India’s new oil diplomacy aimed at sweetened deals

The government is leveraging its position as world’s fastest growing economy and one of the world’s biggest energy consumers to secure sweetened energy deals globally by renegotiating gas contracts, signing long term crude deals at discounted prices and buying oil equity.

Petronet LNG Limited, India’s largest gas importer would have at least saved $8 billion or Rs 50,000 crore over the life of the contract at current oil prices by re-negotiating a gas deal with Qatar’s RasGas, translating to annual savings of $600 million.

“Our Prime Minister visited Qatar recently, and we all know that we have to honour long-term contracts and it’s very difficult to renegotiate such contracts. We were buying gas $14 per mmBtu from Qatar, after negotiations we are now getting gas at $6 per mmBtu. India’s energy security is now considered with prime importance in the international markets,” said petroleum minister Dharmendra Pradhan.

India’s growing geopolitical influence globally and tumbling oil prices and a global gas glut are compelling exporters to offer better deals to retain their share in the global energy trade, benefiting Indian energy firms.

As a friendly gesture, Ras Gas has also waived a penalty of $1.5 billion to PLL for not lifting committed amount of gas under the ‘take or pay’ clause.

Similarly, OVL, the international arm of state-owned energy major ONGC has bought 15 per cent stake in Russia’s second largest oil field Vencor for $1.27 billion at one-third of the prices of the OVL-Imperial deal a few years back.

Russian deal

Explaining the analogy behind the Russian oil deal, Pradhan said, “Russia’s economic conditions have not changed in the last few years. As a thumb rule, if you spend $1 billion, you must get at least 1 million metric tonnes (mmt) of oil. During the past regime, OVL invested $2 billion in Imperial Energy with reserves of just 0.5 mmt of oil. Now, OVL successfully clinched the deal for $1.27 billion with reserves of 4 mmt of oil.” India has also managed to clinch a competitive energy deal with Nigeria as Indian state-owned refiners are configured to process 8 per cent of India’s crude oil imports from there.