India-Russia Energy Cooperation

GS Paper – 2: Groupings & Agreements Involving India and/or Affecting India’s Interests, Bilateral Groupings & Agreements

Context:

With its abundant energy sources and appetite for trade diversification, Russia could be an ultimate long-term energy partner for India.

Background:

In September, at the 6th Eastern Economic Forum (EEF) in Russia’s Vladivostok, Indian Prime Minister Narendra Modi in a virtual address said, “India-Russia energy partnership can help bring stability to the global energy market.” Recently, India’s Minister for Petroleum and Natural Gas Hardeep Singh Puri referred to Russia as the largest investor in India’s energy sector.

Why Energy Partnership?

India has been at the forefront of the transformation of global energy and striving to diversify its trade relations.
India traditionally relies on the Middle East for the bulk of its oil and gas needs and is now exploring sources from Russia to the US to diversify that basket.
Russian companies have the potential to be long-term partners with India in aiding its energy transformation.
India is also looking to import liquefied natural gas (LNG) from Russia and is looking for opportunities for the involvement of Indian companies in infrastructure development projects in the Siberian and Arctic regions.
So, bilateral ties require more support from both government and corporate leaders to grasp its potential in this field.

Key factors in India- Russia energy Partnership

India is one of the fastest-growing markets for butyl rubber and halogenated butyl rubber due to its rapidly expanding car manufacturing industry pushing for electric vehicles.
Further to this, India is emerging as a critical refining hub in Asia to boost its petrochemical capacity.
Currently, the country has an installed capacity of more than 249.36 mtpa, with local companies planning to significantly expand the capacity by investing more than U.S.$27 billion by 2021.
Over the past years, India’s refineries have been expanding towards petrochemicals to capture additional value.
The country’s ethylene production is set to grow by two-thirds over the period to 2030.

Positive Signs from Economy

The novel coronavirus pandemic is still far from over but an economic recovery has been underway.
India, Asia’s third-largest economy, has expanded by more than 20% in the June quarter on a year-to-year basis and is expected to grow by around 9% by the end of 2021.
The rate is expected to be higher than China’s 8.5%, assuming the effective suppression of COVID-19.

Going green

The distinctive feature of this recovery is that it is advanced by the quest for energy transformation and environmental concerns.
India has been increasingly leaning toward green transition since the recovery started, and its appetite has been growing.
In efforts to transition to green energy, India has recently achieved a significant milestone of completing the countrywide installation of 100 gigawatts of total installed renewable energy capacity, excluding large hydro.
It now aims to hit 175 GW of renewable energy target by December 2022.
If achieved, that would be close to half of India’s current total installed power capacity.
Furthermore, according to the survey of the government in New Delhi, “additional investments in renewables up to the year 2022 would be about $80 billion”.
Commitment to net zero emissions could positively impact the country’s growth trajectory.
A recent Deloitte report has forecasted that India could gain U.S.$11 trillion in economic value over the next 50 years by limiting rising global temperatures and realising its potential to ‘export decarbonization’.
However, unknowns of climate change and threats of a new pandemic suggest that the country should accelerate its energy transition.

Nuclear Energy

Russia, one of the key global players across the energy market, could emerge as an indispensable partner for such a transition.
Notably, both countries have an extensive record of bilateral cooperation in the energy domain.
Russian companies have been involved in the construction of six nuclear reactors in the Kudankulam nuclear power project in Tamil Nadu. Of these, unit 1 and unit 2 have been operating at total capacity. Unit 3 is still under construction.
Previously, Russian President Vladimir Putin claimed that Russia is ready to build a dozen reactors in India over the next 20 years.
Furthermore, India and Russia secure the potential of designing a nuclear reactor specifically for developing countries, which is a promising area of cooperation.
India’s nuclear power generation capacity of 6,780 MW may increase to 22,480 MW by 2031, contributing to the country’s efforts to turn to green energy.
A few years ago, Rosneft invested U.S.$12.9 billion in India’s second-largest private oil refiner, Essar Oil, renamed Nayara Energy, marking it one of the most significant foreign investments in years.
In September, almost all of Russia’s major energy companies were interested in projects in India.
However, the current bilateral exchange rate needs to accelerate for India to grasp its potential from energy transformation.

Still coal-centric

Despite significant progress, coal remains India’s most important source of electricity production, and it does not spell good news for the environment.
To meet its growing energy demand and succeed in green transformation, India needs approximately U.S.$500 billion of investments in wind and solar infrastructure, grid expansion, and storage to reach the 450 GW capacity target by 2030.
Therefore, more efforts are needed to expand cooperation with such partners as Russia.

Conclusion:

Relations with Russia are a key pillar of India’s foreign policy, and Russia has been a longstanding time-tested partner of India. The new sea route is also expected to cut the shipping time for goods between India and Russia to 24 days, versus 40 days via a European route. So, expanding cooperation in the energy sector will definitely prove to be a win-win situation.