Energy security: India pins hopes on access to US natural gas

New York: Energy-hungry India looking to increase natural gas in its energy mix is urging the United States to greenlight liquefied natural gas (LNG) exports, arguing it would be an economic benefit to both nations.

A spike in US natural gas production in recent years, thanks to shale development, has led to a supply surplus while India's domestic supply has dwindled, leaving it scrambling for new supply deals.

A shale-oil boom will help the US overtake Saudi Arabia as the world's largest oil producer by 2020, according to the International Energy Agency (IEA). The glut of inexpensive natural gas from use of hydraulic fracturing, or fracking, has driven down energy costs for US manufacturers. Amid the emergence of the US as an energy superpower, can India turn to America as a new source for imports?

Nirupama Rao, India's ambassador to the United States, makes the case in a Wall Street Journal op-ed that arrives just as the US Energy Department weighs an array of industry export applications.

In a good sign, state-run energy giant GAIL India Ltd. has managed to lock down a 20-year import deal to buy liquefied natural gas, from Houston-based Cheniere Energy. New Delhi is now pressing Washington to relax its restrictive export policy for other Indian companies.

 Energy security: India pins hopes on access to US natural gas

India is urging the US to ease LNG exports. Reuters

"The relationship between India and the United States is vibrant and growing. Near its heart is the subject of energy," writes Rao in the Journal.

"For the US it would help create thousands of jobs and an expanded revenue stream for the federal government. For India, it would provide a steady, reliable supply of clean energy that will help reduce our crude oil imports from the Middle East and provide reliable energy to a greater share of our population." (Read Nirupama Rao's op-ed in the Journal here.)

Washington doesn't allow gas exports to any country with which it doesn't have a Free Trade Agreement, but it is making an exception for India's GAIL.

In a deal worth some $15 billion, Houston-based Cheniere Energy will supply GAIL with 3.5 million tonnes per year of LNG from Cheniere's Sabine Pass LNG terminal in Louisiana. At current prices, it looks like a favourable deal for India and LNG deliveries are expected to start in 2017.

"So far, while all terminals in the US with capacity to export LNG are authorized to ship it to countries with which the US has a free-trade agreement, only one - the terminal at Sabine Pass in Louisiana - has received authorization to export to non-FTA countries," said Rao.

"There is a significant potential for US exports of LNG to grow exponentially," she added.

GAIL, through its unit GAIL Global (USA), has also bought a 20 percent stake in Carrizo Oil & Gas's Eagle Ford shale acreage in Texas for $95 million in September 2011. Reliance Industries has invested in three US shale joint ventures since April 2010, one of them in promising Marcellus Shale of Pennsylvania.

GAIL and other Indian firms are up against Chinese state-run firms which are also competing for new natural gas supply deals in the US. Given the rising energy demand from Asia, ExxonMobil Corporation, in its report, "The Outlook for Energy: A View to 2040," said global usage of natural gas will grow 62 percent by 2040, and will replace coal as the second-largest fuel supply behind crude oil by 2025.

The US Energy Department projects US shale gas reserves at 482 trillion cubic feet (tcf). To put this in context, 5 trillion cubic feet of natural gas is enough to meet the needs of 5 million Indian households (water-heating, cooking, etc.) for 15 years.

India's shale gas reserves are estimated at 63 tcf but little work has been done on extracting it. When President Barack Obama came courting India in November 2010 he had promised US cooperation. It's time to hold the American to his promise.

Of course, few things in life come with no strings attached. Dan Twining, a senior fellow at the German Marshall Fund, told a Congressional hearing in March that if the US offered India a hand with its energy needs, it could help Washington boost its security architecture in the Asia Pacific region.

India imports 75 percent of its energy needs today and expects to import 90 percent over the next decade.

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Updated Date: Dec 20, 2014 17:52:33 IST