By R. Sasankan

The war in Ukraine has badly roiled the global energy markets, posing serious risks to economies that are heavily dependent on imports of costly fossil fuels as they struggle to keep their floundering businesses and factories in operation. In the case of India – which is the world’s third largest importer of crude oil – the war in Ukraine has forced it to scramble to find new energy suppliers as crude oil prices shot through the roof, hitting almost $ 100 a barrel before some sort of sanity returned to the markets. At the same time, it has aggressively asserted its sovereign right to source cheap crude oil from Russia amid growing disquiet in the West over the Modi government’s refusal to roundly condemn President Vladimir Putin’s aggression in seeking to usurp large parts of Ukraine by force.

For years, India has been importing crude oil to meet a large portion of its energy requirement. The main sources of supply were countries in the Middle East. Of late, even the distant US has emerged as a source of supply. However, oil-rich Russia had always been a marginal player in India. The war in Ukraine changed that construct: Russia is now one of the major crude suppliers to India and, in recent months, has emerged as the single largest supplier.

According to a report by Reuters, Russia has emerged as the top oil supplier for India for the second month in a row. It has replaced Iraq to become India's No. 1 supplier in November as refiners snapped up oil fearing a price cap could disrupt supplies and choke payment avenues. India's oil imports from Russia rose for the 5th straight month, totalling 908,000 barrels per day (bpd) in November. This was 4 per cent higher than oil import from Russia in October. In fact, Russian oil accounted for about 23 per cent of India's overall import of about 4 million bpd oil in November.

The Modi government was able to reduce the burden of a crushing oil import bill largely due to its purchase of discounted Russian crude. The much-trumpeted Western price cap on Russian crude has become totally irrelevant as the oil market itself has gone into a slide. Oil prices these days are not decided by the producers like Russia or OPEC but by China, the world’s largest consumer, whose economy is blighted by a spike in the Covid pandemic.

The war in Ukraine cannot drag on for long and it is time for India to plan ahead to protect its energy security once a fragile peace descends over Europe. India will still need to import 86 per cent of its energy requirements. While it may not be able to put a lid on imports, it can begin to explore ways to change its energy mix while continuing to scout for cheaper options. It is inevitable that when the war ends, Russia will revert to its pre-Ukraine position as a marginal player in the crude oil market as far as supplies to India are concerned.

India has been playing a positive role as a peace maker behind the scenes in an effort to end the war in Ukraine. In fact, US Secretary of State Anthony Blinken has acknowledged the useful role India has played while striving to maintain a balance between competing diplomatic and business interests. The US drew a lot of comfort from Mr Modi’s unequivocal comment during a telephone conversation with Mr Putin last year when he asserted that “this is not a time for war”.

In a post-Ukraine scenario, India should look to widen its commercial ties with Russia by trying to plug into its vast trove of natural gas in preference over crude oil. India’s domestic natural gas production meets only 50 per cent of its requirement and the rest is imported as Liquefied Natural Gas (LNG). Qatar is its single biggest source of supply with which it has a long-term contract. The renewal of the 20-year supply contract for 8.5 million tonnes per annum of LNG from Qatar is in the process of being renegotiated.

The government, more particularly Prime Minister Narendra Modi, has set a target of 15 per cent share for natural gas in the country’s energy mix by 2030. This cannot be achieved without increasing its dependence on LNG. India’s energy pundits are favouring Russia’s Sakhalin-II as a source of supply. The government has not made any move in this direction so far but the possibility is not being ruled out. Russia is also looking to strike deals with customers like India that adopted a neutral stand on Ukraine issue.

India is the world’s fourth largest importer of LNG and Russia is the world's fourth largest LNG exporter representing 7.5 per cent of global supply – which gives the latter a lot of heft in shaping the dynamics of the LNG market. Till date, France has been the top European importer of Russian LNG. Almost 80 per cent of Russian LNG exports have gone to Europe and Asia.

Among operational natural gas liquefaction plants in Russia, Yamal LNG recorded the largest annual capacity as of November 2022. Each of its first three trains had a capacity of 5.5 million metric tons of LNG. The fourth one, which was put into operation in 2021, has a capacity of 0.9 million metric tons.

The Sakhalin-II project is an oil and gas development in the Sakhalin Island of Russia. It includes development of the Piltun-Astokhskoye oil field and the Lunskoye natural gas field offshore Sakhalin Island in the Okhotsk Sea, and associated infrastructure onshore. Sakhalin-II includes the first liquefied natural gas plant in Russia. After the Russian invasion of Ukraine in February 2022, Shell said it would exit Sakhalin-II and other ventures in Russia. On 30 June 2022, Putin signed a decree ordering the transfer of the Sakhalin-II project to a new domestic operator

So far, India has shied away from the distant Russia for oil and LNG on account of the high transportation costs involved. According to energy pundits who are familiar with the international energy scene, India could buy LNG from Russia’s Sakhalin-II at favourable prices and swap it for Qatari LNG going to Japan and South Korea.

This is not feasible today as neither Japan nor South Korea will break Western sanctions. But it will become possible in the post-Ukraine scenario. The world cannot afford a prolonged war in Ukraine. Russian LNG presents a cheaper energy option for everyone and the benefits are best shared. Any deal with Russia on LNG supplies will also have a sobering effect on Qatar which has dominated the field and tends to dictate prices in the absence of a credible competitor.