2 Big Appetites Take Seats at the Oil Table
MUMBAI - India, sharing a ravenous thirst for oil, has joined China in an increasingly naked grab at oil and natural gas fields that has the world's two most populous nations bidding up energy prices and racing against each other and global energy companies.
Energy economists in the West cannot help admiring the success of both China and India in kindling their industrialization furnaces. But they also cannot help worrying about what the effect will be on energy supplies as the 37 percent of the world's population that lives in these two countries rushes to catch up with Europe, the United States and Japan. And environmentalists worry about the effects on global warming from the two nations' plans to burn more fossil fuels.
With engineering expertise and equipment more available around the world, one result is that oil executives and drillers in remote spots increasingly speak Mandarin or Hindi, not English. Their newfound commercial confidants live in pariah states like Sudan and Myanmar, one sign that the political dynamics of the world oil market pose a difficult challenge for the Bush administration.
The prospect of China's consuming ever growing lakes of oil has been noted over the years, although it is gaining new urgency as Chinese consumption continues to soar. China's oil imports climbed by a third last year as its oil demand exceeded Japan's for the first time.
Now India is joining China in a stepped-up contest for energy, with both economies booming recently just as their oil production at home has sagged. China trails only the United States in energy consumption; India has moved into fourth place, behind Russia.
Voracious energy demand is coming from people like Kalpana Anil Gaikar, a 35-year-old unemployed widow with three children here who keeps running up costly electricity bills. Her appetite, millions of times over, is pushing India and China to vie for control of oil and natural gas fields from Sudan to Siberia.
Both countries are also expanding their navies as they become increasingly dependent on lines of oil tankers from the Mideast, posing the beginnings of an eventual challenge to American influence in the Indian Ocean and South China Sea.
As millions of Indians and Chinese buy cars, television sets and air-conditioners, the fossil fuels burned to power their purchases have become some of the fastest-growing contributors to global warming. Chinese emissions alone soared close to 15 percent last year.
Under the Kyoto Protocol, neither India nor China faces any specific limits on its emissions of global warming gases. Both countries joined the agreement with promises to try to restrain emissions, but even environmentalists hesitate to demand stringent restrictions on China or India. That is because their energy consumption per person remains less than one-sixth the American level.
Ms. Gaikar pays $9.30 a month in rent for her tiny apartment in a public housing project here in Mumbai, formerly known as Bombay, but up to another $4.50 a month for electricity to power the lights, ceiling fan and other amenities. That is a hefty electrical bill for someone who earned less than $30 a month at a bedsheet factory until she lost her job in late December because of a broken leg.
Her children need the lights to study for school, however, and she has no intention of cutting the power. "Whatever my leg, I'll have to go back to work," she said.
To meet the demand, India's government, like China's, is looking to tap countries the Bush administration and the European Union have tried to isolate.
During a recent conference in New Delhi, a succession of top Indian officials saluted Omer Mohamed Kheir, the secretary general of the Ministry of Energy and Mining in Sudan, who sat beaming in the middle of the front row. The Oil and Natural Gas Corporation, which is controlled by the Indian government, recently began producing oil in Sudan in cooperation with Chinese state-owned companies. It is now building a pipeline in Sudan and negotiating to erect a refinery as well.
"The Asians came to Sudan in a very difficult time, and we created a very good strategic relationship with them," Mr. Kheir said in an interview.
He dismissed Western accusations that militias with links to government forces have been raping and murdering large numbers of villagers and refugees in the Darfur region. "Darfur is not a deeply rooted problem; we think it is quite artificial," he said.
Three government-controlled Indian companies concluded a $40 billion contract with Iran on Jan. 7 for the purchase of liquefied natural gas over 25 years and for stakes in oil fields there. The Indian government followed up on Jan. 13 by concluding a deal with the military government of Myanmar for the construction of a gas pipeline.
Subir Raha, chairman and managing director of the Oil and Natural Gas Corporation, said that Western countries had been arbitrary in their imposition and removal of sanctions on countries like Libya, so his company could not be expected to follow their practices for countries like Sudan and Myanmar.
"If you talk about pariah states, Libya is an excellent example," he said. "One fine morning, you see there are no sanctions."
China has also been in the spotlight lately because of suspected sales of missile technology to Iran, one of the biggest sellers of oil to China and other Asian markets.
China's deputy foreign minister, Zhou Wenzhong, took similar positions to India's in an interview in the summer of 2004. "Business is business," he said then. "We try to separate politics from business. Secondly, I think the internal situation in the Sudan is an internal affair, and we are not in a position to impose upon them."
India's oil imports climbed by 11 percent in 2004, and China's by 33 percent, straining the capacity of production operations, pipelines, refineries and shipping lines and helping to keep oil prices above $40 a barrel. The International Energy Agency expects them to use 11.3 million barrels a day by 2010, which will be more than one-fifth of global demand.
Western engineers and equipment for complex drilling are now readily available for hire, making it easier for India's and China's state-owned companies to work together and undertake ventures on their own.
Around the world, countries "are using their state oil companies to ally with each other," said William Gammell, the chief executive of Cairn Energy of Scotland, one of the biggest foreign oil companies operating in India. "The majors used to have all the technology, and now you can get the technology by buying it."
India's recent enthusiasm for energy security has extended to assets that are the subject of legal scrutiny as well. Companies controlled by the Indian and Chinese governments are the two main bidders publicly pursuing large stakes in the Yukos oil and gas assets that the Russian government recently confiscated in a tax dispute. The confiscation is the subject of litigation in Texas.
Mr. Raha said he would not be dissuaded from the pursuit by the controversy over how the Russian government obtained the assets. "I haven't seen a single deal or transaction basically that didn't have legal issues," he said.
A vigorous debate has emerged in India over whether this country's need for oil will inevitably put it at odds with China. Mani Shankar Aiyar, India's minister of oil and natural gas, said that India and other Asian nations needed to pursue their own interests in oil markets and that he wanted to cooperate with China, not compete with it.
Greater private automobile ownership and expanding industries have increased energy demand in China and India just as traditional sources of energy are fading away. In India, thousands of villages are switching from burning dried dung or brush for fuel to buying liquefied petroleum gas for stoves or plugging into the national electricity grid to power everything from ceiling lights to computers.
Beijing and now New Delhi are following a long tradition of rising economic powers seeking to secure energy supplies. Britain, Japan and the United States wheeled and dealed in the years leading up to World War II for control of oil fields around the world, with diplomats often working with oil company executives. Through the 1980's and early 1990's, government-controlled oil companies from Malaysia and Brazil also invested in distant oil fields, notably in China and the South China Sea.
As Chinese and Indian companies venture into countries like Sudan, where risk-averse multinationals have hesitated to enter, questions are being raised in the industry about whether state-owned companies are accurately judging the risks to their own investments, or whether they are just more willing to gamble with taxpayers' money than multinationals are willing to gamble with shareholders' investments.
"Sudan is the beneficiary," said Philip Andrews-Speed, a former BP geologist in China who now runs an oil policy study center at the University of Dundee in Scotland. "If these state-owned companies were not in the game, there would not be much interest in Sudan."
China made many of its investments in the 1990's, when oil fell as low as $10 a barrel, and signed large contracts for liquefied natural gas in 2002, before recent sharp increases in gas prices. India made its first big investment in Sudan three years ago, but its national leaders are calling for a greater effort to secure oil fields now despite high prices.
Some Western countries, like Germany, have dismissed as outdated the whole idea of owning far-flung oil fields. They have relied on being able to buy oil in world markets, instead of buying oil fields, and have emphasized energy conservation, notably through high gasoline taxes.
China and India have not only avoided imposing steep taxes, but have even regulated energy prices directly and indirectly for years. India in particular still keeps domestic prices for natural gas below world levels to subsidize power generation and fertilizer production, two industries with customers who still have the political power to prevent price increases.
"This is a basic reality of the Indian market," said Proshanto Banerjee, the chairman and managing director of GAIL (India) Ltd., a big state-controlled gas company, "and it would not be proper to ignore this."