How Qatar's exit from Opec may help India end its petroleum import pangs

The decision provides India a huge bargaining chip in the oil and gas world of West Asia, though there are some downside risks as well

As Qatar walks out of the Organisation of Petroleum Exporting Countries (Opec) in New Year 2019, the challenge for India is how to reset its gas purchases and more, given that the kingdom is one of its largest economic partners. It provides India a huge bargaining chip in the oil and gas world of West Asia, which will almost be a first of sorts, though there are downside risks. 

Qatar is the world’s largest producer of natural gas and is expected to remain so for a long time. India is the third-largest market for this gas, ranking behind only Japan and South Korea. In the Indian fuel mix, gas accounts for less than 7 per cent, a figure that can rise to 15 per cent by 2030, the NITI Aayog claims. A rise in Indian purchases at this scale could take India to the second spot, provided New Delhi and Doha can work out a better gas deal — better from the point of view of both. 

As India’s economy expands fast and sharply escalates its demand for fossil fuel, it has won considerable mileage with the fuel-exporting countries. However, that is tempered by the religious tension in West Asia that spills out as political difference, as this Economist article points out. India has a strong and growing friendship with Qatar’s arch enemy Saudi Arabia, too. Its energy minister Khalid Al Falih made it clear this week that one of the reasons it does not want to cut back on oil supply and raise prices is because of India’s concerns. 

India’s sticking point in negotiations with Qatar has also been pricing. New Delhi wants the gas Doha sells to be at the well-head price, while the latter wants it at the market price. India has linked the satisfactory outcome of this deal to make further investments in gas exploration projects in Qatar.

With Qatar now having next to no relationship with its land neighbours Saudi Arabia and UAE, India can expect it to be more amenable. The country on the Arabian Gulf can only sell gas by the sea as alternative land routes to export the gas by vehicles or pipelines has got sealed because of the GCC sanctions for the foreseeable future, as an ORF paper notes. The nearest large market for undersea pipelines or via a Floating Storage and Gasification Vessel or its reverse a Floating LNG facility is, thus, India.

Already with a split in OPEC and falling revenues from oil within the consortium, there is a rise in offer from competing states, including rival Saudi Arabia, to sell gas (from albeit their meagre sources) to India. This is where India finds its bargaining position getting even better. The only flip side to this argument is that despite the sanctions, Qatar, according to International Monetary Fund (IMF) reports, is doing well. 

India already has a two-decade-old long-term sale and purchase agreement with the country, signed in 1999. The agreement was signed between erstwhile RasGas, (now Qatargas) and Petronet LNG Limited. It was further extended in December 2015. Since the deal assures quantity but not the price, the value of the agreement is considerably lessened for India. Qatar Petroleum President & CEO Saad Sherida al-Kaabi and Petronet have held talks this year, but those have not moved the needle. In the new landscape, after January, the project could be Petronet's maiden venture into the natural gas exploration and production business and acquiring of overseas LNG terminals. 

New Delhi needs to raise the share of gas in its fuel mix, considerably. It would be able to honour its commitment at COP 21, Paris, to reduce carbon emissions by 35 per cent only if coal use at power plants is replaced to some extent by natural gas. Economically, too, it makes sense since natural gas is 60 per cent cheaper than petrol. It is 45 per cent cheaper than even diesel. As cooking gas also it is cheaper by 40 per cent when compared with market price of LPG — the price of PNG almost matches with that of subsidised LPG (based on prices in Delhi). For instance, an auto-rickshaw owner can save Rs 7,000-8,000 on his monthly fuel bill by conversion from petrol to CNG (petroleum ministry data).

There are two sectors where gas could be used more. These are for power and as fuel for cooking. But both of these would need India to tailor its storage and distribution networks for gas accordingly. 

Investments in the fuel economy take about a decade or more to materialise. So, to get gas flowing through the pipes, India should be up and about laying those pipes crisscrossing the nation. Government data show about 20 million PNG (Domestic) connections and 4,600 CNG stations are expected to be installed in the next eight years across the country. This would expand the potential coverage of cooking gas distribution projects to about 50 per cent of the country’s population, spread over 35 per cent of India's geography. 

In its six-monthly revision of natural gas prices, the government has raised it again. It is about a10 per cent rise this time to $ 3.66/mBtu, reversing a long spell of southward move, according to an India Ratings note. Petroleum and natural gas minister Dharmendra Pradhan hopes that this would spur more aggressive discovery from the 35 domestic acreages for gas and oil fields offered recently. But experts do not reckon there would be impressive finds to cut India’s dependence on imported gas. In any case, these would take a decade to fructify while the gap between demand and supply could reach 117 mscmd in 2021-22, according to petroleum ministry data. To bridge it, this is a fine opportunity for him to secure a deal with Qatar soon.