Russia To Expand In World’s Fastest Growing Oil Market

Russia and India are about to get a lot more intimate in the energy sector next week, when the two countries announce what’s dubbed a Far East Energy Corridor involving increased Russian exports of oil, gas, and coal to India.

The Times of India quoted India’s oil minister Dharmendra Pradhan as saying “A joint statement of comprehensive energy co-operation will be issued. A five-year complete roadmap will be signed.”

Earlier, Foreign Minister Vijay Gokhale told media, as quoted by Sputnik, that the roadmap would aim to help India diversify its energy supplies away from Middle Eastern producers.

This diversification drive is understandable. India relies on imported oil for 80 percent of its consumption—a level of dependence that is overwhelmingly concentrated in the Middle East. With growing demand for oil and heightened price volatility, India’s best option is to expand the number of suppliers to spread risks more widely.

Russia, perhaps surprisingly given its size as oil exporter, is not even in the top 10 oil suppliers to India. These are all OPEC members with the exception of the United States, at the tenth spot as of last year. Yet, according to the data, imports of crude from Russia are rising and they are rising fast. This year, after the expiry of the U.S. sanction waivers for Iranian oil clients, the rise could accelerate further.

India also has interests in developing oil and gas resources in Russia itself. Next week, when Indian officials attend the Eastern Economic Forum in Vladivostok, in addition to the five-year roadmap on energy co-operation, they may also sign a deal for the joint development of the giant Vankor field cluster as state-owned ONGC seeks to source up to 1 million bpd of oil from Russian fields.

It’s not just oil that India is interested in, either. Last month, A Russian minister said Novatek was eyeing India as a major destination for the liquefied natural gas it will begin producing at its Arctic LNG 2 plant beginning in 2022 or 2023. Later the same month, Energy Minister Alexander Novak said, after his meeting with India’s Pradhan, that Indian companies were also interested in increasing their intake of Russian LNG.

India’s appetite for LNG is growing just like the appetite of its neighbor China. With prices pressured by oversupply, the country’s LNG imports during the first quarter of its fiscal 2019/2020 rose by 6.8 percent to 86 million cubic meters daily. However, Pradhan recently made it clear India was not willing to pay any price for the commodity: he said long-term contracts for LNG supplies will be reviewed to better reflect falling spot market prices.

The co-operation agreement is a win-win for Russia and India. One needs more energy commodities and the other needs markets. But the energy co-operation deal is part of a wider strategy for forging closer ties, in industry as well as in defense. For India, the strategy ensures its ability to make independent decisions as it does not rely on just one partner. For Russia, it is an element of its so-called Eastern Pivot that will see its main markets shift from West to East.