South Asia Regional Overview

South Asia is important to world energy markets because it contains 1.3 billion people -- more than one-fifth of the world’s population -- and is experiencing rapid energy demand growth. South Asia also is a major, and growing, contributor to global emissions of carbon dioxide.

Note: All information contained in this report is the best available as of March 2001 and can change.

GENERAL BACKGROUND
The South Asian region (Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka) has a huge population (more than one-fifth of the world total) which is growing rapidly. At the same time, and despite rapid economic growth during the 1990s, the region has among the lowest per capita incomes in the world. For 2001, Pakistan is expected to experience a growth rate of 2.3%, with India at 6.1%. India is by far the largest South Asian country, in terms of population, GDP, land area, energy consumption, energy production, and carbon emissions. After India, Pakistan and Bangladesh are the next largest South Asian countries in these categories.

Overall, South Asia is in a period of transition as it strives to implement effective economic, political, social, and legal structures to support sustained growth. The International Monetary Fund (IMF) and the World Bank have arranged several billion dollars worth of assistance to the region, with the IMF prescribing such measures as cuts in subsidies (including energy subsidies), deregulation, anti-poverty efforts, and increased privatization.

The South Asian Association for Regional Cooperation (SAARC)
The South Asian Association for Regional Cooperation (SAARC) was created in 1985 to help promote economic and social development, plus economic cooperation in the region. SAARC members are Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Ultimately, SAARC members envision a South Asian Free Trade Area (although intra-regional trade currently accounts for less than 5% of South Asia's total trade). At the 10th annual SAARC summit held in 1998 in Colombo, SAARC members agreed to convert existing South Asian Preferential Trading Agreement (inaugurated in 1995) to a regional free trade agreement by 2001. On March 17, 1999, prior to a meeting of SAARC in Sri Lanka, India said that substantial progress had been made towards this goal. Following the meeting, however, SAARC ministers declared that complete regional trade liberalization would most likely take 10-12 years, as several of the smaller countries fear the full effects of freer trade. Meanwhile, India and Sri Lanka declared their intentions to establish a separate bilateral free trade agreement. Currently, India maintains a large trade surplus with Sri Lanka. Besides free trade, SAARC also is considered a means to promote inter-regional energy cooperation. The prospect of an inter-regional electricity grid has been one of the cornerstones of SAARC's agenda. The last SAARC meeting was scheduled to be held in November 1999 in Kathmandu, Nepal but was postponed due to the coup in Pakistan.

ENERGY OVERVIEW
Economic and population growth in South Asia have resulted in rapid increases in energy consumption in recent years -- well above the rate seen in the OECD. The Energy Information Administration (EIA) estimates that South Asia's primary energy consumption (NOTE: EIA energy statistics include only "commercial" energy sources, but not animal waste, wood, or other biomass, which accounts for more than half of the South Asia region's total final energy consumption) increased by around 50% between 1990 and 1999. In 1999, South Asia accounted for approximately 3.8% of world commercial energy consumption, up from 2.4% in 1987. Despite rapid growth in energy demand, however, South Asia continues to average amongst the lowest levels of per capita energy consumption in the world, but among the highest in terms of energy consumption per unit of GDP.

Not counting "non-commercial" sources of energy like animal waste, wood, and other biomass, South Asia's commercial energy mix in 1999 was 43% coal, 35% petroleum, 13% natural gas, 8% hydroelectricity, 1% nuclear and 0.2% "other." There are significant variations within the region. Bangladesh’s energy mix, for instance, is dominated by natural gas (71% in 1999), while India relies heavily (51%) on coal. Sri Lanka is overwhelmingly dependent on petroleum (75% in 1999), while Pakistan relies on oil (42% in 1999), natural gas (40%), and hydroelectricity (13%), and the Maldives is 100% dependent on petroleum. The Himalayan countries of Nepal and Bhutan have high shares of hydroelectric power in their energy consumption mix. In recent years, natural gas has been growing in importance as a source of energy in South Asia, especially for use in power generation, fertilizer and petrochemical production.

The major energy issues facing South Asian nations today are keeping up with rapidly rising energy demand and beginning to promote cross-border energy trade. Already, South Asia is grappling with energy shortfalls, usually in the form of frequent, costly and widespread electricity outages. Given this situation, and in particular its potential economic and political ramifications, improving the supply of energy in general, and electricity in particular, is a major concern among regional governments. In order to accomplish this goal, South Asia thus is faced with the challenges of diversifying traditional energy supply sources (and expanding the use of indigenous energy resources), promoting additional foreign investment for energy infrastructure development, improving energy efficiency, reforming and privatizing energy sectors, and expanding regional energy trade and investment.

Growing demand for transportation fuels and increased industrial power demand have been major factors behind the growth in South Asian oil consumption in recent years. Between 1990 and 1999, South Asian oil consumption -- led by India -- grew by about 64%, and EIA's International Energy Outlook 2000 projects India's oil consumption will grow another 40% by 2005, reaching 2.7 million bbl/d (up from 1.9 million bbl/d in 1999). India’s current Five Year Plan (1997-2002) forecasts that the country will exhaust its crude oil reserves by 2011-2012, even if only 30% of demand is met through domestic production. The Plan also envisions that India will need to increase its crude oil imports 70% by 2001-2002. The Plan emphasizes and encourages domestic oil companies’ pursuit of oil exploration opportunities in other countries, particularly in Asia and Central Asia. Like India, Pakistan's net oil imports are expected to increase rapidly as domestic oil demand growth, much of it associated with the startup of new oil-fired power plants, outstrips increases in oil production. Sri Lanka imports all of its crude oil, which is used largely for electricity generation and transportation, and has refining capacity of 50,000 bbl/d. In recent years, Sri Lanka has increased its oil imports in an effort to diversify away from reliance on hydroelectricity, which varies depending upon rainfall amounts. Between 1990 and 1999, Sri Lankan oil consumption increased around 80%.

Refining
The construction of adequate refining capacity to keep up with growing oil demand is of great economic importance to South Asia. Each South Asian country is proceeding with refinery construction plans. India has more than 1 million bbl/d of new refining capacity in various stages of development. The largest project, the Reliance Industries refinery at Jamnagar, came partially onstream in late summer 1999, and will have a final capacity of 540,000 bbl/d. Most of this capacity is scheduled for completion by 2002. The 100,000 bbl/d "Pak-Arab" refinery in Pakistan came online in late 2000, helping alleviate the country's refined products dependence. Petronet India, a company created in early 1998 as part of an agreement among India's three government-owned refineries (IOC, Hindustan Petroleum, and Bharat Petroleum) is building product pipelines that will add about 500,000 bbl/d to current pipeline capacity of about 325,000 bbl/d (all operated by IOC). Completion of these projects will shift the main transportation mode for petroleum products from rail to pipeline.

NATURAL GAS
South Asia contains around 55 trillion cubic feet (Tcf) of proven natural gas reserves, or about 1% of the world total, with potentially larger resources suspected but unproven. The region consumes and produces around 1.85 Tcf of gas. Around 42% of this is accounted for by Pakistan, 41% by India, and the remaining 17% by Bangladesh. If long-term projections of rapidly increased gas demand for South Asia are correct, the region will require either significant increases in production, imports, or most likely both. Gas imports to the region will require construction of infrastructure -- either pipelines or liquefied natural gas (LNG) facilities. Without such infrastructure, energy supplies could be constrained, or increased reliance on other fuels could result.

Natural gas usage has increased rapidly in South Asia, growing about 77% between 1990 and 1999. Natural gas is seen in the region as playing an important part in supplying new power plants in the region, plus as a means of diversifying away from expensive oil imports. An obstacle to the expansion of natural gas usage in South Asia is the region's inadequate domestic gas infrastructure. Indian proposals to import, for instance, will require that supporting infrastructure be in place before such imports can proceed. Cross-border gas pipelines also will hinge upon the successful construction of domestic gas pipeline systems first.

Natural gas is Bangladesh's only significant source of commercial energy. Bangladesh currently has estimated proved natural gas reserves of around 11 trillion cubic feet (Tcf) in approximately 20 fields (mainly onshore), although gas reserves estimates vary widely, with foreign energy companies such as Shell, Unocal, and Halliburton, for instance, believing that Bangladesh's gas reserves actually might be much higher than 11 Tcf. The US Geological Survey, for instance, said in a recent report that undiscovered gas reserves might be as high as 33.5 Tcf (two-thirds in the western and central regions, and one-third in the eastern region), enough to make Bangladesh a major gas producer (as well as supplier to the vast potential market in neighboring India) at some point. The high degree of uncertainty surrounding estimates of Bangladesh's gas reserves at the present time is due mainly to the relative lack of seismic work, drilling, etc. conducted on Bangladeshi gas fields to date. If the higher estimates prove to be correct, Bangladesh could at some point become a major gas producer (as well as supplier to the vast potential market in neighboring India). Gas exports are controversial within Bangladesh, however, with many people feeling that Bangladeshi gas resources first should be used for domestic purposes (i.e., electric power generation, fertilizer production, transportation), and also that the size of the country's gas reserves remains highly uncertain, particularly in relation to future domestic demand projections. Both major political parties are officially committed to considering gas exports only if Bangladesh has proven reserves sufficient to cover 50 years of domestic demand

Indian consumption of natural gas has risen faster than any other fuel in recent years, and now accounts for around 7% of the country's energy demand. From nearly 0.8 Tcf in 1999, Indian gas demand is projected to reach 1.7 Tcf in 2005 and 2.7 Tcf in 2010. Increased use of natural gas in power generation will account for most of the increase, as the Indian government is encouraging the construction of gas-fired electric power plants in coastal areas where they can be easily supplied with LNG by sea. Given that domestic gas supply is not likely to keep pace with demand, India will have to import most of its gas requirements, either via pipeline or LNG tanker, making it one of the world's largest gas importers. India is investing heavily in the infrastructure required to support increased use of natural gas, building LNG import terminals and pipelines. India's Foreign Investment Promotion Board (FIPB) already has approved 12 prospective LNG import terminal projects, but it is likely that not all will be built on schedule, as their combined capacity would exceed projected demand. The Indian government has now frozen approvals of new LNG terminals.

Pakistan has 21.6 Tcf of proven gas reserves, and currently produces nearly 0.8 Tcf of natural gas per year, all of which is consumed domestically. Pakistan's demand for natural gas is expected to rise substantially in the next few years, with an increase of roughly 50% by 2006, according to Pakistan's oil and gas ministry. Pakistan also plans to make gas the "fuel of choice" for future electric power generation projects. This will necessitate a sharp rise in production of natural gas, and also has generated interest in Pakistan in pipelines to facilitate imports from neighboring countries.

Several import schemes also have been under discussion in recent years. In mid-2000, Pakistan's government stated that it would permit a gas pipeline linking Iran's massive gas reserves to rival India to cross its territory. Pakistan would earn transit fees for Iranian gas supplied to India and also be able to purchase gas from the pipeline itself. While Iran and Pakistan have shown great interest in the project, India has been reluctant to move forward as long as political and military tensions with Pakistan over Kashmir persist. Another possibility is that Pakistan could eventually be linked into the Dolphin Project, a scheme to supply gas from Qatar's North Dome gasfield to the United Arab Emirates and Oman, via a subsea pipeline from Oman. Even though Pakistan has signed a preliminary agreement to eventually purchase gas from Qatar, it seems increasingly unlikely that Pakistan will be included in the project in the near-term, due to it financial weakness and uncertainty about whether there will be sufficient demand growth. A third possible gas pipeline would link gas-rich Turkmenistan with Dalautabad in central Pakistan via Afghanistan. Unocal had been the main foreign backer of the plan until August 1998, when it withdrew from the project after the U.S. strikes against terrorist training camps associated with Osama bin Laden in Afghanistan. Since then, the governments of Pakistan and Turkmenistan have been holding talks with the Afghan Taliban authorities about continuing the project without Unocal, but it appears unlikely that the project will be implemented.

Bhutan, the Maldives, Nepal, and Sri Lanka do not currently produce or consume any natural gas.

COAL
South Asia contains 86 billion short tons of coal, or around 15% of the world total. Currently, coal accounts for 43% of South Asia's energy consumption. Nearly all of this is produced and consumed by India, the only South Asian country with significant coal reserves, and the world's third largest coal producer (after the United States and China). Indian coal generally is of poor quality -- i.e., low in calorific content and high in ash -- and primarily is located far from major consuming centers. Power generation accounts for about 70% of India's total coal consumption, followed by steel and other industries. India's coal consumption is expected to increase to 565 million short tons (Mmst) by 2020, up 62% from 348 Mmst in 1996. Largely for this reason, South Asia's carbon emissions are expected to increase sharply in coming years.

Coal currently plays a relatively minor role in Pakistan's energy mix (5% in 1999), but the discovery of large volumes of low ash, low sulfur lignite in the Tharparkar (Thar) Desert in Sindh province will have a positive impact on consumption levels. Bangladesh and Sri Lanka have insignificant coal reserves, and consume almost no coal.

BIOMASS (NON-COMMERCIAL FUELS)
As is the case in many developing countries and regions, South Asia continues to rely heavily on biomass (i.e., animal waste, wood, etc.) for its energy needs. As of 1995, for instance, biomass accounted for 56% of the region's final energy consumption, and 46% of its primary energy use (according to the International Energy Agency -- IEA). Also according to the IEA, around 20%-30% of South Asia's biomass use is animal waste, with another 20%-30% made up of agricultural residues, and only small amounts of charcoal. Biomass generally is burned directly using traditional, low-efficiency equipment. Biomass is consumed mainly in rural areas of South Asia. The IEA has projected South Asian biomass use to be approximately flat through 2020.

ELECTRICITY
In 1999, South Asia generated 538 terawatthours (Twh) of electricity. Of this, around 60% was generated from coal, 21% from hydroelectric plants, 10% from natural gas, 6% from oil, and 2% from nuclear, and less than 1% for "other renewables" (like wind and solar). Also in 1999, India accounted for the vast majority (82%) of regional electric generation capacity, followed by Pakistan (13%), Bangladesh (3%), Sri Lanka (1%), Nepal, Bhutan, and the Maldives (1% total). Regional electricity generation is expected to increase significantly in coming years, with coal's share declining while natural gas increases dramatically. Nuclear and hydro also are expected to increase their shares, with oil maintaining an approximately constant share. Non-hydroelectric "renewable" capacity (i.e., wind, solar, ocean, biomass, geothermal) is small at present, but is increasing, with wind power considered the most promising. Environmental considerations such as carbon emissions -- particularly in the case of coal -- and habitat destruction -- in the case of hydroelectric dams, for instance -- can complicate the choice of fuels for new power plants. Financial and social considerations also may come into play.

Electricity demand in South Asia is currently outstripping supply, and the region as a whole is characterized by chronic electricity shortages. The main reasons for this situation are: shortfalls in building new power plants; low plant load factors due to aging generators and poor maintenance of equipment at existing plants (plus low-quality coal in many cases); and losses of power due to poor-quality transmission lines and theft. South Asia’s rapidly rising electricity demand has heightened the need for additional investment by independent power producers (IPPs). However, bureaucratic obstacles and underdeveloped regulatory policies guiding such investment have led to construction delays as well as to foreign investor disillusionment. Electricity rates are widely subsidized in South Asia, and state electricity companies are faced with the challenge of paying IPPs their asking price for power while simultaneously providing low rates for electricity to their customers. Meanwhile, the IMF and the World Bank have encouraged liberalization of South Asian power sectors, including reduction of subsidies. All in all, meeting future electricity demand promises to pose a major challenge for South Asia.

India, which accounts for about four-fifths of South Asian electricity generation, is facing serious power supply problems (current generation is about 30% below demand, according to the Indian government). As a consequence, India is faced with the need to invest heavily in new electric generating capacity. Although about 80% of India's population has access to electricity, power outages are common. The Indian government has targeted capacity additions of 40,000 MW between 1997 and 2002, split evenly between state companies and the private sector. India has forecast total additions of 111,500 MW will be needed by 2007. Overall, Indian power demand is projected to increase to 1,192 billion kilowatthours (Bkwh) in 2020, around three times the 378 Bkwh consumed in 1996. India generates around 70% of its electricity from coal-fired power plants, around 20% from hydroelectric plants (located mainly in the north and northeast of the country), and the rest from natural gas, oil, and nuclear (1,695 MW at 5 plants).

As of 1999, Pakistan had 17 gigawatts (GW) of installed electric generating capacity. Thermal plants (oil, gas, and coal) make up about 71% of this capacity, with hydroelectricity making up 28% and nuclear plants 1%. Pakistan's total power generating capacity has increased rapidly in recent years, due largely to foreign investment, leading to a partial alleviation of the power shortages Pakistan had faced earlier. Rotating blackouts ("load shedding") are, however, necessary at times in some areas. Transmission losses are about 30%, due to poor quality infrastructure and a significant amount of power theft. Seasonal reductions affect the availability of hydropower. With much of the Pakistan's rural areas yet to receive electric power, and less than half of the population connected to the national grid, significant demand growth is expected in the long term, though in the short term, Pakistan has some excess generation capacity.

In Bangladesh, only around 18% of the population (25% in urban areas and 10% in rural areas) has access to electricity, and per capita commercial energy consumption is among the lowest in the world. . With power demand growing rapidly (a 58% increase from 1990 to 1999), Bangladesh's Power System Master Plan (PSMP) foresees a doubling of required electric generating capacity by 2005 at a cost of $4.4 billion. On top of this, Bangladesh likely will need to replace 30%-40% of existing generating capacity. Power shortages can have serious social consequences, as demonstrated on April 10, 1999, when violent clashes took place in Dhaka between police and people protesting inadequate power supplies and demanding better service. Bangladesh generates its electricity mainly from natural gas (over 80%) and oil (the remaining 20%). In early December 1998, Prime Minister Hasina announced that discussions were underway among Southern Asian (SAARC) nations for development of a regional electricity grid. Such a grid could lead to increased efficiencies and reduced power generation and transmission costs. Nepal and Bhutan have substantial untapped hydroelectricity potential. This power could be consumed in those two countries and also exported to India, Pakistan, and Bangladesh. In March 1999, it was reported that India's Power Grid Corporation had completed a feasibility study on possible exchange of 150 MW of power between Bangladesh and India. Interconnection points would be Ishwardi, Bangladesh-Farakka, India and Shahjibazar, Bangladesh-Kurnarghat, India.

Sri Lanka is almost totally reliant on hydropower for its electricity, making it vulnerable to fluctuations in rainfall. The Sri Lankan government is trying to attract foreign investors to build independent thermal power plants, but has yet to clarify its regulatory policies. Net electricity consumption in Sri Lanka increased 93% between 1990 and 1999.

Like Sri Lanka, Nepal relies almost exclusively on hydroelectricity for its power needs. Nepal also has large untapped hydroelectric potential, which could be developed both for domestic consumption (only about 15% of Nepal's population currently has access to electricity) as well as for export (the main potential export market being India). Renewable power sources, including micro-hydro, biomass, and solar energy, is gaining popularity in Nepal, particularly in remote regions of the country. In July 2000, Nepal secured a $50-million Asian Development Bank loan for extending rural electrification and upgrading transmission lines. Nepal reportedly has signed a deal with two U.S. power companies (Tacoma Power and Wisconsin Electric), under the auspices of the United States Energy Association, on technology transfer for power distribution and development.

Sources: CIA World Factbook; WEFA; Economist Intelligence Unit; Energy Information Administration estimates. *PPP = Purchasing Power Parity exchange rates

¹Note: Does NOT include such "non-commercial" energy sources as animal waste, wood, and other biomass, which account for more than half of South Asia's total final energy consumption.
²Other includes consumption of wind electric power for India and net imports of electricity for India and Nepal. Other does NOT include biomass or other "noncommercial" sources of energy.
³ Includes carbon dioxide emissions from the consumption of petroleum, natural gas, and coal, and from the flaring of natural gas. Tons of carbon can be converted to tons of carbon dioxide gas by multiplying by 3.667.

Note: Percentages may not add to 100% because of independent rounding.
Source: Energy Information Administration, International Energy Database, March 2001.

¹ Includes crude oil, natural gas plant liquids, other liquids, and refinery processing gain.
Sources: Crude Oil and Natural Gas Reserves: PennWell Publishing Co., Oil & Gas Journal, 12/28/00. Crude Oil Refining Capacity: PennWell Publishing Co., Oil & Gas Journal, 12/28/00. All Other Data: Energy Information Administration, International Energy Database, March 2001.

http://www.eia.doe.gov/emeu/cabs/sasia.html