India, Pak to carve out oil buyers' bloc Mani Shankar Aiyer

KARACHI: This is a different power game. India and Pakistan have jointly embarked on a new voyage in their quest for energy security. And in the process, the two energy-hungry nations may end up rewriting market rules and changing the region’s energy equations as collaborators in the great oil hunt.

The world energy market has so far been dictated by a cartel of oil and gas-producing nations. Now join the game on the other side of the chessboard where buyers could settle the terms of the trade.

Petroleum minister Mani Shankar Aiyar told ET at the conclusion of the first leg of his three-nation tour, “The ‘monopsonistic powers’ of India and Pakistan will be the new bargaining chip in the energy market.”

Simply put, India and Pakistan will seek to emerge as the new buyers’ block, the natural market for the region’s leading gas producers.

Monopsony, often an input market, has only one buyer. This is analogous to monopoly in which there is only one seller in the market. Over a 100 years ago, in the era of the Robber Barons of the US, John D Rockfeller put the word ‘monopsony power’ in currency, taking advantage of the Union Pacific Railroad.

He signed a deal with the railroad company, making it obligatory for the transporter to pay a penalty to Rockefeller’s Standard Oil for transporting somebody else’s cargo. In essence, monopsony power gives a business the ability to control the unit cost of paying for an input, similar to the way a monopoly controls the product price.

Mr Aiyar said, “We are the natural market for most of these gas producers... the assured market for gas producers such as Iran to monetise their resources. Where else can they get such volumes? After all, geography has placed India and Pakistan in proximity to the greatest gas reservoirs in the neighbourhood.”

India has already taken a lead in this direction by aligning with the largest consumers of the region — China, Japan and Korea. Taking Pakistan on board, India now seeks to converge the largest producers of oil and gas with the largest consumers in the region. The evolving buyers’ block would possibly be a force that even US may find hard to ignore.

China’s move to source LNG — the country has contracted to bring in at least 10mt over the next 25 years — coupled with India’s own LNG deal for 5mt from Iran is already beginning to realign energy equations in the region. New energy corridors linking gas producers in west Asia to emerging economies are now expected to set off with India and Pakistan moving collaborating on the pipeline project.

“The India-Pakistan energy dialogue has translated a dream into reality. The unambiguous demonstration of political will has taken the dialogue streets ahead and much beyond my own expectations. A roadmap has been laid out and signposts and milestones set out. Above all, the endorsement of the pipeline routes as important energy sources instead of optional sources of energy is, perhaps, the biggest achievement of the talks,” Mr Aiyar said.

They call it the ‘widening jaw’. Pakistan’s galloping demand for gas coupled with India’s need to switch from liquid to gas is set to place the demand growth curve for gas on an upward trajectory.

Pakistan is set to outstrip even India’s demand by ’25. At present the country meets 50% of its energy requirement from gas. India, on the other hand, is largely dependent on coal and liquid petroleum products. This is set to change as India strives to tap gas sources from distant lands.

Not one to remain constricted to only a political dialogue, Mr Aiyar, a Lahorie by birth, has also chalked out plans for a peoples’ dialogue.

The Karachi leg of his Pakistan visit today, where he met the intelligentsia, comprising academics, journalists and industrialists, was aimed at getting the people on board on the grand energy voyage of the two civilisations.



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