By Saurav Jha
In early on June 2018, Republic of Republic of India received its commencement consignment of liquefied natural gas (LNG) from Russia’s Gazprom. This followed the commencement ever arrival of an LNG cargo to Indian shores from the U.S. inwards March this year. Each occasion flora India’s Union Minister of Petroleum in addition to Natural Gas (MoPNG), Dharmendra Pradhan, inwards attendance, every bit if to symbolize that Republic of Republic of India is engaging both the U.S. in addition to Russian Federation every bit business office of its agenda to diversify away from acuate dependence on OPEC for unloose energy sources. It also way that the U.S. in addition to Russia, too vying for a portion of the Indian defense forcefulness market, volition instantly increasingly discovery themselves inwards contest for India’s unloose energy pie every bit well. Nevertheless, Republic of Republic of India volition assay to maintain a residual betwixt the ii every bit far every bit unloose energy cooperation is concerned, despite whatever complications that may arise due to the U.S. bringing into forcefulness the Countering Adversaries of America With Sanctions Act (CAATSA), which targets tertiary parties engaging inwards pregnant transactions with Russia’s unloose energy in addition to defense forcefulness sectors. While at that topographic point are similar motivations for Republic of Republic of India to construct ties with the U.S. in addition to Russia, respectively, either human relationship also brings to the tabular array specific value propositions. Besides, the telephone commutation argue behind India’s diversification strategy is to heighten its ain negotiating clout every bit a major unloose energy importer, non constrict it.
For instance, the LNG cargo supplied yesteryear Gazprom came to Republic of Republic of India exclusively after the Russian society agreed to renegotiate the 20-year provide contract, which originally dates from 2012, with India’s master copy state-owned natural gas utility GAIL. As business office of the renegotiated deal, Gazprom agreed to an fourscore percentage cutting inwards the previously contracted annual delivery book of 2.5 1000000 tonnes per annum (mtpa) for the commencement year, with yearly deliveries reaching that flat exclusively from the quaternary yr onwards. Gazprom also agreed to alter the price-indexation formula for the delivered gas from beingness linked to Japanese Custom Crude (JCC) to Brent, which made the terminal toll significantly cheaper than what it would have got been otherwise.
This willingness on Gazprom’s business office to choose major changes inwards the contractual terms with GAIL followed a successful LNG contract renegotiation executed yesteryear some other Indian state-owned LNG buyer, Petronet LNG (in which GAIL has a stake), with U.S.-based Exxon Mobil’s Australian Gorgon Project inwards 2017. Petronet had also managed to instruct Exxon Mobil to concur to a dissimilar toll indexation formula that led to a lower toll for the imported gas, saving Republic of Republic of India nearly $600 million.
India’s mightiness to renegotiate existing long-term LNG import contracts stems from its clout every bit Asia’s tertiary largest LNG buyer at a fourth dimension when the Asian LNG scene has top a buyer’s market, with short-term contract in addition to spot prices trending significantly below those of one-time long-term contracts. Moreover, the Indian LNG marketplace is expected to watch considerable growth given that Republic of Republic of India intends to get upwards the portion of gas inwards its unloose energy mix to xv percentage from the electrical flow 6.2 percent, at a fourth dimension when domestic production remains disappointing in addition to gas imports already trouble organisation human relationship for 45 percentage of overall consumption. This plough to a “gas-based economy” is driven yesteryear India’s want to lower the carbon intensity of its growth in addition to run across its COP-21 emission reduction commitments.
However, to facilitate this expansion, Republic of Republic of India needs to pose inwards house to a greater extent than extensive gas storage in addition to distribution infrastructure in addition to that is why reduced deliveries are beingness sought inwards the initial contract menses yesteryear GAIL in addition to other Indian LNG importers. But the telephone commutation objective behind renegotiating India’s long-term LNG contracts is to lower the toll of the imported gas. As Pradhan told visiting U.S. Energy Secretary Richard Perry, during the maiden coming together of the India-U.S. Strategic Energy Partnership (SEP) held inwards Apr 2018, Republic of Republic of India is a real “price sensitive” market.
Pradhan’s observation was intended to convey India’s want to renegotiate contracts for its long-term U.S.-origin LNG supplies. GAIL currently has long-term LNG import deals inwards house with Houston-based Cheniere Energy for 3.5 MTPA from the Sabine Pass terminal, in addition to with Dominion’s Cove Point for some other 2.3 MTPA. The toll for these supplies is derived yesteryear adding a fixed capacity accuse of $3 per mmbtu to 115 percentage of the Henry Hub price, which taken together with freight charges, currently brand these supplies uncompetitive non only with those from the spot market, but also with abide by to Gazprom’s deliveries nether the renegotiated contract, given electrical flow Brent prices.
In the commencement one-half of this decade, when Republic of Republic of India firmed upwards these U.S.-based contracts, their pricing formula with its Henry Hub linking was just what made them attractive with abide by to LNG supplies linked to oil prices, which at the fourth dimension were reaching historic highs. In fact, the prospect of U.S.-based LNG was i of the telephone commutation factors that forced India’s electrical flow top gas supplier, Qatar’s RasGas (which uses an oil-indexed formula), to renegotiate its LNG provide contract inwards 2015.
Today, securing long-term non-oil indexed gas supplies from abroad is no longer a concern for India, with the Asian LNG spot marketplace beingness awash with inexpensive supplies. As such, Republic of Republic of India instantly wants the fixed capacity accuse business office of the toll for its U.S.-based supplies to move lowered inwards lodge to reverberate the novel realities of the Asian market. But India’s U.S. suppliers are reluctant to create this, because Republic of Republic of India was supposed to move an “anchor” buyer for their LNG inwards lieu of what were in addition to thence much cheaper Henry Hub-linked prices. This is also why U.S. companies are unwilling to take the “take or pay” aspect of their contracts, where reduced delivery credence yesteryear the client entails penalties.
But the Indian side has already managed to instruct RasGas to waive accumulated penalties from reduced deliveries in addition to Gazprom is also non sending supplies on a choose or pay basis. The India-U.S. Joint Task Force on Natural Gas (JTF-NG), laid upwards inwards Apr 2018, whose objective is to increment the portion of gas inwards India’s unloose energy mix, is probable to facilitate negotiations on these issues. It seems the U.S. side is banking on the thought that Republic of Republic of India volition want to maintain Henry Hub-priced gas inwards its portfolio every bit business office of its hedging strategy inwards an uncertain oil in addition to gas market, where oil prices may move on the ascent again. As Perry remarked during the Apr SEP meeting, “China or Russian Federation may deliver a fuel source to you. Cheaper? I don’t know that.”
Be that every bit it may, Indian majors have got been exiting investments inwards U.S. shale plays (which till finally yr stood at around $5 billion), since gas delivered from these acreages isn’t especially feasible for provide to the U.S. domestic marketplace and, every bit mentioned earlier, locking-in overseas reserves for safety of provide to Republic of Republic of India is non an objective anymore. For example, inwards March 2018, Indian oil in addition to gas major Reliance sold its shale assets inwards Pennsylvania, inwards the United States, at a lx percentage discount to the acquisition toll of $392 million. This sale followed similar exits finally yr from other shale plays.
With the emphasis beingness on profitability, Republic of Republic of India instantly seems to a greater extent than interested inwards conventional Russian gasfields. Reports suggest that Republic of Republic of India is looking to purchase equity inwards the Yamal LNG project, which volition provide most of the cargoes that Gazprom volition deliver to Republic of Republic of India every bit business office of its long-term contract with GAIL. If realized, Indian investment into Russian gasfields volition follow its already pregnant exposure to Russian oil projects. In 2017, a consortium comprising diverse Indian state-owned oil in addition to gas majors bought a 23.9 percentage stake inwards Vankorneft, a subsidiary of Rosneft, every bit good every bit a 29.9 percentage involvement inwards Taas-Yuryakh Neftegazodobycha, which operates the gigantic Srednebotuobinskoye field.
Taken together with older investments inwards Sakhalin, Indian investment inwards Russia’s strategic oil in addition to gas sector instantly totals $10 billion. This flat of exposure is translating into heightened deliveries of Russian unsmooth to India, which rose yesteryear a constituent of 10 inwards 2017 every bit compared to the previous year. Another telephone commutation argue behind greatly increased Russian unsmooth deliveries is the fact that they are currently trading at a discount with abide by to comparable sour-crude blends from OPEC in addition to Indian refineries have got retrofitted themselves to procedure these supplies rather easily.
India’s investment human relationship with Russian Federation inwards the oil in addition to gas sector is also non a one-way street, given that a Rosneft-led consortium acquired a controlling stake inwards the Indian assets of Essar Oil for $12.9 billion inwards 2017, which is the largest ever overseas acquisition yesteryear a Russian consortium. The create out has seen Rosneft gain command over the giant Vadinar refinery, a captive port in addition to a distribution network of over 3,500 filling stations, thereby putting it inwards a seat to force to a greater extent than Russian oil into the Indian market. This fact was recognized yesteryear Russian Foreign Minister, Sergei Lavrov, when he stated that “Rosneft has gained a stronghold inwards the Indian market” on the sidelines of the Modi-Putin informal summit inwards Sochi, held inwards May this year.
But Russian Federation is non the exclusively novel growing source for India’s unsmooth imports. In August 2017, a unsmooth delivery from the U.S. reached Republic of Republic of India for the commencement fourth dimension after an interregnum of 42 years. Like Russian blends, U.S. sour unsmooth from shale deposits is also suitable for Indian refineries in addition to despite freight costs, is nonetheless proving to move cheaper than India’s imports from nearby OPEC suppliers such every bit Saudi Arabia. By belatedly 2017, state-owned Indian oil majors had placed orders for 7.85 1000000 barrels of U.S. crude, with these imports expected to boost India-U.S. bilateral merchandise yesteryear $2 billion, according to the U.S. Embassy inwards India. Indeed, heightened U.S. unsmooth imports are beingness offered yesteryear Republic of Republic of India every bit a confidence edifice stair out to the Trump direction on the merchandise front. The U.S. on its business office has voiced a want to assist Republic of Republic of India construct its strategic stone oil reserves.
India is also using rising U.S. in addition to Russian unsmooth imports to create out difficult with its primary West Asian suppliers, such every bit Saudi Arabia, to discard the “premium” they are currently charging Republic of Republic of India every bit compared to what OECD customers pay. Republic of Republic of India also wants its West Asian suppliers to brand concessions on credit in addition to insurance terms. Interestingly, due to the availability of U.S. in addition to Russian sour crudes, at that topographic point is no guarantee that OPEC members inwards India’s neighborhood such every bit Saudi Arabia, Iraq, in addition to State of Kuwait volition increment their marketplace portion inwards Republic of Republic of India every bit the latter begins to curtail Iranian unsmooth imports due to the re-imposition of U.S. sanctions.
While toll is a telephone commutation constituent driving India’s plough toward the U.S. inwards oil markets, environmental considerations are ironically leading to greater Indian imports of thermal coal from the latter. Several states inwards northern Republic of Republic of India banned petcoke work finally yr to cutting air pollution levels, a motion that has led to telephone commutation users such every bit the cement manufacture to import relatively high-calorific content U.S. thermal coal every bit an alternative. U.S. coal imports to Republic of Republic of India have got grown manifold since the ban finally year, a tendency which may maintain given that environmentalists are pushing for a nation-wide ban on petcoke inwards India. Meanwhile, Russian higher-grade thermal coal deliveries to Republic of Republic of India are also on the ascent in addition to Indian companies are acquiring mines inwards the Russian Far East with a stance to securing higher calorific value thermal coal deposits. For instance, inwards Dec 2017, the Russian subsidiary of India’s Tata Power acquired a thermal coal mine inwards Kamchatka for supplies to the company’s mightiness plants inwards India.
Incidentally, coal has been identified every bit i of the 4 primary “pillars of cooperation” betwixt Republic of Republic of India in addition to the U.S. nether the terms of their SEP, with “oil in addition to gas,” “power in addition to unloose energy efficiency,” in addition to “renewable unloose energy in addition to sustainable growth.” Cooperation inwards the coal sector is non supposed to move exclusively nearly coal imports from the U.S. but also extends to collaboration inwards “clean coal” technologies. In fact, the India-U.S. unloose energy human relationship purports to move much to a greater extent than than a buyer-seller human relationship every bit reflected yesteryear the mission of JTF-NG, which “provides a squad of U.S. in addition to Indian manufacture experts with a mandate to propose, develop, in addition to convey, innovative policy recommendations to Government of Republic of Republic of India inwards back upwards of its vision for natural gas inwards the economic scheme of India.”
The U.S. is already involved inwards surveys for estimating shale gas reserves inwards Republic of Republic of India in addition to scientists from both countries are also working together to educate an economically feasible method for exploiting gas hydrates, of which Republic of Republic of India has the world’s instant largest reserves. It is likely left unsaid that U.S. assist to Republic of Republic of India inwards its ain upstream oil in addition to gas sector, which the Modi authorities wishes to revive inwards lodge to cut down dependence on imports, volition motion into easier for the U.S. to gain a larger portion of the Indian marketplace inwards the interim. Especially since India-Russia cooperation inwards the hydrocarbon sector is already quite broad in addition to deep with interlocking investments underlining a convergence of interests.
That convergence of interests way that Republic of Republic of India is non probable to allow provisions of CAATSA, which tin give the sack Pb to secondary sanctions on non-U.S. entities involved inwards “Special Crude Projects” inwards Russia, deter it from farther investments inwards the same. Indian investments have got helped residual the influence of the Chinese inwards Russia’s upstream sector, something that has served to highlight India’s continuing geostrategic relevance to Moscow. In fact, India’s hydrocarbon imports from the U.S. in addition to Russian Federation volition Pb to both having an added involvement inwards ensuring liberty of navigation inwards the Indo-Pacific. Besides, diversifying it unloose energy imports, Republic of Republic of India volition e'er facial expression to residual that diversification.
Saurav Jha is a commentator on unloose energy in addition to safety issues. Follow him on twitter @SJha1618.
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