It’s a ‘fracking’ good opportunity

In the aftermath of the Second World War, an energy-hungry western alliance faced an energy-surplus Soviet Union. The world witnessed a new “Great Game” involving a quest for influence in energy-rich West Asia, particularly the oil-rich Persian Gulf. The Carter Doctrine of 1979 brought American military power to India’s doorsteps. The US Central Command headquartered in Qatar and the US 5th Fleet based in Bahrain, were primarily set up to prop up pro-American regimes and guarantee energy supplies for the US and its allies.

The global energy scenario has changed dramatically in the recent past with the development of “fracking” (hydraulic fracturing) technology. American crude oil production grew by more than one million bpd in 2012, the largest increase in the world. Crude oil production jumped 14 per cent last year to 8.9 million bpd. The US is set to replace Saudi Arabia as the largest producer of oil by 2020. Recent surveys indicate that Canada’s oil sands reserves contain the equivalent of 2 trillion barrels of conventional oil, which is more than the presently estimated reserves of Saudi Arabia, Iran and Iraq put together. With growing production of oil in the US and its reduced dependence on imports, the World Bank has predicted that oil prices will fall to $102 per barrel by the end of this year.

US emerging key player

The US alone has a potential 24.4 trillion cubic metres (TCM) of gas reserves. The estimates of shale gas reserves elsewhere are: Argentina 21.9 TCM, Europe 18.1 TCM, China 36.1 TCM and Australia 11.2 TCM. India’s recoverable shale reserves are estimated at 63 TCF, roughly one-fourth the reserves of the US and one-sixth those of China. Beijing announced in March this year that it is aiming to produce 6.5 billion cubic metres of gas by 2015.

India has released a draft policy for exploration of shale gas. But shale production has faced public opposition elsewhere on safety and environmental grounds. One hopes that policies governing shale exploration are transparent and do not lead us into the sort of problems we have faced from activists on exploitation of gas, coal, or more recently, even on nuclear power plants.

Given the problems that members of the European Union are facing with gas supplies from Russia, the US is set to become a major supplier of natural gas to its European partners. The vast potential for energy resources in North America will be supplemented with growing production in Latin America. Oil production is growing in Brazil. Columbia’s oil production has doubled since 2007. Argentina has larger shale gas reserves nearly as large as the US. Venezuela’s already substantial production can be stepped up significantly. The production in Mexico, with oil reserves larger than Kuwait, has remained stagnant and below expectations. Production is Mexico would rise substantially with policy changes now under way. Moreover, the offshore Levantine Basin, where Syria, Lebanon, Turkey, Greece, Cyprus, Israel and Gaza have overlapping claims, has substantial oil and gas reserves.

The influence of Iran and Arab oil producers in western capitals will be drastically reduced as the Americas become a power house of global energy production. In this emerging scenario, oil prices cannot be arbitrarily raised by OPEC.

Advantages of TPP

Under current US regulations, gas can be exported without formal clearances to countries with which the US has a Free Trade Agreement (FTA). Buoyed by the optimistic energy scenario and economic recovery, President Barack Obama announced in his 2013 State of the Union Address that the US would begin talks on a “Transatlantic Trade and Economic Partnership” — in effect an FTA, with the EU. The growing availability of US natural gas will be a major incentive to conclude an FTA for the environment-conscious and nuclear-averse Europeans, who are facing a decline in North Sea Oil production, which fell by 13.4 per cent last year. Negotiations with the EU are expected to be complex and difficult. But, its relatively cheap energy surpluses will be leveraged by the US, in negotiations with European partners.

The US has simultaneously been involved in negotiations for a “Trans-Pacific Partnership” (TPP) since 2010, across its Pacific shores. The TPP is intended to be a “High Standard” trade agreement aimed to address contemporary trade issues through the establishment of a Trans-Pacific Free Trade Agreement.

Its current membership includes Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. While Japan joined TPP discussions in 2010 as an observer, it is expected to become a full member later this year. South Korea, which has an FTA with the US, will inevitably join the TPP negotiations. Thailand has indicated that it would be joining the TPP, while Taiwan, the Philippines, Laos, Colombia, Costa Rica and Indonesia have also expressed interest in doing so. Members of the TPP will have the advantage of preferential access to oil and gas energy resources from the US and Canada. India has been ambivalent on its approach towards TPP membership.

While a conflict leading to the closure of the Straits of Hormuz can cause temporary problems, India can now plan its energy policies without having to unduly fear arbitrary rises in oil and gas prices. Persian Gulf oil producers such as Iraq will now be interested in seeking greater energy cooperation with major Asian oil consumers like India and China.

Oil cannot be used as a weapon for political pressures, like those India experienced in the 1970s. Moreover, as China works feverishly to build oil and gas pipelines across Central Asia, undermining Russian influence in former Soviet Republics, we could see the beginning of doubts and differences in the presently cosy Russian-Chinese relationship, as the Russians will have to look to countries such as Japan and South Korea to market their vast oil and gas resources.

India’s western neighbourhood, sometimes labelled as the “Greater Middle East,” extending from Pakistan to Turkey, is presently gripped by turmoil, terrorism, sectarian strife, Persian-Arab rivalries and ethnic separatism. The impact these developments have on the security and livelihood of over six million Indians living across our western shores in Arab Gulf Cooperation Council countries needs to be carefully monitored and assessed. The External Affairs Ministry will have to focus greater attention on these challenges.

(The author is a former High Commissioner to Pakistan.)

COMMENT NOW