Expert Speak Terra Nova
Published on Feb 26, 2018
Stepping on the gas: Indo-Russian energy cooperation India and Russia have 70 long years of diplomatic relations behind them. Trade relations between the two countries have fluctuated — the Soviet Union was at one point India’s largest trading partner, while Russia today plays a much smaller role. Having overcome the setbacks of the 1990s and other logistical issues, trade volumes between the two have started ramping up once again. Although trade between the two was just over $7 billion in 2016–17 compared to over $64 billion of trade with the United States, a flurry of diplomatic overtures has signalled a willingness to expand trade between the two countries, particularly in the energy sector and especially after the events of 2014.


The International Energy Agency’s World Energy Outlook projects that India will account for almost 30 percent of global energy demand growth, and for 11 percent of global energy use by 2040. The Indian Ministry of Petroleum and Natural Gas’ ‘Hydrocarbon Vision 2025’ projects an increase in the share of natural gas in India’s future energy supply to 20 percent by 2024-25, up from 14 percent in 2010-11. Meanwhile, Russia, with one of the world’s largest reserves of natural gas, saw its production of gas rise to its highest ever level at 690.5 billion cubic metres (bcm), jumping 7.9 percent over the previous year. The Indian government has begun its pivot toward natural gas—a cleaner fuel than coal—while Russia has been keen to expand its gas markets away from Europe. There is a natural confluence of interests here. Both countries have noted the value of natural gas in helping the two states achieve their goals under the Paris Climate Agreement. Pipeline transportation between the two countries has been debated, but owing to logistical challenges, swap deals and liquefied natural gas (LNG) have emerged as more promising alternatives. Possible partners for swap deals include Japan and South Korea. There is precedent for this—the Japanese and Indian governments recently concluded an LNG swap deal where Australian LNG will go to Japan while India will receive Qatari supplies. The deal will reduce logistics and transportation costs significantly. Similar deals are possible between Russia and India and Japan and its suppliers in West Asia. Sakhalin Island is situated extremely close to Japanese territory and several Japanese energy companies already have a presence on the island. Although much of the oil and gas from Sakhalin is locked up in long-term contracts, the opening of the Yamal LNG plant, operated by Russia’s largest independent natural gas producer Novatek, and the increasing viability of the Northern Sea Route due to climate change could serve as an option. Gazprom, Russia’s state-owned gas company, has already supplied India with 1.7 million metric tonnes (MMT) of LNG between 2009 and 2016. Most recently, a 20-year deal between Gazprom and the Gas Authority of India Limited (GAIL) was successfully negotiated — Gazprom will supply LNG to India from the second quarter of 2018, gradually ramping up to 2.5 MMT annually in a few years. GAIL has been struggling to find domestic buyers, hence the staggered deliveries. To put this into perspective, imports from Qatar alone are 8.5 MMT annually. India’s total annual imports amount to 18.67 bcm of gas—the equivalent of 13.81 MMT of LNG. Many Indian companies have also made inroads into Russia’s oil and gas sector. ONGC Videsh has been involved since 2001, when it acquired a 20 percent stake in the Sakhalin I oil and gas plant. In 2009 it acquired the Imperial Energy Corporation and in 2016, it acquired a 26 percent stake in CSJC Vankorneft, a Russian oil company operating in Eastern Siberia, for over $2.2 billion. A consortium of Oil India Limited (OIL), Indian Oil Corporation Limited (IOCL) and Bharat PetroResources Limited (BPRL), acquired another 23.9 percent of Vankorneft for $2.02 billion, along with a 29.9 percent stake in Taas-Yuryakh Neftogazdobycha LLC for $1.2 billion. As Russia continues to explore hydrocarbon deposits in the Arctic, Indian companies such as ONGC Videsh that have experience working in the region could be potential partners. Russia’s Rosneft has also entered the Indian energy market. In 2016, it acquired a 49.13 percent stake in Essar Oil Limited for $12.9 billion, with another 49.13 percent split between Russian and Dutch partners, making it the largest FDI deal in India to date. It acquired Essar Oil’s Vadinar refinery—currently the third-largest refinery in the country—as part of the deal, giving it a toehold in India’s domestic oil market as well. Coal also features, albeit less heavily, in bilateral relations between the two countries. India’s appetite for imports has been falling. But Russia has been promoting coal mining in its Far East in a bid to develop the region. And so, in December 2017, when a Russian subsidiary of the Tata Power Company Limited (TPCL), Far Eastern Natural Resources LLC, was awarded a 25-year coal mining license for the Krutogorovsky coal deposit for $4.7 million, it was offered support in terms of infrastructure, laws and taxes.

Nuclear energy

Perhaps the most visible area of Indo-Russian cooperation in recent years — barring the defence industry — has been nuclear energy. Russian assistance in India’s civilian nuclear energy programme dates back to 1988, to an agreement between the Soviet Union and India to set up a power plant at Kudankulam. Despite coming under considerable strain from the Nuclear Suppliers’ Group and the dissolution of the USSR, construction of the Kudankulam Nuclear Power Plant (KKNPP) in Tamil Nadu began in 2002. The total power output of the KKNPP will be 6,000 MW; at present, the combined power generation of India’s 22 reactors is 6,780 MW. Both Units 1 and 2 of the power plant have been running at full capacity since December 2017. Units 3 and 4 are under construction– in November 2017, Reliance Infrastructure Limited won the bid for the engineering, procurement and construction contract for the project. As for Units 5 and 6, contracts have been signed preliminary work has begun. The project will cost ₹50,000 crore, compared to ₹17,270 crore for Units 1 and 2, and ₹39,747 crore for Units 3 and 4. Russia has also agreed to provide six more ‘Generation 3-plus’ 1200 MW units for a second site, which will produce more energy and operate for a longer period of time. All reactors are supplied by Atomstroyexport (ASE), a unit of Atomenergoprom, itself a holding company dealing with civilian nuclear technology under Rosatom. In addition to supplying fuel for the lifetime of the first two KKNPP reactors, Russia has also been supplying fuel to other indigenous reactors since 2009. The TVEL Fuel Company, a part of Atomenergoprom, has been the main supplier. Also worth noting is Russia’s willingness to increase localization in India. At present, around 20 percent of equipment is sourced from local manufacturers; the goal is to raise that number to 50 percent and also set up local fabrication plants. The prospects of working together on projects in third-countries, such as in Bangladesh with its Rooppur NPP project, with Russian equipment and Indian assistance, are also under discussion. Another area where the two can collaborate is breeder reactors. Russia is so far the only country to have commercially operating breeder reactors. India has been developing— and is keen to exploit— this technology due to the possibility of using thorium as a fuel instead of uranium. India has vast deposits of the former, not so much the latter.

Renewable energy

Cooperation in the renewable energy sector has a chance to be slightly more equitable. The share of renewable energy as a percentage of total energy production is higher in India than in Russia. Russia only surpasses it in hydroelectricity generation. Its sovereign wealth fund, Russian Direct Investment Fund (RDIF), has offered assistance for the development of hydroelectric projects. It won a bid to design and conduct feasibility studies for the Upper Siang-II project in Arunachal Pradesh, but that project has stalled. Both countries have been taking steps towards greener energy, although Russia’s need is understandably not as great as India’s. India’s ambitious green energy targets and its growing market for renewable technology provides an opening for Russian companies. Rosatom has been eyeing India’s wind energy markets through its division OTEK. They also share a common challenge of electrifying remote regions and so Rosatom, through its Hungarian subsidiary Ganz EEM, is open to supplying small hydro-power plants to India. Other countries might offer better deals but given the mutual trust between the two nations, cooperation with Russia has a chance to be beyond purely transactional. Neither country is too keen to be overly dependent on China as say, as a customer or technology supplier. Human resource training, given both countries’ expertise in technical education, as well as Russian assistance in improving India’s local gas delivery infrastructure, including pipelines and regasification plants for LNG, can all feature. It is a good sign that private players are getting involved, and initiatives like a ‘Green Corridor’ to ease bureaucratic hurdles are necessary.
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Christoph Benn

Christoph Benn

Christoph Benn Director Global Health Diplomacy Joep Lange Institute

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