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