By R. Sasankan

India has tried to maintain a delicate balance in its diplomatic relations between the two major Superpowers – the US and Russia – by carefully ensuring that it doesn’t antagonise one side or the other as it negotiates the spectacular fallout of the war in Ukraine on its trade and economic relations.

The Indian side has always asserted that it has a sovereign right to protect its own interests, especially in the area of energy security. This has meant that India – like China – has defied the veiled threat of economic sanctions from the US and other Western powers while continuing to buy cheap crude from Russia, and ignoring the $ 60 a barrel arbitrary price cap that the West recently imposed on crude oil purchases from Moscow.

At a time when the benchmark Brent crude has swung between $ 80 and 87 per barrel, India has continued to obtain Russian crude at a significant price discount. As a result, a Reuters study (https://www.reuters.com/markets/commodities/russian-oil-slashes-opecs-share-indian-market-22-year-low-2023-04-24/) estimates that India’s dependence on the OPEC for crude oil has slumped to a 22-year low of 59 per cent in the fiscal year to March 2023 from 72 per cent in 2021-22.

Russian crude has been a huge attraction for energy-starved India which imports 86 per cent of its requirement. The attraction of the Russian crude is the low price. However, crude oil is not a scarce commodity. The price may fluctuate depending on the whims of the producers’ cartel like OPEC and OPEC+, and the intensity of China’s consumption. China has emerged as one of the major factors influencing the international crude market. The Indian economy has reached a stage where it will not shy away from importing crude even if the price is high.

India’s energy managers – who are under pressure to meet Prime Minister Narendra Modi’s desire to raise the continuation of natural gas in the country’s energy mix to 15 per cent by 2030 from the current level of 7 per cent – are scrambling to find sources for imported LNG. The situation is complicated by the fact that LNG prices soared in the past year and hit as high as $ 45 MMBTU.

India does not produce a great deal of natural gas and also has not been able to acquire gas field assets overseas. Its major source of supply is the long-term contract with Qatar and another one with Russia for a lesser quantity. The rest is sourced from the spot market which is totally unpredictable.

Russia is a major producer of natural gas. After the outbreak of the Ukraine war, it tightened gas supplies to Europe in a fit of pique over their stand on the war. The obvious question to ask is this: if Russia could have such a huge influence on the crude oil market and ready to supply it at a discount to close trading partners like India, why wasn’t it ready to do the same with LNG?

I discussed this subject with a couple of acknowledged energy experts familiar with the international scene. President Vladimir Putin has appreciated India’s neutral stand on the Ukraine war and the manner in which it has voted on key UN resolutions seeking action against Russia for triggering a war that threatens to engulf Europe. So, why didn’t President Putin offer natural gas to India on favourable terms?

As I started to delve into this aspect, it became apparent that that the story with natural gas was completely different. Russia is not that big a force in the LNG market -- at least for the time being.

Permit me to present the relevant figures that led me to these conclusions.

In 2022, Russia exported about 33 MT of LNG, which was 8.6% more than in 2021. Some 55% was sold to Europe. The two largest facilities are Novatek and Gazprom. Novatek, Russia’s largest LNG facility, shipped 20.8 MT from its Arctic facility Yamal LNG and about 0.7 MT from a smaller facility on the Baltic Sea. LNG exports from Sakhalin-2 were up 11% to 11.2 MT in 2022.

Yamal is 30% owned by Chinese and 20% by Total of France. In Sakhalin-2, India has no share. Japan’s Mitsubishi and Mitsui directly and indirectly own about a third of the LNG facility and lift 65% of the output. It is not clear where the rest goes but it could be China and South Korea. This does not leave India with a lot of scope to tap into Russian LNG. The only hope is to explore the possibility of seeking new captive LNG train for India, when and if this becomes available.

India can try to persuade President Putin to accommodate India in Sakhalin-2. Efforts can be made to persuade Russia to offer a small stake in Sakhalin-2 to India. This is the kind of arrangement that India must pursue in the gas sector.

Sakhalin-2 poses some problems with respect to transportation of LNG cargoes. The vexed issue of distance can be overcome by entering into a swap arrangement with importers from Japan and Korea who can supply their Middle Eastern cargoes to India.

One must, however, acknowledge the fact that Russia has its limitations as a steady, potential source of LNG. India needs LNG in large quantities in the coming years. Prime Minister Modi is not going to back down on his ambitious target to raise the contribution of LNG in the energy mix.

This is when India must realise that the United States can be a better bet when it comes to sourcing natural gas or LNG.

The only option for the government is to acquire one or two integrated facilities in the US. Gas fields are available there for outright sale as well as equity participation. Gas prices are again at their lows and this provides an opportunity to tap into this reserve. GAIL has already embarked on such an initiative but outcome is not known.

This is moment when India needs to pivot once again in its strategy to protect its energy security. It is possible to once again be even handed in its approach towards its trading partners – a possibility thrown up by the virtues of maintaining a balance between the two Super powers. This means it could continue to source cheap crude from Russia and explore the prospects for LNG supplies from acquired gas assets in the US.

Only an imaginative approach can break the Gordian knot that constrains India’s energy security.