Shell-shocked Scenarios

If India and Pakistan are cosying up to each other now, it is in spite and not because of Advani and Jinnah, writes Binay Kumar.

While Advani was resurrecting Jinnah's ghost to accomplish an image overhaul for himself in his place of birth, the two governments in Pakistan & India were busy last week sorting out their differences to kickstart the building of a pipeline that will run from Iran into India through Pakistan and meet India's growing energy needs. As always, economics is driving politics. If the two South Asian neighbours are cozying up to each other now, it is in spite and not because of Advani and Jinnah.

More specifically, economic compulsions spurred by rapid globalization are 'forcing' them to embrace accommodation for each other's needs so that both countries can secure for themselves uninterrupted economic growth. If India has to maintain such ambitious growth rates as those envisaged in excess of 7-8 percent annually, it must look for stable, secure and cheap sources of energy supplies. We had touched upon this issue a couple of weeks back; today's discussion, in the context of a "global scenarios" report issued by the Oil & Gas major, Shell, only underlines the immediacy and urgency of this debate.

Shell's Global Scenarios are developed to provide a challenging framework for thinking about longer-term political, societal and economic trends and their potential impact on the global energy system. The main purpose of this is to devise appropriate business strategies and business plans for the company for the anticipated changes in the world. To their credit, for over three decades, successive Shell scenarios have been the source of powerful insights for the Shell Group and for policy planners in governments worldwide.

Scenarios are a tool for helping managers plan for the future - or rather for different possible futures. They help companies to focus on critical uncertainties. On the things we may not know about, which might transform the business focus. And on the things we do know about and in which there might be unexpected discontinuities. They help us understand the limitations of our 'mental maps' of the world - to think the unthinkable, to anticipate the unknowable and to utilize both to make better strategic decisions.

According to this report, the world's energy system will face two key challenges in the 21 century: firstly, meeting expanding and shifting energy needs with secure supplies; and, secondly, responding to the impact of our energy use on the natural systems on which we all depend. While the former points to an uncertain security scenario of the future, the latter seeks to highlight awareness in dealing with changing natural eco systems as we continue to burn hydrocarbons.

Its latest "global scenarios" report, the first to be issued since 9/11 and the Enron disaster, broadly suggests that Shell in conjunction with other major oil companies or maybe on its own will place more emphasis on developing renewable energy sources such as wind and solar than extracting more hydrocarbons through unconventional means. But the more alarming forecast is the reason behind such a shift in strategy; it will happen because of continued volatility in energy prices which will be on the boil over the greater part of the next two decades as individual countries become more and more concerned about ensuring security of supply and governments take a more pro-active role in dictating energy policy and regulating markets.

Juxtapose this scenario against the latest news that India and Pakistan are about to reach agreement on the proposed 2,600-kilometre (1,612-mile) overland gas pipeline project that would bring natural gas to both countries from Iran. This happened after lengthy meetings spread over two days in Pakistan's capital Islamabad between Mani Shankar Aiyar, India's petroleum and natural gas minister, and his Pakistani counterpart, Amanullah Khan Jadoon.

India wants to import gas to meet the growing energy needs of its rapidly expanding economy, and Pakistan, which would also have access to the gas, would earn transit fees nearly three-fourths of a billion US dollars annually from a pipeline passing through its territory to India. Of course, this makes business sense for India too as this would save the exchequer at least $300 million annually.

The pipeline proposed by Iran in 1996 has never gotten off the ground because of India's concern for the security of the pipeline in Pakistan, its archrival for the past six decades.

Shell's report may have provided the perfect background for Bush to pontificate to India recently that it must develop an alternative to oil for its energy needs. He was not merely politicking when he said recently that surging demand for fuel in China and India contributed to the price increase; he was clearly playing out the scenario that the Shell Report highlights.

"It's in our economic interest and our national interest to help countries like India and China become more efficient users of oil," Bush said at a Virginia processing plant that makes "biodiesel" fuel out of soybeans. "That would help take the pressure off global oil supply, take the pressure off prices here at home," he said. Interesting though very plainly one of the many facets of the future scenarios painted by the Shell Report!

(To be continued)