Author: Amit Singh*
Date: July 04, 2013
India is the fourth largest consumer of energy in the world after USA, China and Russia. India’s economy is growing rapidly and to sustain this growth uninterrupted energy supply is essential. The Planning Commission of India in the 12th Five Year plan (2012-17) has underlined that coal dominates the country’s energy mix with a robust 52% share in primary energy consumption, followed by oil at 30% and gas at 10%. Other sources include 2% hydroelectricity and less than a per cent nuclear energy. Import dependence of oil consumption is currently about 75%, which is projected to increase to 80% by 2016-17. Import component of gas is currently ruling at 19%, slated to increase to 28% by 2016-17. Similarly, coal import is expected to rise from about 90 million tons at present to over 200 million tons in 2016-17.
As per the US Energy Information Administration (EIA), India imported approximately 64% of its oil from the Middle Eastern countries in 2012 (see diagram). But due to political instability in the region and ‘political compulsions’ (US is still urging India to delink its energy requirement from Iran), New Delhi has found it prudent to diversify its energy resources and take a look eastwards. Even though the availability of oil and gas in the South China Sea (SCS) has only somewhat limited potential to satisfy India’s energy quest in comparison to West Asia, it is still an attractive option for India’s energy security and related diplomacy. Significantly, on November 23, 2011 during an address on Security dimensions of India’s Foreign Policy at the National Defence College (NDC),Ranjan Mathai, Foreign Secretary of India underscored that “the South China Sea remains crucial to our foreign trade, energy and national security interests”.
The South China Sea is the world's second busiest international sea lane. More than half of the world's super tanker traffic passes through these waters. The main reason behind the scramble for the two island chains (Spratly and Paracel) is their richness in natural resources, especially oil and gas. On April 19, 2011 China’s Global Timespublished a special report that termed the region as the “Second Persian Gulf”- a repository of 50 billion tons of crude oil and more than 20 trillion cubic meters of natural gas (about twenty five times China’s proven oil reserves and eight times its gas reserves). EIA estimates that the South China Sea contains approximately 11 billion barrels of oil and 190 trillion cubic feet (Tcf) of natural gas in proven and potential reserves.
On September 14, 2011, Beijing objected to ONGC Videsh’s (OVL) venture in Vietnam and asked India to refrain from entering into deals with Vietnamese firms exploring oil and gas in the disputed SCS over which China claims sovereignty. India responded to the Chinese objections to its companies scouting for hydrocarbons in the SCS, saying that its cooperation with Vietnam is in accordance with international laws. During the External Affairs Minister, SM Krishna’s visit to Hanoi in September 2011, India underlined that the OVL will go ahead with oil and gas exploration in the disputed region or the two offshore blocks (127 and 128) which Vietnam claims as its own. In 2011, India and Vietnam also signed a three-year deal covering investment and cooperation in energy exploration, production and refining.
The ONGC Videsh Ltd. (OVL) provides the following information regarding their exploration activities in Vietnam:
Block 06.1 is an offshore Block located 370 km south–east of Vung Tau on the southern Vietnamese coast with an area of 955 sq km. The exploration License for Block 6.1 was acquired by OVL in 1988. After subsequent assignments and transfers of Participating Interest (PI) between the parties to Block 6.1 and Petro Vietnam, the present holdings of PIswith effect from October 17, 2011 are ONGCVidesh 45%, TNK Vietnam BV 35% (Operator) and Petro-Vietnam 20%. Lan Tay field in the Block has been developed and the field started commercial production in January, 2003. OVLshare of production from the project was 2.023BCM of gas and 0.036 MMT of condensate during 2011-12 as compared to 2.249 BCM of gas and 0.038 MMT of condensate during 2010-11. Lan Do field in the Block is under development with first gas expected in October 2012. Wells Lan Do-2P and Lan Do-1P have been drilled and completed between January 14, 2012-April 18, 2012. Presently, subseaconstruction works are in progress and first gas from Lan Do field is expected in October 2012.OVL’s share of the development expenditure in the block was about USD 342.78 million till March 31, 2012.
Block 127 is offshore deep water Block, located at water depth of more than 400 meters with 9,246 sq km area in Vietnam. The PSC for the Block was signed on May 24, 2006. OVL holds 100% PI in the Block with Operatorship. OVLhas acquired 1,150 sq km 3D seismic data in the Block and the interpretation of the seismic data has been completed. Location for drilling of exploration well was identified and the well was drilled in July 2009 to a depth of 1265 mts. As there was no hydrocarbon presence, the Company has decided to relinquish the block to Petro-Vietnam. OVL has invested approx USD 68 million till March 31, 2010.
Block 128 is offshore deep water Block, located at water depth of more than 400 metres with 7,058 sq km area in Vietnam. The PSC for the Block was signed on May 24, 2006 and the extension to the exploration Phase-I for the Block 128 was valid till June 15, 2012. OVLholds 100% PI in the Block with Operatorship. 1650 sq km of 3D seismic data was acquired and interpreted in the Block by your Company and location for drilling of exploration well was identified. Drilling was attempted on the location during September 2009; however, the well could not be drilled as the rig had difficulty in anchoring at the location due to hard carbonate sea bottom. Meanwhile, OVL has found solution to the anchoring problem and asked for extension to the exploration phase to undertake review of additional G&G data to find out a viable location for drilling to fulfil thePSC commitment. Petro-Vietnam (PVN) has suggested ONGC Videsh to continue the exploration programme in the block for additional two years with effect from 16th June, 2012 by revisiting the geological model with the integration of data likely to be available with the assistance from PVN. Till March 31, 2012,OVL has invested about USD 49.14 million in the Block.
It is interesting that the OVL has been working in this region since 1988 especially on block 06.1 but only recently has China started opposing India’s oil exploration in theSCS. However, Russia’s Gazprom is also exploring oil and gas in the Vietnamese block 112 and 129-132 in the South China Sea since September 11, 2000 but Beijing has never uttered a single word against the Russian exploration.
On December 3, 2012, while responding to the media questions on South China Sea, the Chief of Naval Staff, India, Admiral DK Joshi, underlined that “not that we expect to be in those waters very frequently, but when the requirement is there for situations where the country’s interests are involved, for example ONGC Videsh, we will be required to go there and we are prepared for that.” In response to Admiral Joshi’scomments, the Chinese Foreign Ministry spokesperson Hong Lei said “we hope relevant countries respect China’s sovereignty and national interests”, and emphasised that China opposes any unilateral energy exploration and development activities in the disputed areas in the South China Sea.
The issue at stake here is that if India really supports freedom of navigation in theSCS, then it will be necessary for India to assert, back up and safeguard its own interests in the region. The SCS is not only a strategic maritime link between the Pacific and the Indian Oceans, but it is also a vital gateway for shipping in East Asia. 80% of China’s energy imports and Japan and the two Koreas (South and North) oil supplies pass through these waters. Almost 55% of India’s trade with the Asia-Pacific transits through the SCS. Therefore, it is quite evident that India derives considerable economic benefits from the SCS being an area where all actors enjoy a level playing field. The recent upsurge in tensions in the SCS represents a security flashpoint with global consequences. The dispute has the potential to turn into a military conflict that could end up affecting the peace and security of the entire region and any disruption or conflict relating to SLOCs (Sea Lanes of Communication) will hurt India’s energy and economic outlook severely. As it may compel New Delhi to adopt some alternative route to channelize their economic activities in the region which could force time constraints, increase overheads and consume more energy.
It is a fact that India is a growing military power and a growing economy and to sustain eight to nine per cent of economic growth annually, New Delhi has to diversify and looks for new avenues for its energy resources. It is interesting to note that after getting an observer status in the Arctic Council now, New Delhi is in the process of acquiring an icebreaker for a whopping $144 million for conducting scientific and business exploration in the polar region as the Arctic is also reasonably rich in hydrocarbons.
As far as hydrocarbon resources in the South China Sea are concerned, India has not invested enough in the region. Till March 31, 2012, the OVL had invested around $460 million in the Vietnamese Blocks and this can be increased. However, the repository of oil and gas elsewhere in the SCS also attracts New Delhi and in some way or the other, India is also dependent on this region for its energy security as India is shipping oil from Sakhalin (Russia) to Mangalore through this sea route. New Delhi is also importing a significant amount of coal from SCS littorals, namely Indonesia and the Philippines, through this maritime channel only. India’s OVL is also eyeing stakes in one of the three joint ventures announced in the Arctic region by the Russian state oil companyRosneft. If India gets this project, then New Delhi will have to ship oil through the South China Sea as this is the shortest sea route for India to transport oil from the Arctic region. At present, OVL produced 2.023 BCM (Billion Cubic Metres) in 2011-12 of gas as compared to 2.249 BCM during 2010-11 form the Block 06.1 of Vietnam which is more than what the OVL is producing from Sakhalin-I, AFPC-Syria and BC-10 of Brazil. And if China controls these waters, it will be difficult for India to continue its unencumbered economic and energy ventures through this region.
India’s national interest lies in the freedom of navigation and any disruption or conflict relating to SLOCs will hurt New Delhi severely as the South China Sea channel is significant for its energy security. It is therefore, an opportune time for India tochannelize its foreign policy with the littorals of the SCS….substantively, rather than symbolically.
(*Dr Amit Singh is an Associate Fellow at the National Maritime Foundation, New Delhi. The views expressed are those of the author and do not reflect the official policy or position of the Indian Navy or National Maritime Foundation. He can be reached at firstname.lastname@example.org.)