Author : Manish Vaid

Originally Published 2012-12-31 00:00:00 Published on Dec 31, 2012
India and Russia already have mutual stakes in the hydrocarbon sector. The stage is set for this time-tested friendship to deliver results. They should now extend their integration beyond conventional strategic ties.
The next level in relationship
The 13th Indo-Russian summit between Russian President Vladimir Putin and Prime Minister Manmohan Singh that concluded in New Delhi on last Monday (24 December) gave enough signals of a re-rapprochement between these two allies and put to rest many apprehensions largely related to In­dia's nuclear liability law and cancellation of 2G licences.

The two countries signed 10 bilateral documents in­cluding a defence deal worth $5 billion as well as a mas­sive $45 billion deal for setting up 18 nuclear power plants in India, one every year. Also agreed upon was multi-fac­eted bilateral cooperation in sectors ranging from space research, trade and investment, science and technology, to education, culture and tourism. The civil nuclear deal would ensure addition of 22,000 MW (20 per cent being Russia's contribution) to India's power production by 2030, after the commissioning of 18th nuclear power plant. This deal also ensures complete safety to the nuclear plant in the event of a Fukushima-like natural calamity.

Though the civil nuclear deal is more than what India envisaged, it still falls short of what the country actually needs in terms of holistic energy ties, which includes both ways Foreign Direct Investment (FDI) in the hydrocarbon sector. With Russia having rejected tax concessions to ONGC Videsh Limited's (OVL) Imperial Energy in October, chances of such investment appeared bleak ahead of the summit, largely due to Indian government's handling of the Sistema issue. But deliberations by diplomats on both sides have helped bridge the rift. With the countries having cleared their doubts on the issues, one can now foresee such investments taking place sooner than later.

Indian companies are already eyeing various projects in Russia which includes OVL's Sakhalin-III and in Artic, setting up of LNG plant and equity in the Yamal Peninsula Gas Project, development of Yurubchemc-Tokhoskoye oil and gas field in the Krasnoyarsk region, construction of a refinery in the Primorsky region, and joint work in third countries. Petronet LNG Ltd, on the other hand, wants to conclude a long-term sale purchase agreement (SPA) with Gazprom Global Ltd for supply of LNG to India. The Gas Authority of India Limited (GAIL) has already signed 20-year LNG SPA Gazprom Marketing and Trading Singapore (GM&TS), a 100 percent wholly-owned subsidiary of the Russian Gazprom Marketing & Trading.

If India needs hydrocarbon resources to meets its energy needs, the Russian Federation is as keen to explore newer markets for its expanding energy portfolio. According to BP Statistical Review of World Energy 2012, Russia holds world's largest natural gas reserves, besides having second largest coal reserves after the US.

Given India's precarious natural gas scenario and its ef­forts to curb its carbon intensity and emissions, particularly in Krishna Godavari basin (KG-D6), the need to gain access to energy supply from Russia becomes imperative. The FICCI-PWC report projects the country's import dependency on oil to be between 91 and 94 percent by 2031- 32, thereby straining its fiscal deficit further. Given their long-standing trade ties, India looks to import natural gas from Russian reserves. Access to cleaner and cheaper fuel will help curb the country's crude imports, while giving Russia a strategic presence in South Asia. Both the countries can work on a Turkmenistan-Afghanistan-Pakistan- India (TAPI) type pipeline model. BP Statistical Review of World Energy 2012 says, the proved natural gas reserves for Turkmenistan stand at about 858.8 trillion cubic feet (tcf) compared to 1575 tcf of the Russian Federation.

The Working Group, which met in October, stressed upon some more areas of mutual cooperation in hydrocarbons which include involvement of Zarubezhneft, Russian equipment, a service company in the use of Russian technologies for enhanced oil recovery in Assam; the possibility of an Indian company forming a joint venture with Gazprom in existing upstream drilling projects and jointly bidding with gas from the proposed Production Sharing Contract 2012 of Bangladesh. The latest in the offing was Rosneft's offer of stake in Magadan 2 and 3 blocks in the Sea of Okhotsk in eastern Russia.

The two countries already have mutual stakes in the hydrocarbon sector, which includes OVL's 20 percent participating interest in Sakhalin-1 with an investment of $3.8 billion and ownership in Imperial Energy block. ONGC has also signed an agreement of col­laboration with the Skochinsky Institute of Mining (SIM) for collaboration in underground coal gasification (UCG) project. GAIL and Indian Oil Corporation have signed agreements with Gazprom Marketing and Trading, Sin­gapore (GMTS) for securing LNG from Russia on long term basis, supplies of which are expected to commence in 2017-18. The stage is set for this time-tested friendship to deliver results. They should now extend their integration beyond conventional strategic ties.

(Manish Vaid is a Research Assistant with Observer Research Foundation, New Delhi)

Courtesy : The Financial World

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Manish Vaid

Manish Vaid

Manish Vaid is a Junior Fellow at ORF. His research focuses on energy issues, geopolitics, crossborder energy and regional trade (including FTAs), climate change, migration, ...

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