cubic feet.
OVL (40%), Indian Oil Corp (40%) and Oil India Ltd (20%) are partners in this block that was awarded in 2002. OVL had previously discovered oil, estimated at 1 billion barrels, in the Farsi block that lies 90 kilometers off the port of Bushehr.
Washington has been putting pressure on India to refrain from dealing with Iran because of Tehran's alleged aspirations as a nuclear-weapons-capable country. Having put off the military option against Iran because of its involvement in Iraq, the US has been keen to browbeat Tehran via every diplomatic or economic avenue.
Washington thus has not been happy about a proposed US$7.5 billion natural-gas pipeline to run through Iran, Pakistan and India. India has also signed a multibillion-dollar deal with Iran to buy liquefied natural gas (LNG).
The latest finds, however, are only likely to deepen India's involvement with Iran. OVL won the bid for the Farsi block in early 2002 and signed a contract with the National Iranian Oil Co for a four-year period that December 25.
Under the contract, OVL cannot take oil and gas found in the block to India. On the investments during exploration phase, Iran will pay a 35% rate of return. For the development phase, the rate of return is to be determined, which will open another round of negotiations between New Delhi and Tehran.
The minimum investment commitment in the exploration phase is $27 million (OVL's contribution being $10.8 million) with a work program that includes seismic survey and drilling of four wells.
Interestingly, the US had last September expanded the ambit of economic sanctions under the Iran-Libya Sanctions Act, by which foreign companies making an investment of more than $20 million in one year in Iran's energy sector would be blacklisted.
The political undertones of India's dealings with Iran are being reflected in the ongoing negotiations between New Delhi and Washington on the final draft of the nuclear deal. It is apparent that elements of the political establishment in the US want any concession to India in accessing international nuclear-power technology to be linked to breaking ties with Tehran.
Indian Prime Minister Manmohan Singh has been facing vicious political criticism over a strongly worded letter addressed to him by a few US legislators who have demanded that India "terminate cooperation with Iran in the energy sector and military spheres". The authors of the missive include Tom Lantos, chairman of the House of Representatives Foreign Affairs Committee; Ileana Ros-Lehtinen, the ranking Republican; Howard Berman; Gary Ackerman, who is the chairman of the House Middle East and South Asia Subcommittee; and others.
Leftist party leader Brinda Karat has said the letter was an "open threat" to India's sovereignty.
The White House expressed ignorance about the contents of the letter and said it continues to discuss the issue with New Delhi and wants India to use its "influence" to make Iran behave responsibly.
However, Foreign Minister Pranab Mukherjee sought to deflect the criticism and said India and the US "remain committed to implementing the understanding expeditiously in a way that adheres as closely as possible to the framework of the July 2005 Joint Statement and the March 2006 Separation Plan".
In a bid to defuse the situation, President George W Bush spoke to Manmohan on the telephone this week. "The two leaders expressed happiness at the strengthening of the bilateral relations and reviewed developments pertaining to negotiations on bilateral civil nuclear cooperation,'' the Prime Minister's Office said in a statement.
The call followed recent talks that Indian Foreign Secretary Shiv Shankar Menon held with US Under Secretary of State for Political Affairs Nicholas Burns, to thrash out the final nuclear agreement. Menon also met with Secretary of State Condoleezza Rice. Burns is scheduled to visit New Delhi this month.
Menon said in Washington that there was "considerable progress" in his talks. "I am happy with the progress that has been made," he said.
Indeed, there is a powerful lobby in the US (backing Bush) that wants the nuclear deal approved because of the nuclear-business potential and leverage for massive arms deals with India.
However, India will have to tread carefully in trying to balance the need for the latest atomic technology from the US and its hydrocarbon requirements from Iran.
Ironically, the latest muddle over Iran comes at a time when reports say New Delhi is comfortable with the price of gas, at $4.93 per million British thermal unit (BTU), offered by Tehran under the proposed $7.5 billion Iran-Pakistan-India pipeline project, which the US opposes.
Indian Petroleum Minister Murli Deora recently made an unscheduled stop in Tehran to sort out issues related to the pipeline as well as supply of LNG at the earlier-contracted price.
Deora said India could not be pressured. "We are going ahead with our discussions on the pipeline project with Iran and Pakistan," he said.
Iran and India are "determined" to sign a contract to build a natural-gas pipeline via Pakistan by June 30, an Iranian official said after the meetings with Deora.
India believes that it now has to negotiate about Pakistani transfer and transit charges to make the pipeline viable, with a tripartite treaty expected to be signed in June or July.
There has been progress on this front as well. Pakistan has climbed down from its earlier demand of $1.57 per million BTU to $0.70-0.75 as a transportation tariff. On the transit fee, Islamabad is seeking $0.493, while New Delhi has offered $0.20.
Recently, the World Bank described the pipeline as a win-win deal and expressed readiness to fund the project.
Mukherjee has linked the Indo-US nuclear cooperation with the country's energy security. "We need to tap all sources of energy and keep our options in this regard open. This is at the heart of the India-US nuclear understanding and the larger energy dialogue."
He added that the strategic partnership between the two countries has "truly matured" into one of considerable substance.
Menon too recently reiterated the energy angle. "At a projected [economic] growth rate of 8% a year through 2031-32, the minimum necessary to eradicate poverty, India needs to increase its primary energy supply by three to four times and its electricity-generation capacity by five to six times current levels."
With both Iran and the US important partners in India's quest for energy security, New Delhi's diplomatic mandarins have their task cut out.
News that a consortium of Indian companies has struck a huge gas find in Iran is likely to complicate matters further between India and United States.
The international arm of India's state-controlled gas explorer Oil and Natural Gas Corp, ONGC Videsh Ltd (OVL), has struck natural gas in the Farsi block of Iran, with the reserves estimated at 10 trillion cubic feet.
OVL (40%), Indian Oil Corp (40%) and Oil India Ltd (20%) are partners in this block that was awarded in 2002. OVL had previously discovered oil, estimated at 1 billion barrels, in the Farsi block that lies 90 kilometers off the port of Bushehr.
Washington has been putting pressure on India to refrain from dealing with Iran because of Tehran's alleged aspirations as a nuclear-weapons-capable country. Having put off the military option against Iran because of its involvement in Iraq, the US has been keen to browbeat Tehran via every diplomatic or economic avenue.
Washington thus has not been happy about a proposed US$7.5 billion natural-gas pipeline to run through Iran, Pakistan and India. India has also signed a multibillion-dollar deal with Iran to buy liquefied natural gas (LNG).
The latest finds, however, are only likely to deepen India's involvement with Iran. OVL won the bid for the Farsi block in early 2002 and signed a contract with the National Iranian Oil Co for a four-year period that December 25.
Under the contract, OVL cannot take oil and gas found in the block to India. On the investments during exploration phase, Iran will pay a 35% rate of return. For the development phase, the rate of return is to be determined, which will open another round of negotiations between New Delhi and Tehran.
The minimum investment commitment in the exploration phase is $27 million (OVL's contribution being $10.8 million) with a work program that includes seismic survey and drilling of four wells.
Interestingly, the US had last September expanded the ambit of economic sanctions under the Iran-Libya Sanctions Act, by which foreign companies making an investment of more than $20 million in one year in Iran's energy sector would be blacklisted.
The political undertones of India's dealings with Iran are being reflected in the ongoing negotiations between New Delhi and Washington on the final draft of the nuclear deal. It is apparent that elements of the political establishment in the US want any concession to India in accessing international nuclear-power technology to be linked to breaking ties with Tehran.
Indian Prime Minister Manmohan Singh has been facing vicious political criticism over a strongly worded letter addressed to him by a few US legislators who have demanded that India "terminate cooperation with Iran in the energy sector and military spheres". The authors of the missive include Tom Lantos, chairman of the House of Representatives Foreign Affairs Committee; Ileana Ros-Lehtinen, the ranking Republican; Howard Berman; Gary Ackerman, who is the chairman of the House Middle East and South Asia Subcommittee; and others.
Leftist party leader Brinda Karat has said the letter was an "open threat" to India's sovereignty.
The White House expressed ignorance about the contents of the letter and said it continues to discuss the issue with New Delhi and wants India to use its "influence" to make Iran behave responsibly.
However, Foreign Minister Pranab Mukherjee sought to deflect the criticism and said India and the US "remain committed to implementing the understanding expeditiously in a way that adheres as closely as possible to the framework of the July 2005 Joint Statement and the March 2006 Separation Plan".
In a bid to defuse the situation, President George W Bush spoke to Manmohan on the telephone this week. "The two leaders expressed happiness at the strengthening of the bilateral relations and reviewed developments pertaining to negotiations on bilateral civil nuclear cooperation,'' the Prime Minister's Office said in a statement.
The call followed recent talks that Indian Foreign Secretary Shiv Shankar Menon held with US Under Secretary of State for Political Affairs Nicholas Burns, to thrash out the final nuclear agreement. Menon also met with Secretary of State Condoleezza Rice. Burns is scheduled to visit New Delhi this month.
Menon said in Washington that there was "considerable progress" in his talks. "I am happy with the progress that has been made," he said.
Indeed, there is a powerful lobby in the US (backing Bush) that wants the nuclear deal approved because of the nuclear-business potential and leverage for massive arms deals with India.
However, India will have to tread carefully in trying to balance the need for the latest atomic technology from the US and its hydrocarbon requirements from Iran.
Ironically, the latest muddle over Iran comes at a time when reports say New Delhi is comfortable with the price of gas, at $4.93 per million British thermal unit (BTU), offered by Tehran under the proposed $7.5 billion Iran-Pakistan-India pipeline project, which the US opposes.
Indian Petroleum Minister Murli Deora recently made an unscheduled stop in Tehran to sort out issues related to the pipeline as well as supply of LNG at the earlier-contracted price.
Deora said India could not be pressured. "We are going ahead with our discussions on the pipeline project with Iran and Pakistan," he said.
Iran and India are "determined" to sign a contract to build a natural-gas pipeline via Pakistan by June 30, an Iranian official said after the meetings with Deora.
India believes that it now has to negotiate about Pakistani transfer and transit charges to make the pipeline viable, with a tripartite treaty expected to be signed in June or July.
There has been progress on this front as well. Pakistan has climbed down from its earlier demand of $1.57 per million BTU to $0.70-0.75 as a transportation tariff. On the transit fee, Islamabad is seeking $0.493, while New Delhi has offered $0.20.
Recently, the World Bank described the pipeline as a win-win deal and expressed readiness to fund the project.
Mukherjee has linked the Indo-US nuclear cooperation with the country's energy security. "We need to tap all sources of energy and keep our options in this regard open. This is at the heart of the India-US nuclear understanding and the larger energy dialogue."
He added that the strategic partnership between the two countries has "truly matured" into one of considerable substance.
Menon too recently reiterated the energy angle. "At a projected [economic] growth rate of 8% a year through 2031-32, the minimum necessary to eradicate poverty, India needs to increase its primary energy supply by three to four times and its electricity-generation capacity by five to six times current levels."
With both Iran and the US important partners in India's quest for energy security, New Delhi's diplomatic mandarins have their task cut out.