Oil fuels regional rivalry
China and India, the world's two emerging giants of energy consumption, are reportedly preparing to work together to buy oil and gas assets around the globe to fuel their growing economies. India's petroleum minister, Mani Shankar Aiyar, plans to visit Beijing in November to work out ways for state-owned companies of the two nations to bid jointly for energy exploration and production rights wherever it is in their mutual interest.
In theory, it makes sense for China and India to co-operate. If they could do so consistently, it would add a significant new dimension to their improving relationship. Each is becoming increasingly dependent on imported oil and gas, often from politically volatile regions or from countries shunned or sanctioned by the west.
Many of the biggest, most productive oil and gas fields are in the hands of producer countries or the energy firms of industrialised economies. In seeking access elsewhere, China and India are 'pitted against each other to the advantage almost always of the third country', Mr Aiyar said this year. Sino-Indian rivalry, he noted, was raising fuel prices for both nations - while co-operation would be mutually beneficial.
China's bill for imported oil amounted to US$43 billion last year. It is expected to rise to over US$50 billion this year. Oil imports cost India US$29 billion in the year to March, up 43 per cent from the previous 12 months.
The national energy companies of China and India had for years made joint investments in Sudan, Mr Aiyar said, adding: 'This model of co-operation can be replicated in Iran, sub-Saharan Africa, Central Africa, Latin America and North and Central Asia.'
In their quest for foreign energy, China and India aim to buy into fields where they can produce oil and gas at cost plus the expense of extraction and transport home. That figure should be much lower than the current international market price for oil - around US$70 per barrel.
Analysts say that in seeking energy security for their economies, Chinese and Indian state-controlled energy firms often pay too much for the assets they buy. They add to the cost by sweetening their offers with government-backed aid, loans and other side deals.
This rivalry will be difficult to contain. Just last month, China's biggest oil company, China National Petroleum Corp (CNPC), outbid the offshore arm of India's largest oil producer, Oil and Natural Gas Corp (ONGC), by offering almost US$4.2 billion for the Kazakhastan oil and refining interests of the Canadian-controlled firm PetroKazakhstan.
CNPC is only one of three Chinese state-controlled majors that are bidding abroad for energy assets. ONGC is India's main flag bearer.
Although ONGC has leases to find or produce oil in at least 12 countries, China has moved faster and has deeper pockets. Analysts say that China has invested as much as US$40 billion in the past few years on overseas energy supplies - about 10 times as much as India.
Beijing's oil diplomacy seems to be better co-ordinated than New Delhi's. For example, barely a month before CNPC unveiled its bid for PetroKazakhstan, President Hu Jintao visited Kazakhstan to establish a strategic partnership to build on their already close ties through trade, energy, transport and security.
Kazakhstan sees next-door China as a key market for its oil and gas. CNPC's PetroKazakhstan purchase is likely to set the future pattern of energy relations between China and India, as each manoeuvres to exploit its geopolitical and commercial leverage to secure oil and gas assets in target countries. Competition, not co-operation, is likely to remain the dominant theme.
Michael Richardson is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore. This is a personal comment