Energy security: India-Russia ties

The India-Russia bilateral summit on October 15 at Goa has opened up a dynamic chapter in India’s massive efforts for energy security as the Narendra Modi Government seeks to diversify its oil import baskets and look for new routes for supplies. The giant Russian oil major Rosneft’s takeover of the leading Indian major Essar Oil has completely changed the energy horizon of India, redrawing the country’s oil routes and catapulting India to a position where it will have greater flexibility in bargaining for its oil supplies from different sources.

Rosneft is the world’s largest publicly traded oil company and its purchase of 98 percent of Essar Oil’s 20 million tonne per annum refinery along with associated port and fuel retail network, has signalled to the global oil market that India has emerged as one of the most attractive markets for foreign investment in the oil industry. Rosneft’s business plans have the potential of turning India into a major hub for exporting oil products refined in the Indian refineries through imported oil. Rosneft is planning to make optimum use of Essar refinery to process crude oil from other countries including Venezuela, and plans indicate the possibility of making use of India as the biggest outfit of Rosneft outside Russia, along with China.

What is significant is that Indian refineries have sophisticated technology and the state-owned refineries have constantly been upgrading the technology and the refining process. The takeover of Essar will give the Russian major the golden opportunity to process in Indian refineries crude oil from other countries also which need sophisticated technology. That way, through Rosneft, India will be in a position to refine crude oil from many sources, and those may be consumed in India as also refined for exports to third countries.

Interestingly, Rosneft has big stakes in China, and the ties are set to improve further. Russia and China have a closer relationship in the energy sector. This relationship has been stepped up further by Russia following sanctions imposed by the West over Ukraine issue. China has the advantage that it has significant financial strength and it can provide ready finances to costly new projects. India’s entry at this stage in Rosneft radar, may not be liked by China but as astute business people, Chinese CEOs are now more interested in expanding their market in the developing countries, and they are using both trade and aid to ensure that.

Indian experts feel that the global oil scenario is still hazy and there is a difference in views about the possible hike in crude oil prices. As on October 18 this year, the crude oil in Indian basket was priced at US$ 49.18 per barrel. There has been some rise but still, the hike has not been much. Experts point out that the crude oil price might go up to US$ 55 a barrel around the year end but again this may come down in 2017. India is supposed to record the fastest growth in oil consumption till 2040 and India will have a significant stake in the crude oil pricing in the coming days. Rosneft will be participating in the regional market with crude oil being processed in both its refineries in China as also at Essar’s in India.Thus there is a possibility of a sort of pricing war between the crude oil processed by the same company in China and India.

Apart from the massive foreign investment by Rosneft in India, the biggest till now, the Goa summit declaration has focused on attracting the investment from the Indian oil companies to the Russian oil fields. Earlier the Russian authorities were more interested in the participation of the Western firms, but after sanctions, that has become difficult and now after thorough appraisal, the Russian government has come to seek more Chinese and Indian participation in the new oil fields which have been opened up to the foreign countries for development and exploration. Russia wants Indian companies in the Arctic fields of the Russian Federation.

As of now, the ONGC Videsh Ltd has been most active in expanding its operations in the Russian oilfields since 2001 when it entered first the Sakhalin oil fields. The consortium led by OVL has successfully acquired equity in Tass Yuryakh Neftegazodobycha and Vankorneft, making it the largest oil equity acquisition hitherto by India. The two countries have supported a wider use of natural gas as an economically efficient and ecologically clean fuel to promote sustainable development as well as to reduce the greenhouse gas emissions following the Paris agreement on climate change.

In the power sector, the former Soviet Union aided the foundation of the robust public sector in India in the fifties. But this cooperation dwindled after the fall of the Soviet Union in 1991. There is once again talk of collaboration in the setting up of power plants in India as also the modernization of the existing power plants. The same spirit has been evident in respect of Russian offer of collaboration in producing solar energy. Both governments will work together in building solar power stations in India.

Thus just not nuclear power plants at Kudankulam where discussions have started for the fifth and sixth nuclear power plants, the India- Russia collaboration this time covered the entire power sector including both traditional and non-traditional areas. The Goa summit has been able to correct some distortions which took place earlier in the ongoing saga of India-Russia cooperation.