Why India looks towards US for energy requirements by forgetting Russia, Iran, Azerbaijan and Qatar?

MOSCOW, Russia: Having historical relations with Russia, India is looking at the United States for its energy requirements particularly in the LNG sector.

Russian oil industry circles believes Russia is one of the biggest producers of biofuel energy and is in proximity of India comparing to US energy stations. Such circles question why India looks towards US for energy requirements by forgetting Russia, Iran, Azerbaijan and Qatar?

India looks towards United States for energy requirement by forgetting Russia, Iran, Qatar and Middle Eastern market
India looks towards United States for energy requirement by forgetting Russia, Iran, Qatar and Middle Eastern market

What are the reasons behind this strategy?

Eurasian News reports it looks that the Indian PM Narendra Modi wishes to participate as an investor for the US President Donald Trump for his forthcoming Presidential run as much-promoted Tellurian- Petronet Liquefied Natural Gas (LNG) deal would create over 50,000 jobs in the United States.

Although this deal is yet to turn into a concrete shape as it is just in phase of Memorandum of Understanding (MoU) between the two countries, there are several questions raised by Indian politicians as well as some quarters of Indian media.

As per the information, a $7.5 billion agreement was signed by Tellurian with Petronet LNG Ltd which will buy proposed liquefied natural gas (LNG) terminal in Driftwood, Louisiana, USA to ship shale gas to India.

Petronet will spend $2.5 billion (INR 17,668 crores) for an 18% equity stake. It was announced on 21st September, 2019 in the presence of the Indian Prime Minister Narendra Modi and the US President Donald Trump that deal has been fixed.

However, after a week of the announcement, there are many questions raised. Indian media is now revealing that it wasn’t a deal or an agreement but a second MoU between the two countries.

Reportedly, Petronet LNG in a recent regulatory filing has maintained that it had signed a “non-binding” MoU with Tellurian at Houston, USA. “The process is subject to due diligence and approval of respective Board of Directors”.

Indian politicians believe that in the backdrop of contradictory statements from Tellurian and Petronet LNG (India), the deal has become questionable like other mega deals announced/made during the Bharatiya Janata Party (BJP) government in New Delhi.

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It may be mentioned that on 14th February 2019, Petronet and Tellurian had already signed an MoU for 5 million tonnes a year.

Petronet LNG (India) is a joint venture government company set up in 1998 to import LNG and set up LNG terminals in the country. The JV is between GAIL India, Oil & Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL). Petronet has two terminals, one in Gujarat, which is a joint venture with Adani Group and the second is the Kochi LNG terminal.

The deal has raised eyebrows because an Indian company is funding an LNG terminal in the US, which will help the US create jobs in the year Trump is seeking re-election as the US President. Congress leader Rahul Gandhi is voicing this theory strongly in his comments over this deal.

Rahul Gandhi has also alleged that Modi through the visit to USA/LNG deal has made canvassing for Trump and annoyed Indian friends of the Democrats Party. Indian politicians believe that it is becoming clearer with each passing day that the Liquefied Natural Gas (LNG) deal between India’s Petronet LNG and US-based Tellurian Inc. is more political than good business.

Both US and Indian officials say that the Petronet-Tellurian deal is now a prestige project for India-US relations that are otherwise facing headwinds over trade issues. Both PM Modi and President Trump have hailed the deal publicly.

The State Department Acting Assistant Secretary for South and Central Asia Alice Wells said that the deal was “so important” to the relationship because it showed that investment was a two-way street where “India is investing and creating jobs in America” with the Petronet investment resulting in an estimated 50,000 jobs and $60 billion in exports.

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The pricing of Liquefied National gas is dwindling every time which makes this deal volatile. The recent downturn in manufacturing, coal dependence and the lack of regasification plants and pipeline infrastructure in India will reduce the demand for LNG.

In 2011, GAIL (Gas Authority Of India Limited) entered into 20-year contracts with American companies Cheniere Energy and Dominion Energy to buy 5.8 million tonnes of LNG a year with fixed annual fees. It has since been reselling much of it to other markets due to lack of demand.

The demand of over 1.3 billion people in India is a sizable market for US energy companies. India is also hosting the “India Energy Forum” 13-15 October in New Delhi. In a bid to get foreign investors, India recently planned a cut in corporate tax rates. India imports around 80% of its oil needs.

However, PM Modi wants to bring that down to 67% by 2022. At the same time, the Indian government plans to raise the share of natural gas in the country’s energy mix from 6% to 15% by 2030.

Although, Petronet LNG (PLNG.NS) agreed to buy LNG from Novatek (NVTK.MM) of Russia but no MoU or contract has been signed with Russia while India is swiftly working on its US LNG project.

Meanwhile, India has disconnected its energy market from Iran under US sanctions and also planning to avoid its historic linkages with Middle Eastern market for energy demands and would look towards US for its political strategy instead of business demands because Middle Eastern market including Qatar etc is in proximity of India rather than of US market.

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Moreover, the Modi government also want to showcase the LNG deal as a first long-term LNG import contract signed since the Modi government came to power in 2014. It may be mentioned that all the previous deals – 7.5 million tonnes with Qatar, 1.44 million tonnes with Australia, 2.5 million with Russia and 5.8 million tonnes with the US – were all signed during the Congress-led UPA regime.

Based on the track record Modi’s involvement in mega corruption scandals (controversial Rafale Aircraft deal, demonetization etc), the proposed LNG deal is likely to prove another mega scandal in the future.