China and India should enhance trust for energy deals

By Lin Boqiang Source:Global Times Published: 2017/3/15 21:58:40

Illustration: Peter C. Espina/GT



China and India accounted for approximately 60 percent of incremental world energy demand in 2015. The two countries share a lot of similarities in regards to energy including a rapid increase in demand, unitary coal-dominated energy structure, shortage in oil and gas and a high dependence on foreign oil. To ensure energy security, both China and India are looking for long-term and stable energy import sources and are seeking to cooperate with oil producers in the Middle East, Central Asia and Africa.            

China and India are competing to secure energy investment overseas, especially in oil and gas. They have vied for the right to develop oil in Angola in Southwest Africa and Ecuador in South America. Whoever wins the bids, both countries will inevitably pay a high cost.    

With growing economic and trade ties as well as stepped-up energy diplomacy, China and India have seen greater scope for cooperation in energy. Chinese and Indian firms have already cooperated on developing oil and gas resources and acquiring overseas assets. Further, in October 2016, the two countries held the fourth strategic economic dialogue in New Delhi, India and pledged to cooperate in areas such as renewable energy, coal development and power station operation and maintenance centers.

In all, there are a number of areas that China and India can work together to take their energy cooperation to the next level.

China and India could strengthen cooperation in investments in energy technology and products. China is ahead of India in energy technologies including coal-fired power generation technology, nuclear energy, wind and solar energy technology as well as equipment manufacturing. China also has huge funding resources. In contrast, India has an edge in energy information management and wind energy, and also has a large energy market. In addition, Indian firms are more internationalized. Their complementarities offer great opportunities for the two countries to jointly invest in the energy sector. For example, China has advanced solar energy technologies and the cost of its solar energy equipment is low while India has abundant solar energy resources but its solar energy equipment sector is still in the fledging stage. The two countries can jointly invest in the solar photovoltaic industry through joint ventures and technology transfer to expand their solar energy market. Also, China has expertise in the design and construction of large power stations, manufacturing of complete sets of hydropower equipment and coal-fired generation equipment as well as construction and management of power grids, whereas power supply and grid construction has always been the bottleneck in the development of India's power sector. The two countries can jointly develop and invest in power generation projects.  

Meanwhile, the two countries can jointly bid for contracts to acquire and develop overseas oil and gas resources. Compared with international oil giants, Chinese and Indian oil companies are still behind in terms of management, technology and capital strength. Cooperation between Chinese and Indian firms would allow them to gain bargaining power in negotiations in the international oil and gas market. Back in 2006, China and India signed memorandums of understanding for possible joint acquisition and development of overseas oil and gas assets, but the agreements have no binding force and the two countries only worked together on bids when they didn't have an obvious advantage. The governments of the two countries should push for a cooperation framework that has greater binding force and provides legal protection for cooperation in energy exploration, production and extraction and reduces unnecessary competition among firms from the two countries. This will help minimize investment risks and achieve better economic benefits.

Another key area for energy cooperation is pushing ahead with construction of oil and gas pipelines. Both China and India need reliable transmission pipelines as they import oil and gas from Russia, Central Asia and the Middle East. So far, China has built a gas and oil pipeline network which connects with its neighboring countries to the north and west. India is also working to build multiple energy pipeline routes but has experienced some difficulties due to the conflict between India and Pakistan. India urgently needs China to join in its effort to build the pipeline network. Meanwhile, overland transportation routes that China expects to build to its west and southwest cannot bypass South Asian countries. India's prominent role in South Asia makes it even more necessary for China to cooperate with the country in building overland energy routes.

Apart from bilateral cooperation, the two countries should also launch multi-level cooperation and build an energy cooperation framework among the BRICS countries, the Shanghai Cooperation Organization and South Asian regions. As big energy consumers, China and India can raise their bargaining power as energy buyers under these frameworks.

More importantly, China and India should enhance political trust to advance their energy cooperation. Other factors such as border disputes between the two countries and US influence should not be overlooked and should be properly handled.

The author is dean of China Institute for Studies in Energy Policy at Xiamen University. bizopinion@globaltimes.com.cn



 



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