India’s oil and gas imports from America are likely to witness an uptick with US President Donald Trump seeking increased offtake of the two products by India. However, the country is expected to consider the price-sensitive nature of the Indian market and accordingly price the commodities, say experts.
India is dependent on imports for 85 percent of its crude oil and 50 percent of its natural gas requirements.
To ramp up crude supplies from the US, Indian refiners would have to negotiate a deal to compensate for the higher cost of freight compared to oil from the Middle East. “The OMCs (oil marketing companies) have thin margins, so offtake of US oil by India will have to make economic sense for its volumes to rise significantly. But it's a different story for LNG, given that the US is the cheapest source of gas,” said Prashant Vasisht, VP and Co-Head, Corporate Ratings, ICRA.
“We have to increase our LNG (liquefied natural gas) imports. We currently import 95 mmscmd (million metric standard cubic metre per day), whereas our total demand is 195 mmscmd, which is expected to grow 5-6 percent, minimum, per year. Domestic supply is not going to fulfil this demand. So, our requirement will keep going up,” said an analyst on condition of anonymity.
“If we can figure out a pricing formula that is advantageous, we can secure US LNG supplies under a long-term trade agreement, which should be a positive for India,” the analyst added.
India’s gas demand is forecast to rise in the coming years as the country aims to become a gas-based economy, increasing the share of the ‘transition fuel’ to 15 percent of its energy basket by 2030, from around 6 percent currently.
A `transition fuel' is one that is less carbon-intensive than traditional fossil fuels like coal and oil, used as a bridge to facilitate the shift towards fully renewable energy like solar and wind power. Natural gas is the most common transition fuel.
India’s Oil Minister Hardeep Singh Puri recently told Moneycontrol that the final call on increasing oil and gas imports from the US would be based on commercial considerations. India already buys energy worth $20 billion from America.
The US is the fifth largest supplier of crude to India, and imports from the country saw a steep increase of 322 percent to 2,79,000 bpd (barrels per day) in January from 66,000 bpd a month earlier, per data from energy cargo tracker Kpler. India sourced 5.12 million tonnes (MT), or around 20 percent of its LNG imports from the US, in the April to November period.
As Trump took charge as the 47th US President on January 20, he declared a “national energy emergency” and promised to cut the country's energy costs by half by drilling for more oil and gas. The US produces 19.4 million barrels of oil per day, accounting for a fifth of the global production. The country also has the ninth largest oil reserves in the world, at 68.8 billion barrels.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
