LNG Trade: The Future Cornerstone of the Russia-India Partnership

India's strategic pivot towards liquefied natural gas (LNG) is set to redefine its energy landscape, especially amid the shifting dynamics of global energy trade. Earlier this year, GAIL (India) Ltd, the country's largest government-owned natural gas company, secured a 10-year LNG purchase agreement with Vitol, a global energy trader with extensive operations in Russia. This deal, which begins in 2026, will ensure approximately 1 million metric tons (mt) of LNG annually, including gas sourced from Russia. This agreement is instrumental for India as it strives to elevate natural gas consumption to 15% of its energy mix by 2030.

Photo: commons.wikimedia.org by Hannes Grobe, https://creativecommons.org/licenses/by/3.0/

India's LNG imports have demonstrated considerable variability, reflecting its dependence on this critical energy source. Imports surged to 3,516 million standard cubic meters (MMSCM) in May but fell to 2,794 MMSCM in July. Over the first four months of the year, LNG accounted for a substantial 12,269 MMSCM out of a total gas consumption of 24,210 MMSCM, underscoring the country's reliance on imported LNG to meet its growing energy needs. This volatility highlights the strategic importance of agreements, like the one with Vitol and the one between Novatek and Deepak Fertilisers, signed in February 2023, for both spot and long-term supply contract markets in securing energy stability.

Russia, for its part, has been adapting its LNG export strategy in response to global pressures and the evolving market landscape. In the first half of 2024, Russian LNG imports to Europe rose by 11% from last year, with Russia supplying 69.95 million mt so far. Despite a general decline in European gas consumption and a shift toward long-term contracts, Russian LNG remained a significant portion of imports, with France alone seeing a 110% increase. This demonstrates the resilience of Russian LNG in maintaining its foothold in European markets. Additionally, Russia's LNG exports to China have also seen growth, with 1.648 million mt shipped in the first quarter of 2024-a 2% increase from the previous year.

The intricate dynamics of global LNG trade have also led to innovative procurement strategies. India has leveraged ship-to-ship transfers of Russian LNG in the waters off Oman to navigate around the EU's resale ban. Oman, alongside Fujairah in the UAE, has become a key hub for such transactions, allowing Russian LNG to reach Indian markets more effectively. This method reflects a sophisticated and adaptive approach to securing energy supplies while navigating adversarial geopolitical constraints imposed by the West.

Looking to the future, Russia and India are poised to deepen their collaboration in the Arctic, particularly in the development of key LNG projects. The Sakhalin-2 project, a significant LNG development in Russia's Far East, and the Yamal LNG project in Siberia are pivotal in this context. Both projects are integral to Russia's strategy to expand its LNG production and export capacity. India's involvement in these ventures would not only strengthen bilateral ties but also enhance its energy security by diversifying its sources of LNG.

The Sakhalin-2 project, operated by Gazprom and its partners, has been a cornerstone of Russia's LNG exports. It produces LNG from the Sakhalin-2 field in the Russian Far East and is a critical asset for meeting Asia's growing energy demands. Similarly, the Yamal LNG project, located in the Arctic region, is a major contributor to Russia's LNG output, with its vast reserves and advanced technology positioning it as a key player in global LNG markets.

As Russia and India continue to forge stronger energy ties, the collaborative efforts in Arctic LNG development are set to play a crucial role. This partnership promises to not only secure energy supplies for India but also to bolster Russia's position as a leading LNG exporter. By working together on projects like Sakhalin-2 and Yamal LNG, both nations can benefit from enhanced energy security, technological advancements, and economic growth.

In essence, the evolving landscape of LNG trade presents both opportunities and challenges. India's innovative strategies for sourcing Russian LNG and the growing collaboration on Arctic energy projects underscore the significance of this partnership. As global energy dynamics continue to shift, the Russia-India energy relationship will be pivotal in shaping the future of global LNG trade and ensuring mutual energy security.

Dr. Hriday Sarma is an Indian lawyer and independent researcher specializing in energy affairs across Greater Eurasia.

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Liquefied natural gas (LNG) is natural gas (predominantly methane, CH₄, with some mixture of ethane, C₂H₆) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the volume of natural gas in the gaseous state at standard conditions for temperature and pressure.