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Mani Shankar Aiyar, Former Minister, Petroleum and Natural Gas

29 Feb 2012

Mani Shankar Aiyar who headed the Ministry of Petroleum and Natural Gas from May 2004 to January 2006 is remembered for his oil diplomacy wherein he pioneered outward looking approach towards accreting oil reserves.  An astute reader, Aiyar is widely known for his straight opinion on many controversial subjects. In a conversation with InfralineEnergy’s Sangeeta Tanwar, he shares his experiences on various developments in oil and gas industry. In the interview, he talks about abundance of hydrocarbon resources lying unexplored in the country’s vicinity. He points out that the lack of technology is the biggest hindrance in exploitation of Indian hydrocarbons. He sounds cautious about India’s nuclear power plans and asserts that much more needs to be done on the renewable front.

Aiyar rues complete absence of oil diplomacy in Indian foreign policy and vehemently encourages risk-taking while pursuing the country’s energy security.

Edited excerpts.

Being a hydrocarbon deficient country – what is the way forward for us to secure our energy needs?

I think the one fundamental fact that is totally relevant to finding a solution for our energy problems is that we are a hydrocarbons deficient country sitting geographically in the middle of the most highly potential hydrocarbon region. In our immediate and more importantly proximate region is to be found vast hydrocarbon resources which are looking for new buyers.

With the price of oil having reached where it is today, it has become economical to explore relatively new sources of energy such as shale gas. Successful exploitation of shale gas in the North America coupled with early beginnings being made very earnestly for shale gas exploration in eastern Europe has considerably changed the world energy scenario. Considerable accomplishments in shale gas exploration in China increasingly pose suppliers of oil and gas with new challenges. Those who took their markets for granted are now beginning to look for new markets. And in these circumstances India, politically as well as geographically, is extremely well situated to promote energy diplomacy as a way of accessing its energy requirements.

What are the potential energy assets overseas that India could look to exploit?

When we talk about energy assets then in our immediate vicinity we have to our East Myanmar (Burma). Remember Shell in India was called Burma Shell. The fact that Burma is a hydrocarbon rich area has been known for the last 150 years but somehow our foreign policy seems to have forgotten this fact. To the North of us, we have Turkmenistan which has come into our consciousness through Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline which is geographically even more advantageous vis-à-vis Uzbekistan which has hydrocarbon resources but cannot be exploited. This is so because Uzbeks have got used to gas at Soviet prices and at that price no foreigner is willing to invest. Now if we were to become major investors in Uzbekistan and funnel gas into the TAPI pipeline it will become the Uzbekistan- Turkmenistan-Afghanistan-Pakistan-India (UTAPI) pipeline. And if we go little further north into Kazakistan moving to far west of Kazakistan which abuts the Caspian Sea then we can make this pipeline Kazakistan-Uzbekistan-Turkmenistan-Afghanistan-Pakistan-India (KUTAPI) pipeline. And if you move a little north and go little west you come to Astrakhan in Russia which is located on the Caspian Sea and it becomes RUKUTAPI. Then going little further south - you reach Azerbaijan and this becomes Azerbaijan-Kazakistan-Uzbekistan-Turkmenistan-Afghanistan-Pakistan-India (ARUKUTAPI). Thus, we have the whole of Central Asia available to us through the TAPI pipeline. Especially as Chirag, the offshore oil field in the Caspian Sea is closer to Turkmenistan then it is closer to the port of Baku. So this arc in the North is a huge potential for India in order to meet its energy security.

Then we look to the West. You begin with Iran whose hydrocarbon resources are going a begging. And this is the moment to strike because with the American having pressurised the Europeans into boycotting Iran and its hydrocarbon, India has a ready opportunity to tap their resources. If the Iranians can sell gas to Pakistan which is a poorer country than ours, then what’s the problem in our buying Iranian gas? So, I think the key to our energy security is Iran, Pakistan and India pipeline which ever since July 2005 was on backburner owing to the Indo-US nuclear deal discussion. Now that the deal is through and we are ready to reassert ourselves in several spheres then why not re-assert ourselves while pushing our ties with Iran and Pakistan.

In the past, the major source of oil for us was Iraq. How critical a role Iraq is going to play for India to meet its energy needs?

Iraq was the single most important source of oil for us until Saddam Hussein’s war with Iran and the mess that followed in the next 20 years. But a major Indian presence in the Iraqi hydrocarbon sector is an imperative. I see something happening in the margins and there is not much public knowledge regarding what we are doing to re-establish ourselves in Iraq. Why do I say re-establishing ourselves in Iraq because we were very well established buyers of Iraqi oil till 1977 when Americans imposed their boycott on Iraq. I was myself posted in Iraq from 1976 to 1978 and they used to insist that oil exports to India should not be included in the balance of trade because this was a stock well and that Iraq was exporting stock. We used to purchase oil from Iraq against payment by Soviet Union because our exports on the rupee account to Soviet Union used to get balanced by the payments they made for our import of oil from Iraq on the Soviet account. So our ties with Iraq make for a very long standing relationship which needs to be revived.

Then we have the Gulf Straight and Saudi Arabia. I was bit surprised that in 2004 when I first initiated the moves for bringing together the Asian suppliers and buyers that the Saudi oil and petroleum minister Al Naimi went out of his way to cultivate an Indian oil minister. There was this famous Saudi dinner as part of which the entire Saudi palace was dedicated to host our delegation. And most of our delegation was vegetarian so we converted all the Saudis into vegetarians. Now this heartening development was followed-up by Naimi’s visit to Delhi for Asian oil ministers meeting. In this meeting I was officiating as Vice-Chairman. So, we were building a strong relationship with Saudi Arabia along with other Gulf countries such as Kuwait, the Emirates and Oman. We need to once again aggressively explore opportunities offered by these countries. Again, to our East we have Indonesia and Malaysia to tap and then Australia is another promising destination with its huge reserves of gas.

What are the other lucrative oil and gas destination in India’s proximity that can be tapped for hydrocarbon resources?

Again in our proximate neighbourhood we have Sumatra which is just 80 km from Indira Point in the Andaman Nicobar islands. Unfortunately we don’t know anything about it. Now we come to far North of Russia to East of the Urals and I call it North Asia. Here, we are already involved with BP in Sakal area. But there is no way in which we can export our share of Indian gas or oil from there to India. But we can always sell this gas to Korea and Japan and it is they who are purchasing gas from Sumatra which is then going to Korea. So we do a swap deal wherein we give them gas from Sakal and they in turn let us access their contract.

"So a key dimension of our energy security which is oil diplomacy is virtually absent as part of our foreign policy. The fact that it is absent is illustrated by paucity of attention being paid to it in VIP visits abroad or deliberations of the National Security Advisory Board and Security Advisory Council."

So when you consider that Russia is using its national gas reserves essentially to the West of the Urals to supply its major market Europe – you cannot miss the fact that Russia is increasingly getting into difficulty with Europe trying to move away from natural gas to shale gas reserves. The new reserves that they are exploiting east of the Europe have to find market somewhere else. And if we were able to establish ourselves as important partners with them then I think a lot can be gained in energy sector.

With our heavy dependence on oil imports – is there a way out to cushion ourselves from rising oil price?

When I was Minister of Petroleum and Natural Gas, our main problem was what we call the Asian premium. These Saudis would be selling their oil for various historical reasons at discounted price to Europeans and the Americans. And it was a discounted price with freight on board (FOB) being traded at America and Rotterdam so they bore the cost of shipping from Gulf to these two points owing to their own accord. Now owing to this shale gas business and with a deliberate desire to cut down demand for oil the Asian premium has become history. We are no longer being as consistently or as severely discriminated against as was the case once. Things can further work in our favour provided we can get more competition in the Indian Ocean area and not be as hopelessly dependent on one or two sources for oil as we are today.

And how can we create more competition regarding oil to move towards more favourable prices?

For this to happen we need to get the Central Asian oil to the Indian Ocean area. As a minister I  got very excited by the Baku-Tbilisi-Ceyhan (BTC) pipeline. I think if we would have succeeded in following the initiative by now we would have managed to pull the pipeline underwater in the shallow waters of Mediterranean Sea from Jehad to the port of Ashkalan in Israel. Now Ashkalan has an oil history background because the Iranians agreed to supply oil to Israel under the Shah and for that they build a pipeline from a place called Eilat which is at the head of Gulf Aqaba to Ashkalan which is on the eastern Mediterranean Sea and also serves as a gateway to Europe too. They sold it to Israel and Israel also became a transit country for Iranian oil to reach Europe. Now by a process of reverse engineering it was possible to convert the Eilat-Ashkalan pipeline into an Askhalan-Eilat pipeline. See if you brought this Azerbaijan oil through the BTC pipeline and further to Ashkalan you could deviate from Askhalan into the Gulf of Aqaba. And once you are through the Gulf of Aqaba and through the Indian Ocean it would mean that the west Asian oil and south Asian oil would be competing with central Asian oil. Secondly, there is an existing pipeline from the Red Sea to the Mediterranean running through Egyptian territory. I was pursuing the idea of laying a parallel pipeline from the Mediterranian to Red sea which would mean that all the oil being discovered in North Africa and West Africa and perhaps extending into Congolese and Central America could be brought through this pipeline into Indian Ocean instead of being shipped a long way round through the Cape of Good Hope. Thereby the privileging that is done of American and European oil would be reduced and we will have African and central Asian oil. And with gas being picked-up from Australia we will also have gas adding to the oil competition. Given that India and China are the two most important incremental consumers of hydrocarbons to my mind this kind of oil diplomacy is the key to achieving energy security.

What are the missing links of our oil diplomacy while interacting with global oil and gas majors?

The two vital requirements for Asia’s re-emergence as the premium continent in the world are oil and gas. So if we can work towards what is today the rather fanciful idea of Asian oil and gas community we may succeed in realising this dream. If we manage to establish an Asian oil and gas community then we can work towards having an Asian gas grid and move forward on building a network of pipeline linking suppliers with demand.

"The discovery of KG-D6 field by Reliance which was the biggest discovery in 2002 has not been followed-up in my view partly because of inadequate investments by ONGC, Reliance and other players."

We can easily replicate the gas grid model existing between Soviet Union and Western Europe. It could transform the picture for our own energy security. Now that exercise is abandoned and the Petroleum Ministry has gone back on depending on ONGC Videsh Limited (OVL) to make this commercial arrangement. To paraphrase strategic theorist Carl von Clausewitz - we don’t really seem to think that diplomatic endeavour has nothing to do with this whereas the Chinese have long learnt that economic links is diplomacy by other means. So our Ministry of External Affairs has set-up some kind of division to deal with this and they have not been really able to impress the world with their endeavour. So a key dimension of our energy security which is oil diplomacy is virtually absent as part of our foreign policy. The fact that it is absent is illustrated by paucity of attention being paid to it in VIP visits abroad or deliberations of the National Security Advisory Board and Security Advisory Council.

What explains lack of new discoveries back home following one single major discovery in the form of KG-D6 field?

Now unless we become active and major players in the oil sector discovering our own hydrocarbons potential is going to be indefinitely postponed. The discovery of oil and gas in the Cambay Basin in Ankleshwar area and then eventually several years later oil discovery made by us in Bombay High prove that we do have potential reserves of hydrocarbon. So it’s not only in the Dibrugarh area that is Duliajan, Digboi that we have some oil there are possibilities of discovering many more Bombay Highs on Konkan and Kerala coast and on the western sea port of the Bay of Bengal.

"We have a self inflicted huge wound on our energy security because ONGC is now like any other cooperation looking at its bottom line, looking at valuation of stock market."

The discovery of KG-D6 field by Reliance which was the biggest discovery in 2002 has not been followed-up in my view partly because of inadequate investments by ONGC, Reliance and other players. We have failed to make more such big discoveries principally because there is no real attempt except perhaps to some extent in private sector to bring in or promote technology that is appropriate to the discovery of oil and gas in the Bay of Bengal. Similarly no attempts have been made for making potential discoveries in Andaman Sea a place where Burmese found all the oil and gas. To fully realise the potential that Bay of Bengal has on offer one requires an exploration policy that is proactive and favourable to foreign players. It also requires India to tie-in on technology in oil contracts as the country is finalising in defence.

What are the major drawback of New Exploration and Licensing Policy (NELP)?

As far as NELP policy is concerned we tell players to find the oil and give us some royalty and some share in profits once they have covered their investment. We appear to be happy with this arrangement. There is no provision in our NELP contracts for the transfer of technology. We have a self inflicted huge wound on our energy security because ONGC is now like any other cooperation looking at its bottom line, looking at valuation of stock market. And the work of Tel Bhavan in Dehradun which provided some of the answers that led to the discoveries made in Gujarat and Bombay High has got so degraded that instead of putting their profits into evolving knowledge network money is being put into building railway line, roads and downstream oil refineries. Tel Bhavan more than any other institution in India is best suited to build very strong links with research bodies all over the world and to engage them in such a manner as to get the technology for both onshore as well as offshore.

How important a role does technology has to play in exploration of new hydrocarbon resources?

We have huge reserves onshore waiting to be exploited. The fact is that when the island of Gondwana split from the Antarctic and flowed towards Eurasian subcontinent it had the misfortune of hanging around Madagascar at the time when there was terrible volcano explosion which largely led to the death and elimination of dinosaurs. But lot of that volcanic material fell upon that part of the Gondwana which on arrival to India became Deccan.

"Cairn India decided that there were greener fields elsewhere and they have gone out there saying they are an exploration company and not an exploitation company, speaks a lot about absolute failure of our oil policy."

So geologist talk about Deccan where there are hydrocarbons under thicker and larger surface of volcanic rock and material than anywhere else in the world. And to access them we have to have our own technology developed with our foreign friends to get to those hydrocarbon resources.

What explains the near absence of foreign players in the Indian hydrocarbon sector?

Instead of going forward on attracting foreign players our oil policy seem to have run into rocks. Cairn India has walked out of the country. Having made the biggest discovery onshore in the year 2003 – Cairn came to me at that time saying that outside India they have the practice of naming fields after Greek gods. But in India they had decided to name the field after Indian gods and they would name this new find after our ‘isht dev’. I told them that I was an atheist and at the same time pointed out to them that my mother’s name would be appropriate because her name is Bhagyam which means good luck and it really turned out good for Cairn because they are having huge output from the field. The point I’m illustrating by sharing this example is that these people were very keen on establishing themselves in India. That they decided that there were greener fields elsewhere and they have gone out there saying they are an exploration company and not an exploitation company, speaks a lot about absolute failure of our oil policy. They have sold out to Indian company which has no expertise whatsoever in this field.

Now we come to our offshore story. We have some of the deepest oil wells anywhere in the world and this truth came to me starkly when I visited Norwegian reich in the north sea during my tenure as oil minister. I asked Norwegians on the rig at what depth they were drilling and they said 150 meters. So I asked them why they called it North Sea when it should be called North lake! In the Arabian Sea we have depths of 10,000 meters and the only other place which offers such depth is Gulf of Mexico.

"The nuclear energy path is undoubtedly in principle than in theory the most assured way of securing energy security. But the practical human problems on the ground make it imperative that whatever may be the progress on nuclear energy front it cannot be at or the neglect of hydrocarbons."

We need the technology to explore possibilities of hydrocarbon lying buried so deep inside the land. While whatever BP did is unfortunate although they had the technology to eventually cap that well we must realise that we do not have that kind of technology and therefore need to collaborate for technology with foreign players. In the absence of required technology we simply cannot say that we do not have oil. We also need to go in for technology in a completely unexplored field which is theoretically known to have single biggest footage which is gas hydrates. Apparently the Bay of Bengal is swimming with gas hydrates but nobody has discovered commercial means to discover it. My biggest concern is what is Tel Bhavan doing about that technology?

Is there a need for us to look beyond hydrocarbon to secure our energy needs?

If you neither look for domestic hydrocarbons nor look for external hydrocarbons where are you going to get your energy security from? The answer given to that is we have got largest reservoir of monosite sands in Kerala and they can be used once we get to the thorium stage of nuclear power but that requires going through the uranium and plutonium paths. Until we reach the thorium part we cannot move forward and the irony is that nobody has reached thorium stage yet. So it’s a concept in physics but not an achievement on ground. Now this does not mean we cannot achieve it after all it is technology investment in the nuclear sector which has brought us the tragedy of nuclear bomb on one hand and joy of possible nuclear power on the other. I’m not saying no to this possible source of energy but even in the most optimistic scenario we will become Saudi Arabia of monosite sand by middle of the century. And we have to reach middle of the century and now if you do not have hydrocarbons how are you going to reach the middle of the century that too at a double digit rate of growth.

How do you evaluate the country’s ambitious plans of going for Nuclear Power?

I’m from Tamil Nadu and it was in 1988 that the agreement on Koodankulam Nuclear Power Plant was signed with fanfare in Rajiv Gandhi’s time. The hard truth is that wherever we want to set-up a nuclear power plant we run into local objections. Now going by the Congress meeting in Koodankulam recently the arguments put forward was based on the need for the electricity and I do not think that anyone doubts that we need electricity.

If you go ask a man living in a hut who is entitled to a single light bulb under Kutir Jyoti scheme he will say electricity is a good thing. So the protesters be it in Tamil Nadu or elsewhere are not objecting to electrical energy what they are objecting to is generation of a nuclear power plant from their community. And they need to be reassured that if Japanese could not run Fukushima and the Americans could not run Three Mile Island and the Germans are in the process of closing their nuclear power plants saying that they are unsafe to run - so people are asking why it is so safe to run these plants in India. It’s the same story in Jaitapur and West Bengal. People particularly as a result of Fukushima disaster are deeply concerned about the safety of nuclear power plants. And there are experts like Dr A Gopalakrishnan, former chairman of Atomic Energy Regulatory Authority who is presumably an authority on the subject expressing grave reservations on safety of nuclear power. So the task of persuading Indians to accept that the nuclear energy is important is very easy because everyone will say it’s very good idea to generate energy. But the task of persuading that minority of India who is living in vicinity of the area where nuclear power plant is located is much more complex. So the nuclear energy path is undoubtedly in principle than in theory the most assured way of securing energy security. But the practical human problems on the ground make it imperative that whatever may be the progress on nuclear energy front it cannot be at or the neglect of hydrocarbons.

What are going to be the essential elements forming India’s energy policy?

Instead of having dreams about double digit rate of growth which is sustainable one should in practical sense be linking the Ministry of Petroleum and Natural Gas in a much more integrated fashion to the dreams that we have for our energy security. One cannot leave hydrocarbons security as a marginal element of energy security. Theoretically we can have as much energy from renewable energy sources as one can get from the nuclear power by 2040. The reality is that we are not moving there in the absence of technology both at the global level and domestic level. We need to ponder hard and ask what has been the contribution of Indian scientists to solar energy? Fine they have reached a stage where they need large number of panels for generating solar energy as viable substitute for hydrocarbon. But the catch is that you have the sun for generating solar energy but where is the land to put up these huge panels?

"NELP peaked in 2005-2006 and we had some good discoveries. Unfortunately there has been a decline since then and it looks as if our playing around with gas pricing has scared off a lot of potential investors."

So we have to convert the whole of the Thar Desert into a set of solar panels and what are going to be the environmental implications of such a move if suddenly all the sand is going to be covered with the solar panels is hard to imagine.

Following NELP – is Shale gas policy going to be the next big thing for securing India’s growing energy needs?

We have abundance but it’s poor quality coal there is so much that can be done to revive the coal industry and I would think that the experience of NELP can be replicated in the coal sector by exploring our available resources with the best technology that the world has to offer.

NELP peaked in 2005-2006 and we had some good discoveries. Unfortunately there has been a decline since then and it looks as if our playing around with gas pricing has scared off a lot of potential investors. I hope that this gets cleared. And to my mind the best way of clearing it is to move beyond NELP into an Open Acreage Policy. This was actually mentioned by Murli Deora, former oil minister but it does not seem to have been converted into firm policy action yet. And other desperately required move which will solve a number of our energy problems is the formulation of much awaited Shale gas policy. The Chinese started implementing their shale gas plans in the year I became oil minister which was eight years back in 2004. Today they are the second largest producer shale gas following United States. In India despite the fact of my having raised the question of shale gas when I was minister we met with extremely negative reaction from the technical and commercial people concerned with the sector. In 2009 we heard the concerned minister say that by the end of 2011 we will have a shale gas policy in place. It’s February 2012 and we still do not have a shale gas policy.

Now what bothers me is the fact that why are we wanting to estimate our shale gas reserves when companies from outside can come and estimate it. And if they have estimated it wrongly we are not concerned with the investment that they lost. And if they gain then it will be to our benefit.

What should be our approach while pursuing overseas energy assets?

If you do not take risks than you will never be able to make a breakthrough. We have to be prepared for risk taking. For example during my tenure we were trying to get a bigger stake in Sudan oil. I was told about risk factors at that time with Sudan being the most dangerous place for an investor to get in. But the point is if we do not get in a place when others are not coming than we will be the first to be thrown out. We were into Libya when they had no friends and unfortunately we were the first to be kicked out when Muammar Gadaffi became a western tool for which he got to pay the price some year later. If you go on looking at these political risk factors and say that only way to move in is when political risks are low instead if you move in when political risks are high then dividends too are going to be high. We need to get into that mentality. Chinese have it and they have succeeded in securing their energy security.

People were skeptical regarding what kind of cooperative relationship we could have with China when we were the world’s two biggest competitors for world’s hydrocarbon. I went there and signed an MOU with my Chinese counterpart. We discussed matters and I asked all my oil companies to begin with one joint office in Beijing which would later grow with business expanding. I came back from Beijing on January 14, 2006 with a huge headline in the Financial Times mentioning our successful Chinese visit. And two weeks later I was sacked. And everything that was put down in MOU and my orders to open Indian oil company office were neglected for almost a year. My successor officer went to Beijing in the same year and had another MOU signed. Now how can Chinese take us seriously? Are we two squash players who do not have to follow each other into the court? Often Indian oil companies there can be seen competing with each other. However, you can do that at the stage of bidding. But to get to the point where you are seriously invited overseas or going to have a plus point because you are a favoured company then you need a lot of diplomacy. And that’s what is missing in our foreign policy.

(InfralineEnergy thanks Mani Shankar Aiyar for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)