Energy Trade in South Asia Opportunities and Challenges
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Energy Trade in South Asia in South Asia: Energy Trade Opportunities and Challenges The South Asia Regional Energy Study was completed as an important component of the regional technical assistance project Preparing the Energy Sector Dialogue and South Asian Association for Regional Cooperation Energy Center Capacity Development. It involved examining regional energy trade opportunities among all the member states of the South Asian Association for Regional Cooperation. The study provides interventions to improve regional energy cooperation in different timescales, including specific infrastructure projects which can be implemented during Opportunities and Challenges these periods. ENERGY TRADE IN SOUTH ASIA About the Asian Development Bank OPPORTUNITIES AND CHALLENGES ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two-thirds of the world’s poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Sultan Hafeez Rahman Priyantha D. C. Wijayatunga Herath Gunatilake P. N. Fernando Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org Printed on recycled paper. Printed in the Philippines ENERGY TRADE IN SOUTH ASIA OPPORTUNITIES AND CHALLENGES Sultan Hafeez Rahman Priyantha D. C. Wijayatunga Herath Gunatilake P. N. Fernando December 2011 Energy Trade in South Asia_6th.indd 1 3/24/2012 6:14:10 PM © 2012 Asian Development Bank All rights reserved. Published 2012. Printed in the Philippines. ISBN 978-92-9092-630-6 (Print), 978-92-9092-631-3 (PDF) Publication Stock No. BKK124531 Cataloging-In-Publication Data Asian Development Bank. Energy trade in South Asia: Opportunities and challenges. Mandaluyong City, Philippines: Asian Development Bank, 2012. 1. Energy trade. 2. South Asia. I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Note: In this publication, “$” refers to US dollars. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax +63 2 636 2648 [email protected] Printed on recycled paper. Energy Trade in South Asia_6th.indd 2 3/24/2012 6:14:10 PM Contents List of Tables, Figures, and Boxes vi Foreword viii Acknowledgments x Abbreviations xii Energy Conversion Factors xvii Executive Summary xviii Chapter 1: Introduction 1 Context 1 Message 2 Chapter 2: Regional Cooperation and Energy Trade 4 Regional Cooperation 4 Regional Public Goods 5 The Benefits of Regional Energy Trade 8 Examples of Benefits of Cooperation in Energy 12 Chapter 3: The SAARC Energy Sector: An Overview 15 Social and Economic Indicators 15 Energy Reserves in the SAARC Region 15 Current Energy Scenario in the SAARC Region 18 Commercial Energy Supply Features 22 Key Challenges and Issues Faced by the SAARC Energy Sector 27 Future Energy Demand and Supply in the SAARC Region 30 Likely Gains from Energy Trade Arrangements 32 Need for Harmonization of Legal and Regulatory Frameworks 33 Conclusion 34 Chapter 4: Current Regional Energy Trade and Its Prospects 37 Introduction 37 Existing Trade of Petroleum Products 37 iii Energy Trade in South Asia_6th.indd 3 3/24/2012 6:14:10 PM iv Contents India–Bhutan Electricity Trade 38 Nepal–India Electricity Trade 40 India–Bangladesh Electricity Trade 42 India–Pakistan Electricity Trade 43 India–Sri Lanka Electricity Trade 44 Potential Areas for Cooperation in Regional Energy Trade 45 Interregional Energy Trade Opportunities 46 Iran–Pakistan–India Natural Gas Pipeline 46 Opportunities for Energy Imports from Myanmar 47 Central Asia–South Asia Power Transmission Project 48 Turkmenistan–Afghanistan–Pakistan–India Natural Gas Pipeline 50 Additional Energy Trade Options 51 Conclusion 52 Chapter 5: Regional Power Market 53 Introduction 53 Indian Power Market 54 Developing a Regional Power Market 55 Implementation Approach 57 Chapter 6: Regional Refinery 59 Introduction 59 Regional Refinery Justification 59 Expected Refinery Performance 61 Refinery Implementation 62 Chapter 7: Regional Liquefied Natural Gas Terminal 66 Introduction 66 Liquefied Natural Gas Value Chain 67 Relevance of Liquefied Natural Gas to the SAARC Region 68 Commercial Arrangements 71 Chapter 8: Regional Power Plant 72 Introduction 72 Power Plant Economics 73 Implementation Issues 77 Power Interconnections 77 Chapter 9: Nonconventional Renewable Energy 78 Introduction 78 Key Nonconventional Renewable Energy Issues 79 Tariff Incentive Improvement 81 Technology Improvement 82 Scope for Smart Grids 83 Conclusion 84 Chapter 10: Scope for Private Sector Participation 86 Introduction 86 Private Sector Participation in Electricity Generation 87 Energy Trade in South Asia_6th.indd 4 3/24/2012 6:14:10 PM Contents v Private Sector Participation in Energy Transmission 89 Conclusion 91 Chapter 11: Conclusions and Recommendations 92 SAARC Regional Trade and Cooperation Agreement 93 Harmonizing Legal and Regulatory Frameworks 94 Developing Energy Database 94 Financing Mechanisms 96 Enhancing Institutional Capacity 97 Project Activities 97 Annexes Annex 1: SAARC Energy Sector Institutional, Legal, and Regulatory Frameworks 99 Annex 2: Southern African Power Pool 120 References 124 Energy Trade in South Asia_6th.indd 5 3/24/2012 6:14:10 PM Tables, Figures, and Boxes Tables 1 Estimated Capacity Shortages 9 2 Key Socioeconomic Indicators for the SAARC Region 16 3 Energy Reserves of SAARC Member States 16 4 Reserves to Production Ratio, 2007 17 5 Natural Gas Demand Supply Position, 2006 20 6 Commercial Energy Supply of SAARC Member States, 2006 23 7 Projected Commercial Energy Supply 31 8 Projected Electricity Demand 32 9 Key Features of the Legal and Regulatory Frameworks in SAARC Member States 35 10 Gross Refinery Margin 63 11 Gross Annual Revenue Accruing to Refinery 63 12 Net Annual Revenue Generated from Refinery 64 13 Comparison of Liquefied Natural Gas-Based and Diesel-Based Power Generation Costs 74 14 Comparison of Liquefied Natural Gas-Based and Imported Coal-Based Electricity Generation Costs 75 15 Basic Power Plant Assumptions 76 16 Purchase Tariff for Nonconventional Renewable Energy-Based Electricity Generation 81 Figures 1 Net Petroleum Imports against Total Consumption in South Asia, 2007 11 2 Per Capita Commercial Energy Consumption, 2006 18 3 Relative Contribution of Sources to National Energy Consumption 19 4 Electricity Shortages in SAARC Countries, 2006 21 5 Dependence on Traditional Fuels 22 6 Commercial Energy Supply Mix of SAARC Member States, 2006 23 vi Energy Trade in South Asia_6th.indd 6 3/24/2012 6:14:10 PM Tables, Figures, and Boxes vii 7 Commercial Energy Demand Growth in India 24 8 Commercial Energy Supply Growth in Pakistan 24 9 Consumption of Natural Gas in Pakistan, 2006 25 10 Commercial Energy Supply in Bangladesh 26 11 Sector Consumption of Natural Gas in Bangladesh 26 12 Fuel Mix in Bangladesh Electricity Generation, 2006 27 13 Nepal–India Electricity Trade 40 14 Typical Indian Power Exchange Day Ahead Market Operation 56 15 Petroleum Product Consumption Profile 60 16 Typical Large-Scale Refinery Flow 62 17 Elements of the Liquefied Natural Gas Value Chain 68 18 Typical Liquefied Natural Gas Receiving Terminal 69 19 Wind Turbine Capacity Development 82 20 Typical Location of Embedded Power Generation 84 21 Typical Thermal Power Plant Build–Own–Transfer Structure 87 22 Build–Own–Transfer Project Risk Perceptions 88 23 Financial Structure of the Theun-Hinboun Power Company 89 24 Possible Financing Structure of the Proposed India–Pakistan–India Natural Gas Pipeline 90 A2 Hierarchical Structure of the Southern African Power Pool 121 Boxes 1 Indonesia–Malaysia–Singapore Natural Gas Pipeline 13 2 The Energy Charter Treaty 95 Energy Trade in South Asia_6th.indd 7 3/24/2012 6:14:11 PM Foreword egional cooperation provides an ideal opportunity to enhance sustainable growth by means of developing and sharing resources as a Rregion, minimizing suboptimal development of these resources confined to national boundaries. In the context of the energy sector this is particularly applicable to the South Asia region where there is vast potential