Web Exclusive
A look at the likely changes in US-India energy ties as Biden takes charge

An oil rig drilling a well at sunrise, owned by Parsley Energy Inc. near Midland, Texas (US) | Photo: Reuters
India’s largest import from the United States could come down sharply once the White House changes to blue in January. Crude is India’s largest import from the US. Yet the imports are more of an expression of political statement of friendship between New Delhi and Washington DC than an economic necessity, and so carry a high cost for India.  

While it will be a big challenge for the incoming Joe Biden administration to cut back on the fossil fuel-led energy ties with India, another beneficiary could be the India-led International Solar Alliance. US had been implacably opposed to the role of this alliance as a treaty organisation among member countries, urging India to instead scale it down to a global advocacy forum. Government sources said they are preparing to instead urge the new administration to add its name to the 70 countries which has signed and ratified the ISA Framework Agreement.   

India will therefore be happy to support Biden if he eases up on support to the domestic oil industry in the US hoping both that imports can inch down and ISA gets a larger international recognition backed by the USA. So there are both short- and long-term benefits for New Delhi. While fuel prices have declined globally since early this year, prices have climbed back from the levels they were in the middle of this year. The latest Opec meeting of its technical experts, which ended on Tuesday, has recommended continuing with production cuts through January. The markets have interpreted this to mean the price will hover around $43 a barrel. India, facing renewed inflation headwinds, will want the prices to soften into the thirties but if a vaccine against Covid materialises soon, this will raise rather than cut global fuel prices.  

According to the US Energy Information Administration data, India is now (with Netherlands) the third largest destination for US crude. The only countries ahead in the list are Canada, which takes in over 50 per cent of US crude, and South Korea. But India at nine per cent share is already catching up with South Korea at 14 per cent.  

India had imported neither oil nor natural gas from the US till 2016. It had picked up just 309,000 barrels in 2015. Once the Trump administration in the US came down heavily on Iran and imposed sanctions, India’s supplier list changed. In just one year in 2018, oil imports from Iran fell by over 16 per cent. The US picked up a large part of the slack along with Saudi Arabia. “Supply instability in the Middle East had brought to forth concerns about supply security and the US as a major oil producer has been an important source for India as it continues to diversify its crude imports. India is also considering the leasing of strategic crude storage in the US,” S&P Global Platts Analytics noted in a response to Business Standard.

In 2019 India imported $8.25 billion of oil products from the US, propelling it to the rank of sixth largest supplier, after heavyweights Saudi Arabia, Iraq, Iran, Nigeria, Venezuela and UAE. It was an 88 per cent jump over the levels of 2018. It was the same story with LNG. 

Imports from the US are expected to reach $576 million at the end of 2020 from just $155 million in 2017. As the US energy secretary Dan Brouillette told reporters in New Delhi in February this year: “We expect it to be better from here.”

He had reasons to be exuberant. President-elect Biden could puncture this exuberance, but he will then have to insist on a stronger engagement with India on other trade issues. It could be a tough call for both countries. Some disengagement has already occurred. India’s Petronet has shelved a proposed deal with USA’s largest natural gas company, Tellurian for a $2.5 billion investment in the latter’s upcoming Driftwood LNG terminal in Louisiana. 

A possible signing up by the US as a member of the ISA could inexorably change the energy partnership with India in the Democratic party-run White House. It would also set a new course for the India-US Strategic Energy Partnership (SEP) formed in 2018 by Trump and Modi. SEP was not supposed to be just confined to trade and investments in hydrocarbons, but its focus has effectively remained so. The key areas of engagement under the SEP were four. Renewable energy is only one of those pillars and the least discussed. The other three are Oil and Gas; Power and Energy Efficiency; and Coal. The two economies are among the few major ones in the world now which discuss coal as a topic for further collaboration. However, S&P Global Platts has a more conservative take on it. “Natural gas is already an important part of several sectors in India, and although renewables are likely to take some additional focus moving forward, the diversification in industries that use gas and relative lack of gas used in the power sector will make it hard to phase out in the near term”, it noted. Still, as the two economies reset the terms of their energy engagement it could instead mean enhancement of energy security through innovation linkages across the energy value chain that shall raise the chances of cooperation in the renewable sectors. 

For India the pivot to the US was expectedly costly. While crude is priced on the basis of international benchmark rates like Brent, the higher transportation costs from US made the imports costlier. A barrel of oil or gas from USA travels almost double the distance as it does between West Asia and India. As America's share rose and has threatened to rise even further, this was hurting India. For India the options were stark. It either had to liberalise its trade agenda on other goods or make up the difference with larger oil and gas imports. To make up for the cost of transportation over a longer distance, oil importers in India have been negotiating with shippers to secure better rates promising them access to an assured market in the long term. Sea transport costs typically account for 12 per cent of the value of crude. India has had an advantage this year as the global oil markets went into a tailspin with demand falling off in most countries due to the pandemic. As prices stiffen somewhat in 2021, India faces difficult choices. If President elect Biden helps, those choices could become better. 



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel