January 2, 2006Foreign AffairsSecurity

An Ukrainian lesson (for India)

Depending on a single supplier is a bad idea

This is an archived blog post from The Acorn.

Russia sells its natural gas at two prices. Countries in its sphere of influence pay in the order of $50 per thousand cubic metres. Others, like many EU countries pay market rates’ of about $230 per thousand cubic metres. Post-Orange revolution Ukraine under President Viktor Yuschenko wants to move away from Russian influence. So President Putin of Russia wants Ukraine to pay the (market) price. When it refused, Russia turned off gas supplies and turned on the political pressure. What effect this will have on world politics and energy prices and how Ukraine rides out this crisis remains to be seen. But there are immediate lessons for India.

Ukraine depends on Russia for most of its gas supplies — even the gas it receives from Turkmenistan is supplied by Gazprom, Russia’s state-owned energy firm. If India proceeds to build a pipeline to access natural gas from Iran, it will find itself in situation not unlike (but much more complicated than) Ukraine’s. There will only be one supplier connected to the gas pump. If Iran decides to turn off the tap — for whatever reason — then there is little that India will be able do. While purchasing natural gas from Iran itself is not in question, the manner in which it is transported to India will have strategic implications for India’s energy security. Because building new pipelines takes years and existing pipelines cannot be diverted, an Iran-India pipeline will give Tehran unprecedented influence over India. And then there is Pakistan. (Read Atanu Dey’s point too)

The Acorn has argued that there is an alternative to the Iran-Pakistan-India pipeline. That alternative relies on investing in facilities and infrastructure at home to be able to plug in to the global energy supply chain. This will allow India to purchase natural gas not just from Iran, but also from any other country that sells it, including Russia, Indonesia and Timor Leste. But no single supplier will be hold the government to ransom. Perhaps they’ll listen now.

For seven years, [former Chancellor] Schroeder narrowed the German energy strategy on Russia,” said a commentary in the German newspaper Die Welt. It is now in the hands of the new federal government to secure sources of natural gas for Germany that are outside Russia. The example of Ukraine should teach caution to all of Europe.” [WP]

That leaves a huge energy gap to fill. And relying on Russian gas is now exposed as a very risky way to fill it…

Whatever happens, it’s clear that the UK needs a secure energy supply. That means getting energy from a diversity of sources. And bringing new nuclear generation capacity back on stream. [ASI]

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