A partnership which spans upstream, midstream and downstream development across a range of energy products and services, has the potential to strengthen India's resource security and accelerate its green economy.
With India-US relations on the upswing, the spotlight has largely been on defense cooperation and intelligence sharing, yet an important area that has often gone unnoticed is the growing energy partnership. This partnership which spans upstream, midstream and downstream development across a range of energy products and services, has the potential to strengthen India's resource security and accelerate its green economy.
As the US moved from becoming an oil and gas importer to a net exporter, its energy security matrix began to take a new shape and its foreign policy, a new direction. Securing petroleum assets overseas gradually got nudged down the priority list, while fresh yet equally critical aspects to America's newly achieved energy independence, grew in importance. Finding a home for local oil and liquified natural gas (LNG) production in overseas markets meant India, one of the world's top consumers of energy products with a rapidly rising demand profile, was a key to unlocking value.
India, as a nation with declining domestic production, has actively added to its overseas captive upstream portfolio with over $30 billion invested in projects globally over the last six years.
Expanding its overseas strategic reverses in the US and the Middle East amidst the sharp drop in oil prices earlier this year, the government took actions that bought into and captured unsustainably low prices. Russia, Saudi Arabia and the UAE are amongst the states that received the highest outbound investment and it should come as no surprise that the improved ties between the Gulf states and India found material backing through a series of oil and gas deals.
America, looking for a long-term “sink” in India - or a buyer that would consistently purchase volumes of hydrocarbons - is competing with a multitude of oil exporters, many of which benefit from low shipping costs due to the geographical proximity to India's western seaboard. It is in this context that a comprehensive energy partnership that both plugs gaps in the value chain and enhances technical cooperation came into being between the two countries.
The four areas of focus are oil and gas, sustainable growth, power and renewable/sustainable energy. Besides diversifying India's crude and LNG imports, gas infrastructure capacity building stands out amongst the areas of cooperation.
More to read:
America's experience in developing a vast piped gas network is likely to be leveraged as India pushes for its own $60 billion “one nation, one grid” that involves the laying of thousands of kilometres of pipes across the country.
Buttressed by a reliable basket of LNG suppliers, amongst which the US is figuring more prominently over time, energy security for India in a low carbon intensive fuel, will be improved.
India has already become the fourth and fifth largest markets for US crude and LNG, and as the domestic pipeline and regasification capacity rises, so will its share of American energy exports. Moreover, access to low-cost credit overseas amidst the prevailing near-zero interest rates makes the search for yield intense, and a reliable market with significant growth prospects encourages midstream, downstream and integrated energy producers to finance end-to-end value chain development.
The Indian mid and downstream space is an exciting one with opportunities for small, railed LNG tanks being considered so that gas can reach local grids in the hinterland which are yet to be linked with national pipelines. On the upstream front, just one example of the scale of the partnership is the deal between Petronet and Tellurian, which has the former proposing a $2.5 billion equity investment for gaining access to a long-term LNG contract.
While coal is falling sharply as a part of the western world's generation mix, the fuel is still expected to have a long life as a part of the Indian merit order. Untapped coal seams in central and western India's mining belt are likely to find more private companies than before involved in extraction under a more deregulated environment. American mining firms that are weighed down by low domestic prices, uncompetitive exports and restricted credit access for local projects are likely to invest overseas to grow their portfolio, to see another day outside Chapter 11.
On the renewables side, the Modi government has set a steep target of 175 GW of capacity by 2022. A new target of 450 GW out of the planned 832 GW total generation capacity by 2030 and an expected acceleration in electric vehicle (EV) adoption means that demand for battery energy storage systems which offer both off-grid capabilities as well the much needed power distribution flexibility - is set to surge.
Still more to read:
States like Andhra Pradesh are keen to get US battery manufacturers to set up giga-factories, and with an incentive scheme being offered by the central government coupled with a shift of supply chains out of China, it is hoped that private firms will invest in India. Deepening cooperation on the sustainability front, joint development of fuel cell technology is expected through the Hydrogen Task Force.
This private-public partnership between the US Department of Energy National Labs and the Ministry of New & Renewable Energy's Indian National Institutes is set to work on this cutting edge and potentially revolutionary technology. Furthermore, the MoU between Bloom Energy and Indian Oil is an example of transnational corporate relationships developing in clean energy and fuel cell space.
As the Indian gas and power volumes develop and grow, the need for creating a liberalized market for trading will help stakeholders manage their risks.
The power market which continues to suffer from poor DISCOM health has a way to go before finding liquidity that will enable utilities, merchants and end users to hedge large forward positions. Here, the work that will be done by India's Central Electricity Regulatory Commission (CERC) and the US Federal Energy Regulatory Commission (FERC) will enforce best practises, laying the groundwork for energy market liberalization across the spectrum.
For example, the Indian Gas Exchange (IGX) launched physical gas contracts at three locations - Dahej and Hazira in Gujarat and Oduru in Andhra Pradesh in August this year, and in part, their development as robust and liquid trading hubs will be linked with the ability of market participants to hedge power output, or at least see the application of similar standards in gas hubs overseas. Much like with the CERC, the partnership between FERC and the Petroleum Natural Gas Regulatory Board (PNGRB) will play a critical role for developing the IGX.