The Ukrainian lesson (according to The Economist)

The best way to ensure energy security is to rely on the world market

The Economist in its special report on energy security supports The Acorn’s case for India to invest in domestic LNG infrastructure and energy markets instead of risking taxpayers money on an adventurous pipeline project in Iran and Pakistan.

If the Ukraine story has a moral, it is that energy security depends on the existence of a global market free from political interference, plus maximum diversity of supply. [The Economist]

Gas is arguably most vulnerable to unforeseen interruptions of supply. Oil is reasonably easy to trade, but in most gas markets the pipeline between the gas field and the gas burner locks producers and consumers in an exclusive embrace. But a market in tradable liquefied natural gas (LNG) is rapidly emerging—flows to Europe have more than doubled over the past decade and represent about one-quarter of the world’s total cross-border gas trade. Some $100 billion could be invested in LNG over the next decade. This has big implications for the gas industry, because it is possible now to import gas from distant, underdeveloped producers at reasonable prices. Over the next decade, there might even be routine price arbitrage between markets. [The Economist]

Related Post: An Ukrainian lesson (for India)

3 thoughts on “The Ukrainian lesson (according to The Economist)”

  1. Nitin, I am still not convinced that gas suppliers have more power over consumers. If anything suppling nations suffer lot more, in the long run, than consuming nations if the supplier nation use gas for political games (as the Russian story shows). Also, as I said before, most energy rich nations are dopes – the political risks are inherent when it comes to trading oil and gas. And on a purly economic basis, piping gas is lot cheaper than liquifying and transporting LNG and deliquifying.

    In any case, TOI’s Swami Aiyer expresses similar concerns (as you) but goes a step further. He wants to turn back on both gas and oil imports and wants India digging into huge coal reserves (via gasification) and nuclear power. I think both are untenable alternatives for India energy needs in the short to medium term.

    http://timesofindia.indiatimes.com/articleshow/1363116.cms

  2. Chandra,

    I think Swaminathan Aiyar (isn’t he Mani Shankar’s brother?) makes some very good points; the point about relying on domestic sources stems from his understanding that the retail price of power will remain regulated, in or around the range of Rs 2.50 per kWh.

    But it is naive to believe India can enjoy any form of energy security while it keeps its power and petrochemical industry regulated. Given that India lacks significant oil deposits, or nuclear fuel (uranium) for that matter, not only does India need to fully open up these sectors to private investment and competition, but also set up sophisticated energy markets that can help derisk fuel supplies.

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