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Prepared by the
Institute for the Analysis of Global Security

January 19, 2006
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Energy Security Current Issue

Dragon at Detroitís gate
The Chinese debut at the Detroit Auto Show with Geely, a mid-sized sedan planned for sale to budget-conscious American families for less than $10,000 by 2008, should be viewed as the opening shot in what is likely to be a clash of titans between the American and Chinese auto industries, one that could send Detroit to the ropes. IAGS Co-director Gal Luft analyzes the implications.

Wrestling the Russian Bear
Russia's curtailing deliveries of natural gas to Ukraine goes far beyond the bounds of a common commercial dispute between an energy supplying and an energy consuming nation. It is indicative of Russia's foreign policy vis-ŗ-vis the Soviet Union's former allies spread across Central and Eastern Europe not to mention a warning shot across the bow of Central Asian energy exporters. IAGS Senior Fellow Dr. Kevin Rosner outlines necessary steps to neutralizing Russia's energy weapon.

Sino-Japanese competition for Russia's far east oil pipeline project
There are two significant energy trends underlying the competition between China and Japan for Russia's Far East oil pipeline project: the need to seek additional energy supplies and to pursue greater energy diversification. And for both China and Japan, Russian energy offers a significant additional supply source and contributes to greater diversification. But these trends in energy interests are matched by an equally dynamic and intense geopolitical rivalry, defined by a complex and contradictory set of converging and diverging national interests. Within this context, the competition between China and Japan, as well as the Russian role in exploiting this rivalry, is driven by the distinct energy interests of each country. IAGS Associate Fellow Richard Giragosian analyzes.

Sino-Japanese oil rivalry spills into Africa
China and Japan - the two giants of East Asia - are competing for energy resources around the globe. Their rivalry in the East China Sea, Russia, Central Asia and Southeast Asia has been well documented. Yet little has been written in Washington about the impact of Sino-Japanese rivalry in Africa.
With one-third of its top 15 oil suppliers in Africa, the United States ignores the challenges of this geopolitical dynamic at its peril. Joshua Eisenman and Devin T Stewart discuss.

Oil puts Iran out of reach
As diplomatic rumbles regarding sanctions against Iran fill the airwaves, IAGS' Gal Luft notes that given Iran's key position as an oil supplier and the tightness of the oil market, Iran's influence on the world's economy makes it virtually untouchable.
No doubt, Iran is heavily dependent on petrodollars and denying it oil revenues would no doubt hurt its economy and might even spark social discontent. Oil revenues constitute over 80 percent of its total export earnings and 50 percent of its gross domestic product.
But the Iranians know that oil is their insurance policy and that the best way to forestall U.S. efforts in the United Nations is by getting into bed with energy hungry powers such as Japan and the two fastest growing energy consumers, China and India.
Threatening Iran with sanctions may well force it to flex its muscles by cutting its oil production and driving oil prices to new highs in order to remind the world how harmful such a policy could be.

On the technology front How utilities can save America from its oil addiction
Utility companies which have traditionally viewed themselves as providers of "power" for lighting homes or powering computers, can now break the dominance of Big Oil in the transportation energy sector and introduce much needed competition in the transportation fuel market. Gal Luft explains how.

Comparing Hydrogen and Electricity for Transmission, Storage and Transportation

Study: Coal based methanol is cheapest fuel for fuel cells
A recently completed study by University of Florida researchers for the Georgetown University fuel cell program assessed the the future overall costs of various fuel options for fuel cell vehicles. The primary fuel options analyzed by the study were hydrogen from natural gas, hydrogen from coal, and methanol from coal. The study concluded that methanol from coal was the cheapest option, by a factor of almost 50%.

Major improvement in fuel economy and range of Honda's fuel cell vehicles
The 2005 model Honda fuel cell vehicle achieves a nearly 20 percent improvement in its EPA fuel economy rating and a 33 percent gain in peak power (107 hp vs. 80 hp) compared to the 2004 model, and feature a number of important technological achievements on the road to commercialization of fuel cell vehicles.

Biodiesel fueled ships to cruise in Canada
A Canadian project will test the use of pure biodiesel (B100) as a fuel supply on a fleet of 12 boats of various types and sizes, 11 boats on pure biodiesel (B100) and one on a 5-percent blend (B5).

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Back Issues

China deals a blow to India's aspirations in Kazakhstan

The "unconditional" final ruling of October 26 2005 by the Alberta Court of Queen's Bench, Canada, in favour of China's China National Petroleum Corporation (CNPC) dealt a severe blow to the last Indian hope of acquiring PetroKazakhstan. The defeat in securing an important energy deal does not bode well for India's energy security concerns considering its growing energy needs and illustrates India's vulnerability in competing and securing depleting international energy sources. At the same time it opens up for greater debate the Indian energy minister's fervent argument that Asia's two emerging economic giants should co-operate rather than compete in securing international energy deals and reinvigorates the debate on reevaluating India's long standing energy policies.

Kazakhstan's increasing importance to world energy markets is driven by changing geopolitical factors. Further, its oil and gas sector is in seventh place in the world in terms of explored hydrocarbon reserves. According to latest EIA estimates, Kazakhstan's estimated proven and probable oil reserves stood at approximately 29 billion barrels and about 70 trillion cubic feet (TCF) of proven gas reserves. Oil and gas being the prime movers in Kazakhstan's foreign revenue sources, it depends heavily on external finances to develop its resource bases. This provides much needed opportunities to countries like India and China, who are desperately trying to diversify their sources and enlarge their supply bases in order to improve their energy security, to step into this Central Asian country.

One of the largest foreign energy companies operating in Kazakhstan, PetroKazakhstan was a Canadian oil company with all its assets in the Central Asian state. Its proved and probable oil equivalent reserves stood at about 550m barrels, and it accounted for about 12 percent of the Kazakhstan's oil production. PetroKazakhstan produced 150,000 barrels per day and importantly, owned the best (Shymkent refinery) of only three oil refineries in Kazakhstan. In June 2005 PetroKazakhstan announced it had been approached for a possible takeover or merger, sending stock prices up significantly. The most frequently mentioned possible suitor was India's ONGC with its partner, steel mogul Mr. L. N. Mittal, who offered around $3.9 bilion against China National Petroleum Corporation's (CNPC) $3.6 billion. However, on August 22 2005 the company declared that it reached an "agreement whereby a wholly-owned subsidiary of CNPC will offer US$55.00 per share in cash for all outstanding common shares of PetroKazakhstan." The total value of this transaction was about US$4.18 billion.

India's Petroleum Minister Mani Shankar Aiyar stated that India was not outbid by the CNPC in a 'fair auction': "The goal posts were moved midway [through the auction] and this is not an appropriate thing to do." More importantly, China won despite initial Kazakh inhibitions of a Chinese takeover. What clearly underlined the whole Kazakhstan event is that Indian diplomacy was defeated by its Chinese counterpart in clinching this important deal. India's energy policy was not fully backed by an adequate dose of foreign policy. If India considers the securing of access to international energy sources as a part of its national security, the government needs to be proactively involved. China went ahead with the deal after signing an agreement with the Kazakh government whereby around 30-33 per cent of PetroKazakhstan's would be transferred to the state-owned KazMunaiGas after the sale was completed at the end of October. The last Indian aspirations of reversing the company's decision collapsed when the Canadian court approved CNPC's acquisition agreement.

India's failure at the hands of China has clearly marked a 'low point' for Mr. Aiyar who, for some time now, has been strongly advocating closer cooperation between India and China in securing energy supplies in international market. Kazakhstan is not the first instance where India was defeated by China. It had also lost oil bids in Sudan, Angola, Indonesia and Ecuador to China. The minister should know that international deals, especially energy deals, which are now closely associated with national security, are purely guided by self interest. Besides, Mr. Aiyar is among the few who believe that Chinese companies would share their real business plans with their rival Indian counterparts. China's desperation to acquire foreign resources - a recent example being China National Offshore Oil Corporation's (CNOOC) exorbitant bid for Unocal - is something that extends beyond energy security concerns alone. Besides, even if India cooperates with China the former has always to play a second fiddle to the latter in securing outside energy sources. More importantly, even with cooperation the possibility of competition against China in some cases remains. So, why shouldn't India build bidding partnerships with other countries to strengthen its position in such an eventuality? In this regard, India has an energy partnership with Japan which should be strengthened.

There is no question that India has to do a lot more in the domestic front. It has to scrupulously accept that there have been severe bottlenecks in the structure of the domestic energy sector and these must be sorted out. Similarly, India's bidding capacity is very poor compared to that of China or other countries. Until 2003, its international spending on oil rights was mere $3.5 billion against over $40.0 billion by CNPC of China. To improve the bidding capacities several energy entities, both private and public, have to come together to form a large-equity based company to compete in the international market.

CNPC won PetroKazakhstan right from under the nose of Indian company despite its initially higher first round bid. The defeat is less about the cooperation/competition with China than about the problem in Indian policies. Mr. Aiyar should understand this very clearly, otherwise many PetroKazakhstans will follow.

Laxman Kumar Behera is a Senior Research Scholar at Jawaharlal Nehru University.