How will India deal with western sanctions imposed on its oil and gas suppliers? This is an issue that crops up every now and then.
This has been a subject of discussion not only in the domestic market but also at the international space, mainly because India is among the large consumers of fossil fuel.
In fact, just a couple of days back a businessline report quoting sources had said, “With sharp escalation in tensions in the Middle East… the Indian government is in a huddle over what its strategy on oil imports should be and the alternatives it could explore in case of supply disruptions in West Asia and continued volatility in oil prices.”
It further said, “The Commerce Ministry is in close consultations with the Ministry of Petroleum and Natural Gas to weigh alternative supply options that could be explored if the situation in West Asia worsens. As over 40 per cent of India’s oil at present is sourced from the region, the task is not simple.”
“One option being considered is to increase purchase from Russia and see if it can be routed through the Chennai-Vladivostok route, which passes through the Sea of Japan, the South China Sea and Malacca Strait, in case the traditional route through the Red Sea cannot be used,” the report said.
This constant debate leads us to a question about whether India has missed the bus in handling its energy security.
Ensuring energy security is a dynamic process with new geopolitical developments and changing energy mix due to climate change pressure.
Pipeline risks
So in India’s case would a transnational pipeline network work?
India has been unsuccessful in this area, mainly due to political factors which have also put a question mark over the commercial viability of these projects.
Given the ease with which LNG can be imported now (assuming there is no volatility), geopolitically risky trans-border pipelines with large capex may not be a viable option in today’s world.
“The current contracting environment is characterized by an over-investment cycle owing to the anticipated LNG supply that will be coming onstream. By 2030, almost 200 million metric tonne (MMt) more LNG will be added from plants under construction today. This represents a growth of almost 50 per cent and it is as large as the previous over investment cycles in 2005-06 and 2013-17.
“Consequently, for long-term LNG contracts scheduled to begin beyond 2029, new contracts are likely to face downward pressure on prices. In February 2024, QatarEnergy had signed a 20-year contract extension with Petronet LNG Ltd. for 7.5 million metric tonne per annum. This was reported to be at 12 per cent Brent oil. This sets a new benchmark in the market given its size and duration for a buyer in Asia,” said, Chong Zhi Xin, Senior Director, S&P Global Commodity Insights.
For example, a Rystad Energy — a global independent research and energy intelligence company — report said, “Russian oil production has remained strong despite sanctions imposed by Western countries in the wake of Russia’s invasion of Ukraine. The country’s gas and liquefied natural gas (LNG) industries, on the other hand, have suffered due to limited pipeline infrastructure and reliance on Western companies.”
Rystad Energy expects Russian piped gas supply to China to increase due to new infrastructure, but the outlook for Russian LNG is less rosy. The Kremlin has set an ambitious plan to commission 100 million tonnes of LNG capacity by 2030 but Rystad’s forecasts show the country will miss that target by as much as 60 million tonnes.
Despite a bleak outlook, it expects Russia’s planned LNG projects to go ahead despite sanctions and challenges in securing vessels and long-term contracts, thanks to government support and incentives on financing, research and development, and tax breaks.
However, there are diverse views on whether having transnational network would have worked better for India as it would depend on nature of sanctions and their geopolitical impact and the pressure put on India to comply with western sanctions.
Supply flexibility
Further one has to consider that pipeline supplies may leave the buyer at the mercy of supplier country. Whereas in case of LNG as is the case with crude oil, the buyer has flexibility to change supply sources.
Asked whether India’s attempts to have transnational pipelines to transport gas had failed because of political reasons, Talmiz Ahmad, former Indian Ambassador to Saudi Arabia; Oman, and the UAE, confirmed that “energy security concerns had been overwhelmed by political considerations”.
Ahmad, who was Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06, said that, for instance, the Myanmar-Bangladesh-India gas pipeline did not fructify because the Bangladesh side, due to domestic political compulsions, wanted certain bilateral matters to be included in the tripartite gas agreement which were not acceptable to the Indian side.
Similarly, the Iran-Pakistan-India gas pipeline project, despite agreement on several technical and commercial issues, did not progress due to political instability in Pakistan, while the Turkmenistan-Afghanistan-Pakistan- India (TAPI) gas pipeline project had the added problem of civil conflict in Afghanistan, he said.
“Political issues do overshadow commerce,” Ahmad said. Given the political challenges that have bedevilled pipeline projects, it now made sense to obtain gas as LNG, he added.
“However, the bigger issues that India faces today are uncertainty relating to the place of gas in our energy mix. What India needs is a long-term and integrated energy policy that projects the country’s energy requirements over the next 25 years, while taking into account domestic production, import requirements of fossil fuels, and our commitments to transition towards clean energy,” he pointed out.
To sum up, there are no simple answers to whether pipelines import would have served India’s energy security better, but what is clear is that India needs an integrated energy policy.