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Details will decide Myanmar deal's success

From The Financial Express, India
January 24, 2005
link to this article.

Petroleum minister Mani Shankar Aiyar's ability to forge an alliance with Bangladesh and Myanmar to help quench the country's thirst for gas is commendable. However, there are concerns that the gains on the diplomacy front are not backstopped with firm commercial footings. The question is whether the MoU between the three countries involving movement of gas from Myanmar to India through Bangladesh by pipeline makes commercial sense.

It will, provided the Indian consumer finds the price competitive vis-a-vis substitutes. So far, there have been no discussions on the gas price and yet, the MoU has been inked! Blame it on strategy, for proponents of the pipeline project feel the MoU will provide for expediency when commercial contracts get underway. Will our aggression be misconstrued as desperation to secure gas? Foreign minister Natwar Singh cautioned Mr Aiyar last month on this very issue, for energy security in the absence of commercial underpinnings is a bad concept.

Now, back to the Myanmar gas deal. Last month, the Myanmar oil minister indicated to the Indian delegation that they were currently selling gas to Thailand at $3.8 per mmbtu. If this is any indication to go by, then Indian consumers will pay a delivered price as high as $5.5 per mmbtu in eastern India, for the gas traverses a fairly long distance through pipeline. In contrast, gas from Iran will reach Indian shores at a ceiling price of $4.1 per mmbtu in a few years' time, undergoing a more expensive process of liquefaction, travel through high seas and finally regassification on Indian shores. So, let's hope that the Indian team is able to extract a better price.

Do we have a cohesive team to deliver? Consider this. Last year, OVL, the ONGC subsidiary, tried to pick up a stake in a block in Myanmar. At the last minute, they were finessed out. Following this, the petroleum ministry wrote to all the oil PSUs to stay away from Myanmar, suggesting the existing stake of OVL and GAIL in a gas block be monetised and no gas be brought to India. But defying its largest shareholder, GAIL has gone ahead and single-handedly negotiated with Myanmar! It is betting that the finds from the adjacent field will ensure volumes to justify a transnational pipeline. Even if it does secure gas supplies, can it beat down the price?


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