AIYAR DEFENDS IRAN-INDIA OIL AND GAS RELATIONSHIP

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 001175

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STATE PASS EPA, EXIM, OPIC
USDOC FOR 4530/MAC/ANESA/OSA/DROCKER/STERN
USDOC FOR 3131/USFCS/OIO/ANESA/RMARRO/CSHARKEY
USDOC FOR 6000/TD/AC/BLOPP
DOE FOR TOM CUTLER
TREASURY FOR INTERNATIONAL-SOUTH ASIA/MACDONALD

E.O. 12958: DECL: 02/14/2015
TAGS: ENRG EPET ECON ETTC IR IN
SUBJECT: AIYAR DEFENDS IRAN-INDIA OIL AND GAS RELATIONSHIP

REF: A. STATE 24948


B. NEW DELHI 300

C. 2004 NEW DELHI 7089

D. 2004 STATE 177574

E. 2004 NEW DELHI 4871

F. 2004 NEW DELHI 4590

G. 2004 NEW DELHI 1770

H. 2004 STATE 166919

I. 2004 STATE 108728

Classified By: Ambassador David C. Mulford, Reasons 1.5 b,d


1. (C) Summary: In a February 11 meeting with the
Ambassador, Indian Petroleum and Natural Gas Minister Mani
Shankar Aiyar said that India's national security compelled
it to look towards Iran for natural gas. He pointed out
that India is competing in Iran with many others, including
some of the United States' close friends and allies. By
seeking oil and gas relationships with Iran, India is merely
ensuring it would be well-positioned when the "Iran problem"
is resolved, he added. He also asserted that Indian
investment in the Iranian oil and gas sector is some distance
in the future, and perhaps the Iran will not be of as much
concern by then. Aiyar contended that a major "strategic"
hurdle had been crossed with the Indian cabinet's decision on
February 10 to authorize him to pursue energy deals with Iran
and Pakistan. Aiyar said he anticipates the negotiations to
be neither quick nor easy. He said he is fully supportive of
the Economic Dialogue and would welcome results-oriented
exchanges on energy issues. Aiyar was very optimistic about
India's hydrocarbon potential. He was pleased with the
response he received from American companies during his
recent Houston visit. Aiyar believes that entry of a major
American company into India's upstream oil and gas sector
will provide international credibility for India's
hydrocarbon potential. In contrast to his often provocative
and sometimes anti-American pronouncements and writings,
Aiyar was thoughtful, reasonable and insightful. The
Ambassador urges Energy Secretary Bodman to consider an early
visit to India. Such a visit would help support our
transformed bilateral relationship with India. It is also
important we engage at high levels with a country that is
likely to play an important role in the global oil and gas
markets in the future. End Summary.

India-Iran Cooperation
--------------


2. (C) In a February 11 meeting with Indian Petroleum and
Natural Gas Minister Mani Shankar Aiyar, the Ambassador
raised USG concerns about Indian investments in the
development of Iran's petroleum resources given Iran's
nuclear activities and it support for terrorism. The
Ambassador said he recognized India's growing energy needs
but was obliged to alert India to our concerns, which are
based on US policy and US law.


3. (C) Aiyar responded that India's energy security and, by
extension, its national security compelled it to look towards
Iran for gas. He described briefly the explosive growth in
India gas demand. Current Indian production of 90 million
cubic meters per day (mcmd) is about ten times higher than in
the 1980s. Yet, it falls far short of demand, which is
estimated at 150 mcmd and projected to increase to 400 mcmd
in 20 years. Given this shortfall and the absence of
adequate alternative sources, according to Aiyar, India is
forced to turn to Iran, the country with the second biggest
gas reserves in the world. New discoveries in India and new
sources of gas -- Bangladesh, Myanmar, Indonesia,
Turkmenistan -- may reduce Indian reliance on Iranian gas,
but he sees no alternative to trying to source as much gas
from Iran as possible.


4. (C) Secondly, Aiyar continued, India is only competing
for oil and gas relationships in Iran with many others --
Japan, European countries, China -- some of whom are the
United States' close friends and allies. (Note: Aiyar
clearly implied that the United States should first ask its
friends to back out of the Iran oil and gas sector before
pressing India to do so. End Note.) Thirdly, according to
Aiyar, India did not want to be in the position it found
itself in with Libya. It had refrained from seeking
hydrocarbon relationships in Libya due to United States
sanctions. When sanctions were lifted, American companies
quickly moved in, leaving India out in the cold, he said.
The effect of United States policy to discourage other
countries from Libya was to preserve the Libyan oil and gas
sector for American oil and gas interests, he observed. By
seeking oil and gas relationships with Iran, India was merely
ensuring it would be well positioned when the "Iran problem"
is resolved, Aiyar explained.


5. (C) Lastly, Aiyar asserted, Indian investment in the
Iranian oil and gas sector is some distance in the future,
and perhaps Iran will not be of as much concern by then.
Showing a clear preference for a multilateral solution, he
noted that India was working with the United States within
the IAEA to address international concerns about Iran's
nuclear activities. He claimed that India has made clear
that Iran must adhere to its treaty obligations. Aiyar
closed the discussion on Iran by saying that India will keep
an eye on evolving international efforts to resolve concerns
about Iran, but he does not see India stepping back from
relationships in the Iranian oil and gas sector at this time.


Iran-Pakistan-India Pipeline
--------------


6. (C) Aiyar contended that a major "strategic" hurdle had
been crossed with the Indian cabinet's decision to authorize
him to pursue energy deals with Iran and Pakistan (as well as
Burma and Bangladesh.) He said this move will reassure the
Pakistanis and Iranians who naturally wondered whether he had
the backing of the Cabinet. They will now recognize that "I
am not a wild card," he noted.


7. (C) Aiyar will begin discussions with the Iranian Oil
Minister the week of February 14 during the Asian Gas Buyers'
conference in Delhi. He fears that if India is not involved
in any Iran pipeline discussions up-front, it will lose any
influence on the pricing. If the price differential between
LNG and pipeline gas at the Indo-Pak border is narrow, then
India will opt for LNG, he asserted. Trying to dampen any
expectations of an imminent agreement, Aiyar said he
anticipates the negotiations to be neither quick nor easy as
the Iranian are hard bargainers. "The process is only
beginning," he noted, and will be long drawn out.

Economic Dialogue
--------------


8. (SBU) The Ambassador described the Economic Dialogue (ED)
framework, in which the 5 tracks are retained because they
serve a useful purpose, but the leadership of the ED is
elevated so that key issues can be lifted to the White
House/Prime Minister's Office level. A new CEO's forum will
be added to advise policy makers on what needs to be done to
remove structural impediments to greater trade and investment
ties. The Ambassador felt that energy companies should be
included in this forum.


9. (SBU) Aiyar responded that Indian Ambassador Ronen Sen
had briefed him about the ED. Aiyar said he is fully
supportive of the ED. Any restructuring of the ED is
acceptable to him if it encourages greater energy-related
ties between the two countries. He would like
results-oriented exchanges on energy issues. His priority
for such exchanges would be for American companies to study
India's hydrocarbon potential and "advise us on how best to
utilize it." He also wants an institutionalized and
continuing, not sporadic, intellectual exchange between
Indian and American companies and institutes.

Aiyar's Road Show
--------------


10. (SBU) Aiyar, who was in Houston last month to promote
interest in India's fifth round of exploration and production
leasing, said he was witnessed an enthusiastic response from
American companies. The companies he met with were pleased
with the policy framework and the incentives in the National
Exploration Licensing Policy. He did not know whether this
interest will manifest itself in greater bidding for the
leases, although he sensed a changing perception about
India's potential in the eyes of American companies. Aiyar
believes that unless a major American company enters India's
upstream oil and gas sector, there will be no international
credibility for India's hydrocarbon potential, which is
completely open to foreign investment.


11. (SBU) Aiyar was particularly impressed with his visit to
ExxonMobil's $2 billion research and development facility in
Houston. He lamented that Indian companies are not spending
as much on R&D. He pledged to strengthen institutional
relationships with organizations such as the US Chamber's
hydrocarbon committee, the Canadian Petroleum Institute, and
the University of Alberta.


12. (SBU) Aiyar referred to his meeting in Houston January
31 with DOE Director Robert Price and regretted he could not
meet with Energy Secretary Bodman as he had not yet been
confirmed. The Ambassador expressed his hope that the Energy
Secretary, who has a great interest in India, could visit

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this year. Aiyar said he would warmly welcome such a visit.
He asked whether it was appropriate now, with the Energy
Secretary sworn in, to write or call to congratulate him.

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The Ambassador encouraged Aiyar to do so.

Bay of Bengal: South Asia's North Sea?
--------------


13. (SBU) Aiyar spoke at length about India's hydrocarbon
potential, noting that known oil and gas reserves in a belt
from the Gulf to Indonesia suggest that the Bay of Bengal may
have huge gas deposits. The 2003 discovery by Reliance in
the Krishna-Godavari basis and subsequent discoveries by
Cairns and ONGC further strengthen the case. Aiyar said he
wants to change the perception of the international community
and Indians of India as a hydrocarbon-poor country.


14. (SBU) The problem, according to Aiyar, is South Asia's
geology. Over 95 percent of India's potential deposits are
in soil formations that are only 60 million years old while
most of the world's oil and gas deposits are in formations
that are 300 million years old. Secondly, Indian deposits
are covered by a vast volcanic layer. Both these
peculiarities pose challenges for exploration in India.
Aiyar wants to encourage scientific discussion with American
companies and institutions to help India better address these
challenges.


15. (SBU) Aiyar said he has come up with two additional
ideas for expanded US-India ties in the energy sector. He
expects much of India's oil and gas reserves will be found in
deep water. The United States, with its experience in deep
sea exploration and production in the Gulf of Mexico, has
great potential for providing technology transfer to India.
Second, Aiyar noted a decline in oil and gas production in
Texas, with West Texas Intermediate output down 60 percent in
the last 10 years. According to him, the exploration,
drilling and production assets that are being made idle could
be redeployed, in part, to India.

Comment
--------------


16. (C) In contrast to his often provocative and sometimes
anti-American pronouncements and writings, Aiyar was
thoughtful, reasonable and insightful. He stood his ground
firmly on Iran, but did not use the opportunity to vent
against our approach, something he may have been quick to do
in earlier incarnations. We were impressed with his candor
and his forthrightness. He took pains to wave his welcome to
American energy companies. He was also eager to open a
dialogue and relationship with the Department of Energy,
building on his well received interactions with DOE and U.S.
industry in Houston last month.


17. (C) The Ambassador urges Energy Secretary Bodman to
consider an early visit to India. Besides being one of the
world's fastest growing economies, India is also one of the
fastest growing oil and gas consumers and importers. It is
important we engage at high levels with a country that may
play an important role in global energy markets in the
future. A visit by Secretary Bodman would also help support
our transformed bilateral relationship with India. Such a
visit would establish relationships that may allow us to
exert some influence on Indian oil and gas activities in
countries such as Iran. Finally, a visit by the Energy
Secretary would help convey momentum and focus to an active

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but sometimes drifting set of cooperative activities under
the Energy track of the bilateral Economic Dialogue.
MULFORD