India and US plan to further strengthen their Strategic Energy Partnership that was launched in New Delhi in April last year. (Photo: Reuters)
India and US plan to further strengthen their Strategic Energy Partnership that was launched in New Delhi in April last year. (Photo: Reuters)

Energy is the new bridge in US-India relationship

  • India has been sourcing LNG and crude oil from the US, with Indian companies investing $4 billion in US shale gas assets
  • After the four-decade ban on US oil exports, the first crude oil shipment from the US to India arrived in October 2017 in Odisha

New Delhi: With state-run Petronet LNG Ltd announcing its plans to invest in Tellurian Inc’s US Gulf Coast project, energy has cemented its place as the new bridge in the India-US bilateral relationship.

Given that defence partnership was the cornerstone around New Delhi’s engagement with Washington, the LNG sourcing announcement and the CEO’s roundtable held during Indian Prime Minister Narendra Modi’s ongoing week-long visit to the US are of significant import. The presence of India’s petroleum secretary M.M. Kutty by PM Modi’s side at the energy round table held at Hotel Post Oak, Houston underlined the importance of energy security in the matrix of India-US relations.

This comes in the backdrop of the relationship between the world’s oldest and largest democracies being strained recently due to a host of trade and economic issues.

Houston, the global energy capital that was chosen as the venue for “Howdy Modi" event has also emerged as the epicentre of India’s energy security efforts in North Americas. Texas governor Gregory Wayne Abbott had also visited New Delhi last year and pitched his states’ resources.

India has been sourcing liquified natural gas (LNG) and crude oil from the US, with Indian companies investing $4 billion in US shale gas assets. With India’s energy demand expected to grow at 4.2% per year over the next 25 years, it has contracted 9 million metric tonnes per annum (mmtpa) of LNG from the US, making it the sixth-largest buyer of US LNG.

In a first, Indian Oil Corp., the country’s largest refiner, has also inked two term contracts totalling 4.6 million tonnes (mt) of US crude oil for 2019-20 from Norway’s Equinor ASA and Algeria’s state energy company Sonatrach.

Modi met the chief executives of 17 US energy majors such as Exxonmobil, BP Plc, Cheniere Energy, Dominion Energy, and Total S.A. among others in his first engagement to start his week long visit.

Referring to the energy CEO’s meeting, PM Modi in his speech on Sunday said that everyone was excited about India’s move to reduce corporate taxes.

In a bold move to reverse the economic downturn and make India an attractive investment destination, the NDA government on Friday slashed corporate tax rates worth 1.45 lakh crore paid by domestic manufacturers, making the country one of the lowest tax regimes in Asia.

Modi added that a positive message has gone to global business.

Of energy security and the lone star state

With India setting in place a new energy architecture with Texas and the US, this isn’t the first such engagement. After the four-decade ban on US oil exports ended in 2015, the first crude oil shipment from the US to India arrived in October 2017 in Odisha. Also, the first long-term LNG US cargo from the Houston-based Cheniere Energy Inc. reached Dabhol terminal in Maharashtra on 31 March last year.

“It is impossible to come to Houston and not talk energy! Had a wonderful interaction with leading energy sector CEOs. We discussed methods to harness opportunities in the energy sector," PM Modi said in a tweet.

Tellurian Inc. has signed a $7.5 billion agreement for India’s Petronet LNG Ltd to buy a stake in its proposed LNG terminal near Lake Charles, Louisiana, in what could potentially be one of the largest foreign investments in the US for shipping shale gas abroad. India is the world’s fourth-largest LNG importer.

In his speech on Sunday, president Trump said that US is the largest producer of energy and referred to the proposed Petronet—Tellurian deal.

Petronet will spend $2.5 billion for an 18% equity stake in the $28 billion Driftwood LNG terminal, the largest outside holding so far in the project, and negotiate the purchase of 5 million tonnes of gas per annum.

“The MoU signed in Houston is a part of wider energy cooperation under the India-US Strategic Energy Partnership and will further deepen our energy trade and investment relationship," India’s oil minister Dharmendra Pradhan said in a tweet.

The Houston meet was the third meeting between Modi and Trump this year and the first time ever a sitting US president has attended an event organised by the Indian community in the US.

India and US plan to further strengthen their Strategic Energy Partnership that was launched in New Delhi in April last year. Four working groups have been created under the Strategic Energy Partnership—oil and gas, power and energy efficiency, renewable energy and sustainable development.

Interestingly, even as India looks at the US as a reliable and long-term energy partner; New Delhi and Beijing are also set to roll out a buyers’ bloc to bargain collectively for crude oil purchases. Given the growing engagement between the Asian neighbours, it was US energy secretary Rick Perry who had pitched the US as a preferred energy partner during the inaugural meeting of the US-India Strategic Energy Partnership held in April 2018 in New Delhi.

India has been recalibrating its crude sourcing strategy in the backdrop of the drone attacks on Saudi Aramco’s production facilities that has caused the biggest-ever disruption in global crude oil supplies. The National Democratic Alliance (NDA) government has also been holding conversations with the Donald Trump administration on the issue of energy imports from sanctions hit Iran.

US secretary of state Michael Richard Pompeo on his part has promised India of adequate crude oil supplies even as India, the world's third-largest oil importer, has been trying to buffer its consumers from the spike in global prices.

India, the biggest emitter of greenhouse gases after the US and China, has been pushing for a gas-based economy and plans to connect 10 million households to piped natural gas by 2020. India plans to reduce its carbon emissions by 33-35% from its 2005 levels by 2030, as part of its commitments to the United Nations Framework Convention on Climate Change adopted by 195 countries in Paris in 2015.

“Increasing natural gas use will enable India to fuel its impressive economic growth to achieve Prime Minister Modi’s goal of a $5 trillion economy while contributing to a cleaner environment," Tellurian president and chief executive officer Meg Gentle said in a statement.

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