LNG may help, but US crude oil unlikely to bridge trade gap fast

US President Donald Trump urged his Indian counterpart, Prime Minister Narendra Modi, last week to increase purchases of energy to trim a $36.7 billion trade surplus in India’s favour — a demand Trump made during his first term as US president. 

India made a big start in 2018, a year after Trump took office, with US crude oil imports jumping fivefold and peaking at 415,000 barrels per day (bpd) in 2021 when he left office. 

The question is: Can we expect such big gains in India’s purchases of oil and liquefied natural gas (LNG) in Trump’s second term? The answer, industry experts said, maybe no. 

Crude oil from the US is a tough buy in today’s environment — supplies to India have already dropped by half from 2021 levels. LNG may gain some traction, but not fast enough to close a yawning trade gap. 

Evolving geopolitics, new supply sources like Russia, and the complex configuration of Indian refineries may make it difficult for Indian state-run oil companies to embrace US oil at the expense of Russian export benchmark Urals or Gulf oil grades. 

LNG could be a more viable trade, with around 14 per cent of India’s annual LNG purchases coming from the US last financial year. However, the time required to close LNG purchase contracts and the long US voyages may reduce the fuel’s effectiveness as a tool to rapidly slash a growing trade surplus, industry experts said. 

Top officials at state refiners, including a company chairman as well as refining and trading heads, told Business Standard that there is no political pressure or mandate from the government to source US crude at present. New Delhi wants the trades to make commercial sense, the officials said. 

US crude oil purchases will be “opportunity trades”, the chairman of a state-run oil company said, in response to tenders. Traders will quote the price on a delivered basis on spot terms, and if attractive, Indian refiners will place orders. 

“The thing is that American crude, per se, because of the distance unless there is a significant cost arbitrage, is not attractive enough to bring economic value to India regularly due to the big freight disadvantage compared to Gulf oil,” said R Ramachandran, a Mumbai-based oil industry consultant. 

The advent of discounted Russian oil, which was missing from India’s crude palette during Trump’s first term, has further complicated matters. Last year, Russian discounts averaged $3-$4 per barrel, led by Urals — a medium-gravity, lower-sulphur crude suited for Indian refineries, which produce more diesel. 

Russian crude to India averaged less than $75 per barrel in November on a delivered basis, compared to US crude, which cost an average of $83 per barrel, according to Indian Customs data. 

  US energy potential

 

There’s no denying the scope, though. Indian Customs data shows that exports of crude oil and natural gas to India last financial year totalled a combined $6.4 billion, accounting for around 18 per cent of the US-India trade deficit. 

Last year, the US supplied just 199,000 bpd, accounting for a 4 per cent share of India’s 4.7 million bpd crude imports in 2024. Russia supplied 38 per cent, while Iraq accounted for nearly 20 per cent. In 2021, the US shared third place with the United Arab Emirates, holding a 10 per cent share of India’s overall crude imports — Russia had a mere 2 per cent share that year. 

If Indian refiners manage to take US oil purchases back to pre-Ukraine war levels, India could trim its surplus by another 19 per cent, or $6.5 billion annually, based on November prices. If LNG purchases are doubled — still only 60 per cent of Qatar’s levels — that would add another $1.5 billion, or 4 per cent of the surplus. 

India’s surplus, however, is far below the $236 billion trade surplus that the European Union has with the US, and it faces similar pressure from Trump to buy more US energy. 

So, doubling energy purchases from a low base could shave off nearly a quarter of the India-US trade gap. However, there are technical limitations. The US largely supplies light, sweet premium crude grades, which offer less value to increasingly complex Indian refineries, fed on a typical diet of Iraqi or Russian grades. 

For US oil to be attractive, the US benchmark WTI crude must be priced significantly lower than the European benchmark Brent or the Dubai benchmark. Freight rates must also be low enough to make the landed cost attractive, Ramachandran said. 

“India may buy more oil from the US, but it will all finally depend on the economics — price, shipping cost, and rupee-dollar exchange rate,” said Narendra Taneja, a leading oil expert. “For India, it is all about economics when it comes to buying oil.” 

“As long as Henry Hub prices remain low, US LNG will remain competitive,” said Anne-Sophie Corbeau, a global LNG expert at Columbia University’s Center on Global Energy Policy. “But it also depends on what India deems affordable. I remember an Indian minister saying in 2015 that he wanted LNG at $5 per million British thermal units — and there is no US LNG delivered at that price.”