Analysis: India drops MBI gas pipeline

"Myanmar is taking India for a ride on gas supply from its fields despite the fact that two Indian state-run companies control 30 percent stake there," said N. Janardhan Reddy, chairman of an Indian Parliamentary Standing Committee attached to the Ministry of Petroleum and Natural Gas. "And its growing closeness to China has forced India to drop plans to lay a gas pipeline from Myanmar via Bangladesh."

The move has further intensified the struggle to acquire energy resources in the Southeast Asian region.

The Reddy committee has sought to learn the status of the more than $2 billion gas pipeline project. The government, in its response to the committee's query, said no significant progress has been made in the project since a January 2005 trilateral meeting between the oil ministers of the three partnering nations.

After the meeting, a techno-commercial working committee of representatives from the three countries was formed. The group prepared a draft agreement for which approval had been delayed on account of differences between India and Bangladesh and Myanmar's preference for China in dealing with energy exports.

The 180-mile MBI gas pipeline has been hitting roadblocks since its inception. India was initially very keen on the completion of this pipeline, especially as uncertainty was setting in regarding the fate of the $7 billion Iran-Pakistan-India gas pipeline.

Bangladesh issued the first blow to the MBI pipeline project, demanding a transit fee and free gas connectivity for its cities along the pipeline. India rejected the demands, claiming it is not economically viable and began exploring the option of a pipeline through Northeastern Indian states bypassing Bangladesh.

Bangladesh, in retaliation, rejected the tri-nation gas pipeline project and said it was negotiating with Myanmar for a direct pipeline, which would be shorter and less expensive. The major setback India received was when Myanmar announced it was going to sell gas to China and lay a pipeline with its communist neighbor.

Myanmar invited bids for a gas pipeline from its A-1 and A-3 blocs. The state-controlled Gas Authority of India Ltd. submitted a bid in September 2006. Following the bid, Myanmar asked for a bid for purchase of 3.5 million metric tons per annum of liquefied natural gas. GAIL again submitted a bid.

The issue was discussed during a visit of an Indian delegation to Myanmar recently. Yangon, during the course of discussion, indicated that it would like to earmark a portion of the 4.8 trillion available cubic feet to meet domestic requirements and put the rest up for export.

The military junta government of Myanmar, however, backed-out of its assurance and announced it would sell the gas from A-1 and A-3 blocs to China's national oil company CNPC. Indian authorities say the bid from China was taken as result of growing Chinese influence on Myanmar's energy sector and China's keen interest Myanmar's gas supplies, resulting in a further intensified battle for oil and gas resources in Southeast Asia.

"Besides, Myanmar's decision to prefer China over India to do oil and gas export business, the unwillingness of Bangladesh to provide transit has forced New Delhi to explore other options before it is too late," said Anand Kumar, a senior energy analyst.

Bangladesh, which stands to earn substantial transit fees of $125 million per year, has set conditions, including the creation of corridors through India to carry out trade with other neighbors like Nepal and Bhutan.

New Delhi has offered to give cash for the quantity of gas Yangon would sell to it from its current surplus. Myanmar has an estimated surplus of 200,000 tons. India is also willing to lift the gas supplies within nine months of the deal being finalized.

By bringing Myanmar on board, China has once again beat out India in the competition for acquiring oil and gas blocs abroad and also in the gas pipeline business. This has come as a major blow to the Indian energy strategy.

It has been working hard to sign agreements with oil and gas-rich countries to meet rising power demand, as most of the Indian power plants are gas-based and currently either closed or running half their capacity.

Myanmar and China's partnership is also being viewed as a blow to India's "Look East" foreign policy, which was envisaged during President A.P.J. Abdul Kalam's last visit to Yangon in 2006 when India reiterated its commitment to strengthen its relations with countries in the region.

India has formulated an energy diplomacy strategy under which it has plans to get as much as gas from the South and Southeast Asian nations as it can.