US embassy cable - 05NEWDELHI4679

C O N F I D E N T I A L SECTION 01 OF 05 NEW DELHI 004679 
 
SIPDIS 
 
DEPT FOR SA, EB/ESC 
DOE FOR CUTLER, PUMPHREY, WILLIAMSON 
 
E.O. 12958: DECL: 06/20/2015 
TAGS: ENRG, EPET, ECON, ETTC, IN, Indo-US, India_Iran 
SUBJECT: AMBASSADOR'S MEETING WITH PETROLEUM AND NATURAL 
GAS MINISTER AIYAR 
 
REF: A. NEW DELHI 4490 
     B. NEW DELHI 4534 
     C. NEW DELHI 4359 
     D. NEW DELHI 4314 
     E. NEW DELHI 4199 
     F. NEW DELHI 3878 
     G. NEW DELHI 3803 
     H. NEW DELHI 3525 
     I. NEW DELHI 2273 
     J. NEW DELHI 2509 
     K. NEW DELHI 2068 
     L. NEW DELHI 2048 
     M. NEW DELHI 1990 
     N. NEW DELHI 1824 
     O. NEW DELHI 1707 
     P. NEW DELHI 1264 
     Q. NEW DELHI 1263 
     R. NEW DELHI 1261 
     S. NEW DELHI 1175 
     T. NEW DELHI 750 
 
Classified By: Ambassador David C. Mulford, Reasons 1.4 b,d 
 
1.  (C) Summary: The Ambassador told Indian Petroleum and 
Natural Gas Minister Mani Shankar Aiyar on June 17 that there 
appears to be an unprecedented level of optimism about the 
US-India relationship in the USG leadership.  In this 
context, the Ambassador said, we have revitalized the 
Economic Dialogue and have constituted a high level CEO 
Forum, and launched the Energy Dialogue.  Aiyar pledged to 
direct his Ministry to cooperate fully with us in Oil and Gas 
Working Group of the Energy Dialogue.  Aiyar said he went to 
Saudi Arabia in March to cement a relationship with the 
country which supplies 26 percent of India's oil imports. 
Turning to Iran, Ambassador noted that our concerns about the 
India-Iran energy relationship are well known to Aiyar and 
the GOI.  He urged Aiyar not to interpret our concerns as 
hostility to India's quest for energy security.  The 
Ambassador drew attention to Secretary Rice's statement the 
day before to a reporter that "... we are sharing our 
concerns in a constructive way ... not in a negative way." 
Aiyar was appreciative of the frank and measured U.S. 
approach with India on energy ties with Iran. 
 
2.  (C) Aiyar provided an extensive readout of his Islamabad 
visit, which he described as very useful with forward 
movement on the proposed Iran-Pakistan-India pipeline.  He 
also provided a shorter read-out of the Teheran visit.  Aiyar 
once again impressed us with his ability to think 
strategically while maintaining a sure grasp of the details. 
India is currently engaged in a broad, multi-faceted effort 
to secure its energy future.  The Iran-Pakistan-India 
pipeline is only one piece of a much bigger quest.  It would 
not be appropriate, therefore, to view the Indian drive for 
energy supplies solely through the prism of the 
Iran-Pakistan-India pipeline.  Similarly, we have a broad 
multi-dimensional relationship with India.  There is a 
propensity in the media and occasionally among officials to 
dramatize the Iran-Pakistan-India pipeline and portray it as 
central to our relationship with India.  Such media coverage 
conveys the impression that a confrontation between the 
United States and India over the pipeline is inevitable and 
imminent.  Such portrayals are dangerous and damaging. 
Secretary Rice's June 16 statement on India-Iran energy ties 
 
SIPDIS 
conveys perfectly the substance and tone of what we should be 
saying.  This needs to be our consistent message.  End 
Summary. 
 
Unprecedented Optimism 
---------------------- 
 
3.  (C) On June 17, The Ambassador briefed Indian Petroleum 
and Natural Gas Minister Mani Shankar Aiyar on the Economic 
Dialogue, the CEO Forum and the Energy Dialogue.  The 
Ambassador referred to his recent visit to Washington where 
he found an unprecedented level of optimism about the 
US-India relationship among USG leadership and a high level 
of interest in India.  The growing importance of India to the 
United States has become part of the policy deliberations in 
Washington, he told Aiyar.  The exchange of high level 
visitors, including the July State visit of Prime Minister 
Manmohan Singh and the proposed visit of President Bush to 
India later this year or early next year is a reflection of 
the priority that the United States accords its relationship 
with India. 
 
4.  (C) The challenge for both governments, the Ambassador 
continued, is to ensure that policies and programs are 
implemented that take the relationship where we want it to 
go.  The USG is working hard to identify and develop the road 
map that will help us achieve President Bush's goal of 
supporting India's ambition to become a major global power. 
In this context, the Ambassador said, we have revitalized the 
Economic Dialogue and have constituted a high level CEO 
Forum, which will convene soon with the objective of giving 
the private sector in both countries the means to identify 
and influence ways in which are economic and commercial 
relationship can become more binding. 
 
The Energy Dialogue 
------------------- 
 
5.  (C) The Energy Dialogue, launched in Washington recently 
by Energy Secretary Bodman and Deputy Planning Commission 
Chairman Ahluwalia is an important part of the broader 
US-India engagement.  The Ambassador described the five 
working groups in the Energy Dialogue and noted that Aiyar's 
Ministry is the designated leader of the Oil and Gas Working 
Group (WG).  Handing Aiyar the proposed U.S. terms of 
reference for the Energy Dialogue, the Ambassador urged Aiyar 
to ensure that his Ministry participates actively with a view 
to identifying deliverables prior to Prime Minister Singh's 
visit in July. 
 
6.  (C) Aiyar pledged to direct his Ministry to cooperate 
fully because he values the energy relationship with the 
United States and because it promises to benefit India 
significantly.  He said his U.S. trip in January-February was 
very useful, in part, because it gave him many ideas for 
US-India oil and gas cooperation.  One area he would like to 
pursue through the Energy Dialogue is exchanges on enhanced 
recovery techniques in which the United States has 
state-of-the-art technology. 
 
Exploration Bidding 
------------------- 
 
7.  (C) The Ambassador congratulated Aiyar on the successful 
completion of 5th round of bidding under Indias National 
Exploration and Licensing Policy (Ref A).  There was 
unprecedented interest shown by foreign and domestic oil 
companies seeking exploration rights.  Aiyar was clearly 
pleased, noting that his first priority when he assumed 
office was to find ways to maximize domestic reserves and 
output.  He devoted a great deal of time traveling to 
different parts of the world to promote the exploration 
potential in India because he believes foreign direct 
investment and foreign participation are key to development 
of the upstream oil and gas sector in India. 
 
8.  (C) Aiyar expressed disappointment, however, in the lack 
of interest shown by American companies and noted that he had 
raised the issue in a forthcoming letter to Secretary Bodman 
(septel).  He wondered whether the subject of promoting 
American interest in exploration in India could be made mart 
of the oil and gas working group deliberations. 
 
Saudi Relationship 
------------------ 
 
9.  (C) Noting that Aiyar was by far the most widely traveled 
and active Minister in the Indian Cabinet, the Ambassador 
asked for a read out of his recent travels.  Aiyar responded 
that following his January and February visits to promote 
exploration interest in India, he had gone to Saudi Arabia to 
cement the oil and gas relationship.  He observed that since 
Saudi Arabia supplies 26 percent of India's oil imports he 
believed it was important to stabilize and lock in supplies 
for the long term.  Besides, he noted, he and Saudi Oil 
Minister Naimi had hit it off in earlier meetings and were 
able to establish a rapport, sharing jokes and interests. 
 
10.  (C) Aiyar said he was successful in consolidating the 
relationship and was able to move forward supply time frames 
and obtain some commitments.  He was disappointed, however, 
that a proposed Saudi collaboration with the state-owned 
Hindustan Petroleum company did not materialize, although 
some private Saudi oil men have subsequently approached the 
GOI with joint investment ideas.  Aiyar was especially 
impressed with his visit to the Dhahran petrochemical 
complex, which he described as an eye-opener in terms of the 
scale, technology and management. 
 
ILSA Concerns 
------------- 
 
11.  (C) When Aiyar turned to his Islamabad, Teheran and Baku 
visit earlier this month, the Ambassador noted that our 
concerns about enhancing Iran's ability to develop its 
petroleum resources are well known to Aiyar and the GOI.  The 
Ambassador referred to our ILSA legislation and expressed 
hope that our concerns would be factored into any decisions 
that India makes concerning its energy relationship with 
Iran. 
 
12.  (C) The Ambassador urged Aiyar not to consider our 
concerns as hostility to India's quest for energy security. 
In fact, we keenly recognize the rapidly increasing energy 
needs of India and have, therefore, engaged in the Energy 
Dialogue to support our mutual energy security through 
cooperation in a range of areas, including oil and gas and 
civil nuclear.  The Ambassador felt it was unfortunate that 
the media tends to focus too much on the Iran angle of 
US-India relations when this is only a small part of our 
broader relationship. 
 
13.  (C) The Ambassador drew attention to Secretary Rice's 
recent statement to a reporter that "... we are sharing our 
concerns in a constructive way ... not in a negative way," 
and that "we are engaged in an energy dialogue with the 
Indians so that we can ... talk about different forms of 
energy supply, because we fully understand that they need to 
find it."  He added that regardless of what the media reports 
and whoever it quotes, our definitive views on India-Iran 
energy ties are summed up by the Secretary's statement. 
Aiyar was appreciative of the frank and measured U.S. 
approach with India on energy ties with Iran. 
 
Islamabad Visit 
--------------- 
 
14.  (C) Aiyar said that the timing of the back-to-back 
Islamabad and Teheran visits was an accident as the Teheran 
visit had been scheduled a while back while the Islamabad 
visit kept getting postponed by the Pakistanis because of the 
schedules of Prime Minister Aziz and President Musharraf. 
Aiyar underscored the importance he believed the Pakistanis 
attached to his visit by explaining that he expected to meet 
only the Petroleum Minister so it was both flattering and 
alarming that the Pakistanis insisted on his meeting with 
Aziz and Musharraf.  He met with Musharraf for an hour and 
with Aziz for 45 minutes.  He was particularly impressed that 
Aziz gave him so much time on the day he was due to present 
the budget to Parliament.  Aiyar said that Pakistani Foreign 
Ministry officials had told him that Musharraf is personally 
monitoring all deliberations regarding the pipeline.  In his 
view, the atmospherics during the visit were very positive 
and the two sides achieved a great deal. 
 
15.  (C) Aiyar observed that there were skeptics in the 
Indian establishment who questioned Pakistan's need for gas 
and doubted its commitment to the Iran-Pakistan-India (IPI) 
pipeline. The Pakistanis, however, made a persuasive 
presentation to him showing that their need for imported gas 
in the next 20 years would exceed even India's requirements. 
Aiyar noted that Pakistan's energy mix is almost the exact 
converse of India's.  While India depends on coal for 44 
percent and gas for 7 percent of its energy needs, Pakistan 
relies predominantly on gas (50 percent) and only marginally 
on coal (6 percent).  Pakistan has created an elaborate 
system of residential gas supply which it will need to feed 
from new sources.  According to him, the Sui gas field is 
about to peak and will decline rapidly from 2006 through 
2011.  Pakistan will become a net importer of gas by 2010. 
 
16.  (U) According to Aiyar, Pakistan's import requirement 
would be 300 million cubic meters per day (mmcmd) by 2025 
while India's would be 200 mmcmd.  With a combined 500 mmcmd, 
the two countries must pursue all options at once, including 
but not limited to the IPI pipeline.  Aiyar declared that he 
has no bias for any of the projects that bring gas to the 
subcontinent.    There is more discussion about the IPI 
pipeline because it is further along than other options.  The 
two countries have established a bilateral Joint Working 
Group (JWG) to discuss all aspects of the project.  The JWG 
will meet between 3-6 times during 2005.  Aiyar said that the 
timetable is being driven by Pakistan which wants to reach a 
decision by the end of 2005.  The bilateral JWG would have to 
be followed by trilateral meetings with Iran. 
 
17.  (U) Aiyar claimed that BHP Billington had not shared its 
feasibility study on the pipeline with either Pakistan or 
India, and he admitted that he did not have credible data on 
the economics of the project.  He thinks the project will 
cost about $4-5 billion and the economics will depend on the 
price demanded by the Iranians.  He believes, however, that 
the pipeline is viable with both reasonable returns for Iran 
and an affordable prices for India and Pakistan.  In Aiyar's 
view, LNG offers an alternative to pipeline gas but LNG 
volumes cannot match the volumes that can be transported by 
pipeline, which lowers the per unit cost.  Aiyar said he 
believes that the IPI pipeline is an "idea whose time has 
come," but the idea is only now "crystallizing" and it 
requires a lot of work. 
 
Other Options 
------------- 
 
18.  (C) Given their large gas requirements, India and 
Pakistan must think creatively about gas supplies, Aiyar 
observed. He said that there is no idea on oil and gas the 
GOI would turn its back on.  He got the Pakistanis to help 
get him invited to the steering committee meeting of the 
Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project. 
Pakistan has some doubts about the available Turkmenistan gas 
reserves, and these doubts were strengthened by the failure 
of the Government of Turkmenistan to provide audited reserve 
data for the Daulatabad field.  Aiyar suggested that if 
Turkmen reserves are inadequate, gas reserves in Uzbekistan, 
Azerbaijan, Kazakhstan and even beyond could be fed into the 
TAP pipeline in Turkmenistan. 
 
19. (C) Aiyar noted that Pakistan was also pursuing an 
offshore pipeline from Qatar, but he considered it doubtful 
that this project would mature because it needs Iranian 
approval as the proposed pipeline has to run in shallow water 
along the Iranian coast.  In Baku, Ayyar proposed 
government-to-government oil supply arrangements for 50 
million tons of crude.  He also discussed reversing an 
existing Iran-Mediterranean oil pipeline to bring Caspian sea 
crude from Azerbaijan's Shah Daliz and ACG fields. 
 
20.  (C) Aiyar observed that there has been broad strategic 
reasoning behind his oil diplomacy during the last year.  He 
wants to encourage opening up as many oil and gas supply 
sources and routes as possible -- even if India is not the 
direct beneficiary -- so that the consuming countries are not 
dependent on "Arab oil."  The more alternative sources the 
world has the better off all energy deficient countries will 
be. 
 
Teheran Visit 
------------- 
 
21.  (C) Aiyar told the Ambassador that the Iranians were 
skeptical of Pakistan's interest in the IPI pipeline, 
questioning why Pakistan has not talked to Iran in a 
meaningful way about the project.  He added that some 
decision-makers in Iran were also suspicious that India and 
Pakistan were "ganging up" on Iran.  Aiyar explained to the 
Iranians that gas in India is used primarily in the power and 
fertilizer industries, both of which have controlled output 
pricing.  If output prices are controlled at reasonable rates 
then input prices for the gas have also to be reasonable or 
there won't be any buyers for it.  The Iranians, however, 
kept talking about the opportunity cost of gas sold at the 
reasonable prices that Aiyar think will justify the pipeline. 
 Aiyar said the Iranians are very tough negotiators.  In one 
marathon 7 hour negotiating session, the Iranian used 7 
different lead negotiators. 
 
22.  (C) Aiyar did not specifically discuss the recently 
reported LNG deal (ref A) nor did he raise the proposed 
participation of state-owned oil and gas companies in 
exploration and production activities in Iran. 
 
Comment 
------- 
 
23.  (C) Mani Shankar Aiyar once again impressed us with his 
ability to think strategically while maintaining a sure grasp 
of the details.  He was comfortable talking about the need to 
reduce the world's dependence on "Arab oil" as well as the 
small details of projects that could make this possible. 
 
24.  (C) It is not clear to us whether it was intentional or 
not, but Aiyar's read-out of his Islamabad visit conveyed the 
distinct impression that he feels Pakistan needed the 
Iran-Pakistan-India pipeline even more than India.  He 
underscored the high level interest in Pakistan in moving 
forward soon on this project, in large part because Pakistan 
faces a severe gas supply crisis in the next two decades. 
Aiyar's aim could be to plant the idea that Pakistan is the 
real driver behind this project while India is merely tagging 
along so we ought to discuss our objections primarily with 
Pakistan. 
 
25.  (C) India is currently engaged in a broad, multi-faceted 
effort to secure its energy future.  The leadership 
understands that the country's ability to sustain its growth 
rates and achieve its ambition of becoming a major global 
power can be thwarted if it fails to meet its energy 
requirements.  The Iran-Pakistan-India pipeline is only one 
piece of a much bigger quest.  There are many other energy 
initiatives and proposals that the GOI is working on.  It 
would not be appropriate, therefore, to view the Indian drive 
for energy supplies solely through the prism of the 
Iran-Pakistan-India pipeline. 
 
26.  (C) Similarly, we have a broad multi-dimensional 
relationship with India, which touches upon almost every form 
of human endeavor from military and strategic to cooperation 
in HIV/Aids prevention and in the social sectors.  There is a 
propensity in the media and occasionally among officials to 
dramatize the Iran-Pakistan-India pipeline and portray it as 
central to our relationship with India.  Such media coverage 
conveys the impression that a confrontation between the 
United States and India over the pipeline is inevitable and 
imminent.  Such portrayals are dangerous and damaging.  We 
need to soften the tone of public pronouncements by lower 
level USG officials and veer away from the confrontational 
pitch often assumed in these declarations of policy. 
Secretary Rice's June 16 statement on India-Iran energy ties 
 
SIPDIS 
conveys perfectly the substance and tone of what we should be 
saying.  This needs to be our consistent message.  It is not 
helpful when officials make pronouncements that help move the 
pipeline and Iran back to center stage in public discourse on 
the US-India relationship, especially since even if the 
pipeline were to be economically viable, we are years away 
from the point at which a confrontation over ILSA would 
emerge. 
MULFORD