India & China: Different Game Plans for Securing Energy: Civil Services Mentor Magazine June 2013

India and China: Different Game Plans for Securing Energy

The much hyped energy rivalry between India and China has seemingly played a part in the new great game in Central Asia. Popular media laments India’s sluggishness in following China’s footsteps. However, upon closer examination, the two countries aren’t quite playing the same game; their motivations and limitations with regard to Central Asia are different, a fact that is often ignored in surface comparisons.

China began to take serious notice of Central Asia in the late 1990’s, following a series of critical events. Losing energy self sufficiency and becoming a net oil importer in1993, the Taiwan Strait crisis and South China Sea disputes with the Philippines in 1995-6, all heightened Chinese insecurity about relying on US-controlled oil sources and supply routes. Additionally, domestic security was threatened as Uyghur separatist movements were rising in Central Asia and spilling over into China. Not only could the large untapped energy reserves in Central Asia be transported directly over land borders through pipelines, China could take advantage of American and Russian inattentiveness to influence Central Asia. India does not share China’s insecurity of energy sources or supply routes being under US influence. Thus, the drive to own energy resources is not as acute. As long as oil reaches the market, it will be available to India. If India is keen  on owning assets, it is to limit Chinese control over energy or for lower prices. Unlike China, India also didn’t have major security concerns from Central Asia, making it unnecessary to entrench itself into the region long-term for stability. However, this security calculus has changed recently, with terrorist bases spreading to Tajikistan after the Afghanistan war.

India also faces some major limitations compared to the Chinese advantage in Central Asia. The most serious limitation is connectivity. While China shares close to 3000 km in land boundaries with Kazakhstan, Kyrgyztan, India has absolutely none. Land connectivity can only be created by traversing through Pakistan and Afghanistan, both unstable and dangerous. Thus, direct bilateral pipelines and extensive land based trade, which are the hallmark of Chinese involvement, are not really an option for India. Central Asia remains landlocked and thus, sea links are also limited – through Russia, Iran, or China. While the Iranian option was most favorable to India, heavy Western sanctions have made businesses weary of trading through this route.China entered Central Asia’s energy markets in 1997, when China National Petroleum Corporation (CNPC) acquired a 60.3% stake in Kazakhstan’s Aktobe Munai Gas, gaining access to three oilfields and an exploration block. By contrast, India’s first acquisition was only in 2011 and much smaller – a 25% stake in a single oil bloc, the Satpayev. Interestingly, CNPC was bidding against established oil majors; the company not only cleanly outbid every rival, it also paid the cash strapped Kazakh government a generous bonus upfront and conducted feasibility studies on a pipeline to Xinjiang, offering the Kazakhs a non-Russian export line. This combination of China’s deep pockets, technological expertise in exploration and infrastructure and commitment to the region has eased the path to a rapid and impressive range of acquisitions and partnerships. China followed a two pronged strategy to building energy security in Central Asia. First, China acquired energy assets – both oil blocs as well as oil companies. Second, China used its technological prowess to get entrenched in the energy infrastructure and industry in the region, thus, creating interdependence between China and Central Asia, whether by building pipelines or setting up petrochemical plants.