The Risks of US Oil and Natural Gas for India
Barely two years after the Russian invasion of Ukraine upended its energy calculus, India is once again recalibrating its supplier list. During Prime Minister Narendra Modi’s recent visit to the United States, it committed to increasing its purchases of oil and gas from that country. As of this writing, America is India’s fifth-biggest oil supplier and is responsible for meeting a fifth of the country’s natural gas needs. Russia and Qatar are the top suppliers of oil and natural gas respectively.
India’s foreign secretary Vikram Misri said Indian purchases of US energy output will increase by two-thirds to $25 billion “in the near future.” US exports of oil to India already surged by 81 percent to 0.11 million barrels per day in the first week of February, according to energy consulting firm Vortexa. At the same time, oil shipments from Russia fell by 23 percent to 1.07 mbd.
A reset of supplier matrices is a welcome development in the face of rising global uncertainty. Some observers have predicted a gas bonanza and an oil windfall for India. But that promise of plenty should be asterisked with the prospect of rising energy bills and geopolitical instability.
An End to Cheap Oil?
Thanks to deeply discounted oil from Russia for the last two years, India’s energy bill fell even as its consumption grew. This is because Russia established a a shadow network of suppliers and middlemen to sell its fuels, often at prices much below those of international benchmarks, and escape US sanctions.
With President Trump’s election, Russia’s economic isolation is ending and so are the discounts it offered to circumvent sanctions. For India, this means that the days of its access to cheap crude are numbered. Unlike Russian oil, US crude is expensive and takes longer to reach Indian shores.
“The landed cost [for fuels] becomes more expensive [when transported over long distances] and making them cost-effective is a challenge”, explains Charith Konda, energy specialist at Institute for Energy Economics and Financial Analysis (IEEFA). According to him, transporting oil from the US is not commercially-viable unless the fuel’s price touches $140 per barrel.
The story for natural gas is not too dissimilar. The commodity’s price shot up by 164 percent last year even as major US firms in the sector ramped up production. The United States, which is the world’s biggest producer of natural gas, has a glut of the fuel but prices still remain stubbornly high. [As compared to global gas prices, US gas is still relatively cheap].
The Wall Street Journal reports that heightened domestic demand due to frequent cold snaps and infrastructure constraints could dampen the effect of more natural gas in international markets. Major US exploration and production firms (E&P) do not plan to increase their capital expenditures this year despite President Trump’s plans to “drill, baby, drill” and a supply mismatch is on the cards. In short, natural gas prices are poised for a rise next year. Again, India will have to foot a higher bill for its fuel imports. It doesn’t help matters that power demand in the country is expected to grow annually at six percent.
The Trump Wild Card
Overarching these issues is the prospect of increased geopolitical tensions. President Trump’s ascension to the world’s most important office is the biggest wildcard for energy supplies. Since his inauguration last month, Trump has moved at breakneck speed to sidestep important allies and reconfigure global alliances.
Across much of the developed world, the far right is gaining ground and nationalist identities are being asserted as differences in perspectives and foreign policies become sharper. For example, Europe has doubled down on sanctions against Russia even as America seeks to make nice with the same country. The overall effect of these changes is a refashioning and disruption of traditional energy routes. India will have to tread with care in the changed landscape. While the country has made impressive strides in renewable energy, it still depends on fossil fuels to power its economy.
To that extent, the promised bonanzas and windfalls for India’s energy systems are loaded with risk. Konda from IEEFA the energy partnership announcements are for optics. “It was a pulse check meeting for both sides,” he says, adding that details about these partnerships are still at a high level.
