En­ergy Future

The South Asian re­gion must fo­cus on the en­ergy is­sue on a war foot­ing to chart a future course of so­cial and in­dus­trial suc­cess.

Southasia - - COVER STORY - By Maha Ka­mal The writer is a grad­u­ate of Bos­ton Univer­sity and works as an En­ergy An­a­lyst at the Sus­tain­able Devel­op­ment Pol­icy In­sti­tute, Is­lam­abad.

Dur­ing peak times in the sum­mer, South Asia sees power cuts in a num­ber of ar­eas. Ur­ban cen­ters were gripped with black­outs for hours and hours, halt­ing not only the daily lives of peo­ple, but also dis­rupt­ing in­dus­trial pro­cesses. Power cuts, which sig­nify a deeper prob­lem of en­ergy short­ages in South Asia, are in­dica­tive of in­creas­ing de­mand pres­sures, which cur­rent en­ergy sup­ply lev­els are un­able to bat­tle. As pop­u­la­tion con­tin­ues to rise, and ur­ban­iza­tion lev­els con­tinue to go up, the de­mand for en­ergy will con­tinue to rise in South Asia.

About 1.5 bil­lion of the world’s pop­u­la­tion is con­cen­trated in South Asia, with mil­lions of peo­ple liv­ing in con­di­tions of en­ergy poverty, and lack of ac­cess to en­ergy con­tin­ues to be a bar­rier to hu­man devel­op­ment. In­dia, Pak­istan and Bangladesh fall un­der the top ten most pop­u­lous coun­tries, and future pro­jec­tions show that this num­ber is only in­creas­ing. Cor­re­lated with this is an ever-in­creas­ing need for in­fra­struc­ture devel­op­ment, and mass rapid tran­sit sys­tems, rail­way in­fra­struc­ture etc. which are in­creas­ing the en­ergy de­mand for trans­port in South Asia, a sec­tor which may form the bulk of en­ergy de­mand in the future. Pro­jec­tions from the Asian Devel­op­ment Bank pre­dict that the en­ergy de­mand for trans­port may go up to 192.8 Mil­lion Tonnes of Oil Equiv­a­lent (Mtoe). More­over, de­mand pres­sures from ris­ing pop­u­la­tion, in­dus­tri­al­iza­tion and bet­ter en­ergy ac­cess will take the to­tal pri­mary en­ergy de­mand of South Asia to 1558.6 Mtoe by 2035.

For gov­ern­ments and pol­i­cy­mak­ers in South Asia, this has trans­lated into a re­newed fo­cus on En­ergy Se­cu­rity. En­ergy Se­cu­rity, de­fined as a re­li­able sup­ply of en­ergy, at af­ford­able cost, has been a cause of con­cern in the re­gion and has seen a num­ber of pro­jects to­wards se­cur­ing en­ergy sup­plies. As the back­bone for economic growth and devel­op­ment in the re­gion, the future of en­ergy will de­ter­mine economic progress in South Asia.

In­dia, as the sec­ond most pop­u­lous coun­try in the world, forms the bulk of en­ergy con­sump­tion in the re­gion as the fourth largest en­ergy con­sumer in the world, af­ter US, China and

Rus­sia . With a GDP growth rate of about 7.5% over the last ten years, In­dia’s fuel im­ports are grow­ing, as de­mand rises, and se­cu­rity of en­ergy sup­ply is put at risk. In fact, In­dia’s ex­am­ple can be seen as a mi­cro­cosm of the prob­lem that South Asian coun­tries face as a whole, with sim­i­lar prob­lems in the en­ergy sec­tor be­cause of a de­pen­dency on oil im­ports, which put the re­gion at risk to geopol­i­tics, volatile global mar­ket prices and greater geo po­lit­i­cal in­ter­na­tional com­pe­ti­tion . There is a wide range in oil im­ports in South Asia, with Bhutan meet­ing 25% of com­mer­cial en­ergy con­sump­tion while Mal­dives, which lacks in­dige­nous fos­sil fuel sources, the per­cent­age is up to 100% . Coun­tries such as In­dia and Pak­istan con­tinue to ex­haust their in­dige­nous sources, and are look­ing at im­port op­tions. In 2013, In­dia im­ported 152 mil­lion tonnes , and with de­mand in­creas­ing, it is ex­pected to go up to 200 mil­lion tonnes this year.

Coal is ex­pected to con­tinue to dom­i­nate the en­ergy mix in In­dia, as 54% of the to­tal in­stalled ca­pac­ity for power gen­er­a­tion is coal-based. How­ever, coal as a dirty fuel has caused the ire of en­vi­ron­men­tal­ists be­cause of its high ash con­tent, mer­cury lev­els and green­house gas emis­sions. Coal’s neg­a­tive health and en­vi­ron­men­tal ef­fects for In­dia also have trans­bound­ary reper­cus­sions. Ar­eas down­wind of coal power plants are sub­jected to the neg­a­tive ex­ter­nal­i­ties of coal power gen­er­a­tion. An ex­am­ple of this is the cor­re­la­tion of emis­sions from coal power plants with smog in ar­eas on Pun­jab in Pak­istan. Clean coal tech­nol­ogy may be­come in­creas­ingly im­por­tant in the re­gion to re­duce the neg­a­tive im­pacts of coal. It is also en­cour­ag­ing for the re­gion that tar­iffs for wind en­ergy have reached par­ity with coal in In­dia, and so­lar en­ergy is ex­pected to be cost-com­pet­i­tive with coal by 2018, ac­cord­ing to an HSBC’s 2013 re­port on re­new­ables.

Be­fore the tran­si­tion from coal and oil to re­new­able en­ergy is pos­si­ble, nat­u­ral gas, with its lower car­bon emis­sions as a cleaner fuel, may be the mid-term so­lu­tion for South Asian economies. In­creas­ing de­mand for en­ergy, and dwin­dling nat­u­ral gas re­serves will drive a need for nat­u­ral gas im­ports in the re­gion. This is re­flected in re­gional nat­u­ral gas pipe­line pro­jects such as the Turk­menistan- Afghanistan- Pak­istanIn­dia pipe­line (TAPI) and Iran-Pak­istan (IP) pipe­line project. How­ever, suc­cess of pipe­line pro­jects in the re­gion is strongly de­pen­dent on po­lit­i­cal will, which has not been the case in the past. In 2009, In­dia with­drew from the Iran-Pak­istan pipe­line project, amid a nu­clear deal with the United States. In­dia had planned for 63000 MW of nu­clear power ca­pac­ity by 2032 , but the Fuk­ishima nu­clear dis­as­ter in Ja­pan in 2011 drew con­cern over nu­clear power in the re­gion.

As South Asian coun­tries’ de­mand for nat­u­ral gas rises, they will con­tinue to be sig­nif­i­cant mar­ket share hold­ers and will have to present a united front to strengthen their bar­gain­ing po­si­tion on nat­u­ral gas prices. In fact, the coun­tries should learn from their past as in 2004 when the Iran-Pak­istanIn­dia pipe­line was un­der dis­cus­sion, prices were around USD 4/mmbtu, but LNG prices from Qatar at present are now around $19/mmbtu with ship­ping costs (es­ti­mates vary from coun­try-coun­try, de­pend­ing on unique LNG price for­mu­lae). Buy­ing en­ergy un­der re­gional deals may prove to be more as­tute.

How­ever, progress has been slow on pipe­line pro­jects ow­ing to the con­trast­ing po­lit­i­cal in­ter­ests between in­ter­na­tional play­ers, and fi­nan­cial pres­sures, such as fi­nanc­ing and slow rene­go­ti­a­tion on oil-in­dexed prices. As a re­sult, all of In­dia’s nat­u­ral gas im­ports are LNG-based, with con­tracts such as the one between the US com­pany Che­niere and In­dia’s Gail be­ing more com­pet­i­tive at $10.5/ mmbtu than pro­jected pipe­line prices which are oil-in­dexed. While there are talks of ex­plo­ration of Shale Gas in the re­gion, such as shale oil in the Cam­bay basin in In­dia, the future of Shale Gas in South Asia will be de­ter­mined by the reg­u­la­tory poli­cies of in­di­vid­ual coun­tries.

Power pro­jects con­tinue to be driven by high elec­tric­ity de­mands in the re­gion. Bhutan and In­dia con­tinue power trade, with hy­dropower ex­ports from Bhutan, but there have been dis­putes between Nepal and In­dia over elec­tric­ity trade, in­clud­ing on slow of Nepal-In­dia Elec­tric­ity Trans­mis­sion and Trade project and that raises se­ri­ous con­cerns for en­ergy trade in the re­gion. How­ever, ne­go­ti­a­tions were also un­der­way between In­dia and Myan­mar for a 500 MW hy­dropower project. Since 2013, In­dia and Bangladesh have been co­op­er­at­ing on elec­tric­ity trade with the com­ple­tion of the first elec­tric­ity grid in­ter­con­nec­tion among SAARC coun­tries. South Asian coun­tries will have to de­velop the tools and frame­works for bet­ter en­ergy reg­u­la­tion in the re­gion, since presently there is a vac­uum on re­gional en­ergy reg­u­la­tion. With­out ad­dress­ing the prob­lems in re­gional en­ergy trade, mov­ing for­ward will be chal­leng­ing.

There is no deny­ing the im­por­tance of re­gional pro­jects on en­ergy as tools for in­creas­ing re­gional in­te­gra­tion and co­op­er­a­tion, but slow progress shows that coun­tries will have to ad­dress some key po­lit­i­cal and fi­nan­cial chal­lenges. Greater re­gional co­op­er­a­tion on en­ergy will be pos­si­ble by rec­og­niz­ing com­mon goals in the re­gion, and the idea of en­vi­ron­men­tal preser­va­tion while meet­ing en­ergy de­mands will be­come in­creas­ingly im­por­tant be­cause of South Asia’s vul­ner­a­bil­ity to Cli­mate Change. By rec­og­niz­ing the need for sus­tain­able devel­op­ment in the re­gion, coun­tries will have to move to­wards cleaner en­ergy sources.

Cur­rent En­ergy pat­terns will have to change if economic devel­op­ment is to be sus­tain­able in South Asia. South Asian economies can­not con­tinue to be de­pen­dent on fos­sil fu­els, such as oil whose prices are vul­ner­a­ble to ex­ter­nal po­lit­i­cal and economic shocks, and coal which is a cause for en­vi­ron­men­tal con­cern. South Asian coun­tries will have to di­ver­sify their en­ergy mix, with spe­cial at­ten­tion to re­gional co­op­er­a­tion on re­new­able en­ergy. Higher ef­fi­ciency and lower emis­sions will have to be the way for­ward for en­ergy se­cu­rity in South Asia. Lead­er­ship in South Asia will have to move away from pocket-based short-term en­ergy solutions to­wards sus­tain­able en­ergy for all.

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