January 15, 2007EconomySecurity

Energy security calls for markets and terminals

India, like Europe, needs to invest in infrastructure that allows supplier diversity

This is an archived blog post from The Acorn.

The Economist, in its leading article on Russia cutting off oil supplies to Western Europe in order to coerce Belarus argues that Europe needs to liberalise its energy markets in order to secure its energy supplies.

That is why the second leg of the (European Commission’s) energy strategy, a strategic review also unveiled this week, is so important. It wants to use EU money and political clout to build interconnecting pipelines and power lines, such as electricity hook-ups between Germany, Poland and Lithuania and between France and Spain.

Even more importantly, the commission underlines the need for diversity of supply. One important new route is the Nabucco pipeline which aims to connect Europe with gasfields in the Middle East, Caucasus and Central Asia via the Balkans and Turkey. That bypasses Russia altogether, greatly strengthening Europe’s bargaining position, regardless of how much gas it actually carries. Similarly, Europe needs to build more terminals for the import of liquefied natural gas (LNG).

The best way of achieving this is to have a competitive, liberalised market. It is no coincidence that Britain, which has gone furthest in this respect, has the most diverse supply, the strongest infrastructure (including new LNG terminals) and—over the past decade—the lowest prices. [The Economist]Well, that is similar to the advice this blog offered to India’s petroleum minister:

I invite you to consider building a state-of-the-art port with an integrated oil & gas processing terminal along India’s west coast, which is connected to major Indian cities with modern highways and/or domestic pipelines. Such a port will allow India to import oil & gas not only from Iran, but also from any other exporting country. The technology to carry oil & compressed gas on ships is mature, and if Indian ports are able to efficiently handle the seaborne traffic, such a project will provide all the capabilities of the overland pipeline, and more.

The Iran-Pakistan-India pipeline restricts India to a monopoly supplier and a monopoly transit provider. This is not a very good scenario for any purchaser. My proposal, on the other hand, takes a free market approach. India will be able to purchase oil & gas from competitive international markets, from multiple vendors and through multiple shipping lines. No single supplier or government will be able to squeeze India commercially. The Indian navy can be relied upon to take care of those who try rougher methods of persuasion. [Open Letter to India’ petroleum minister/ update]

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