China And India Unite On Energy

India’s Oil and Natural Gas Corp. (ONGC) and the China National Petroleum Corp. (CNPC) signed a Memorandum of Understanding (MoU). The MoU is intended to strengthen existing exploration and production (E&P) operations in Burma, Sudan, and Syria, and look ahead to making joint bids on foreign oil and gas fields for E&P in the future. This is the most recent development in a trend of cooperation between India and China that has slowly emerged over the past few years. In 2006, the two companies signed an initial pact for bilateral oil cooperation and possible joint crude purchases, which has enabled the ongoing joint E&P development in Burma, Syria, and Sudan. 

Yet, these agreements have not resulted in joint bidding or policy cooperation. The recent MoU will enable ONGC and CNCP to expand cooperation to jointly bidding on fields and jointly investing in infrastructure development. The pipeline across Burma from the Bay of Bengal to Southwest China is the first of such downstream projects and may demonstrate the maturation of Sino-Indian energy relations.

 

The reality of growing economic interdependence is contrary to the protectionist impulse that runs strong in both countries. Both nations strive to be energy independent, but in an increasingly interconnected and globalized world, neither India nor China has the financial or political capital to unilaterally and effectively develop energy resources across all energy markets. As one ONGC Videsh Ltd. (OVL) managing director D.K. Saraff said referring to the recent MoU, “we should collaborate and bid together; there is no point in raising prices.” Saraff was undoubtedly referencing the above market prices at which Chinese energy companies have secured rights to developing oil fields in the past. With the signing of the MoU, more safeguards will be adopted to ensure that bidding will not get out of hand, and prices will stay reasonable.

The proposed ONGC and CNPC partnership will ease exploration and development costs by enabling both countries to jointly participate in developing new energy resources. As two of the biggest economies in Asia and largest energy importers, energy access and development are primary and mutual concerns for India and China.

 Competition and high energy prices stem from the recognition on the part of both governments that energy availability will be a critical limiting factor for the growth of both economies, as energy access and availability is vital to economic growth.

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