How Indo-US 'energy trade' can strengthen strategic ties

New York: Energy-hungry India looking to increase natural gas in its energy mix is turning to America to secure its needs. 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), a shift that could transform not just energy supplies but also US politics and diplomacy. The glut of inexpensive natural gas from use of hydraulic fracturing, or fracking, has driven down energy costs for US manufacturers. Energy giant BP expects the US to be energy self-sufficient by 2030 due to its shale gas revolution.

The IEA has said the global energy map "is being redrawn by the resurgence in oil and gas production in the US." Amid the emergence of the US as an energy superpower, can India turn to America as a new source for imports?

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

 How Indo-US energy trade can strengthen strategic ties

The US is expected to be energy self-sufficient by 2030 due to its shale gas revolution. Reuters

"Energy trade is of strategic interest on both sides, and should be prioritised," Nirupama Rao, India's ambassador to the US, told the Center for Strategic and International Studies, in Washington on Friday.

"Its elements should include export of US natural gas and other fossil fuel to India. I wish to emphasise the high importance we attach, both at governmental and private sector levels, to opening up the export of shale gas from the United States to India," added Rao.

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.

"The sales and purchase agreement with Cheniere will help GAIL to ensure long-term gas supply for the growing demand in the Indian market," said GAIL chairman and managing director B.C Tripathi, who added that his firm seeks more US shale gas assets.

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.

GAIL, through 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 US President to his promise.

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

"In Asia our topmost important, most capable security partnerships are with Japan and India in different ways... Say to them, look, part of this package could be preferential access or some facilitated agreement to US energy exports, because in fact, we have a national security interest in helping you develop your economy and helping you develop your military capacity, help us police this tough region in the world, create some ballast in Asia other than around China," Twining told the Congressional hearing.

"I think this could be a game changer if we play it right."

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Updated Date: Dec 20, 2014 17:52:08 IST