Australia: The Missing Piece in India’s Energy Security Puzzle

Nikita Vats

Email: nvats@jgu.edu.in

PhD Candidate, Jindal School of International Affairs,

with the remainder coming from imports from other countries. India's import ratio is rising to

bridge the demand-supply gap. The country's reliance on foreign sources exposes its energy

security to regional and global events. Thus, to ensure an uninterrupted supply of LNG, India

needs to continuously analyse the geopolitical dynamics of the source countries, as well as

come up with diversification strategies to meet its needs. This paper attempts to evaluate how

India can benefit by increasing the LNG trade with Australia and how New Delhi can

strengthen its stakes in the Indo-Pacific region.

Keywords: India, Australia, Liquified Natural Gas (LNG), Energy Security

the current level of 6% to 15% 2030”.

of its requirement of natural gas by domestic production. So far, the proven reserves of natural

gas have been estimated at 1371.89 billion Cubic Metres (bcm),

the eastern offshore, which stand at around 40%.

Figure 1 gives a pictorial representation of natural gas comprising all three types of reserves,

namely the commercially recoverable resources, potentially commercially-recoverable

2030’ for the North East,

reforms in the exploration and licensing policy, and better

The majority share in natural gas production is with the state-owned companies, Oil and

Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL). These public sector

undertakings are still the prime bidders in the auctions and succeed in bagging a major share

in the gas blocks. Though the government has made the right policy changes and is allocating

the blocks, using the Open Acreage Licensing Policy (OALP) regime, it has remained largely

unsuccessful in attracting foreign investment in exploration as well as production.

India is steadily increasing its gas infrastructure and has successfully constructed a pipeline

network of approximately 17000 kilometres and about 15000 kilometres of pipeline has either

been approved or is under construction. The Gas Authority of India Limited (GAIL), a state-

Mizoram, Nagaland, Manipur, and Tripura, which is being developed by the ‘Indradhanush

Gas Grid Limited’ (IGGL), a joint venture company of various public sector enterprises i.e.

(Gas Authority of India Limited) GAIL, (Indian Oil Corporation Limited) IOCL, (Oil India

Limited) OIL, (Oil and Natural Gas Corporation) ONGC, and (Numaligarh Refinery Limited)

NRL.

With the majority of India’s LNG terminals located on the west coast, there is a huge need for

similar terminals on the eastern coast. Out of the six operational gas terminals, five are located

on the western coast and only one, located in Ennore, is on the eastern coast. The overall

With approximately 60% of India's LNG reserves located offshore, the road to domestic

production of natural gas has never been easy. The data on the domestic production of natural

gas shows a declining trend. It stood at 52.22 bcm in 2010-11 and has reduced to around 31.18

bcm in 2019-20 and 28.67 bcm in 2020-21. Figure 2, clearly demonstrates the declining trend

sectors. Although the government has tried to re-energise domestic production it has not gained

much success so far. Lack of foreign investment is a concern, especially when the revenues

generated from the domestic market are insufficient to garner a large amount of investment.

Therefore, in its bid to keep up with the rising demand, the government has substantially

increased the imports of natural gas.

Reliance on West Asian and African Suppliers

India is currently the fourth largest importer of natural gas in the world, with long-term deals

with several countries to ensure an uninterrupted supply of LNG. Qatar, with whom India

enjoys close bilateral relations, is its largest supplier of natural gas, thus proving to be a credible

source of LNG over a long period. However, since last decade, the Indian buyers have

Although India has rightly diversified its LNG import sources, a considerable share still comes

from a specific geographical region which includes West Asia and West Africa.

The four

largest suppliers of India’s LNG demand in the region are Qatar, Nigeria, the UAE, and Angola.

The geopolitical environment of both these regions can be termed extremely turbulent in terms

of maritime security.

According to the International Maritime Bureau [IMB] (2019), piracy is most prevalent in the

Although Qatar and the UAE, India’s major LNG suppliers in West Asia, are relatively more

stable than their West African counterparts, the risk level of the maritime route connecting

Qatar and the UAE to India has been elevated due to the chokepoint of the Strait of Hormuz,

to the existing set of problems. In case of any regional conflict between the two blocs of

countries, the threat of disruption of maritime traffic passing through this chokepoint is real.

Besides, over-dependence on a particular country for energy supplies can also put India’s

energy security in the doldrums. Thus, the best way for India to ensure an uninterrupted supply

of LNG during unforeseen events is to diversify its imports. In this regard, Australia can be

the missing piece in the puzzle which can solve India’s energy dilemma. Brokering a deal with

Australia will be beneficial for India as the maritime route between Barrow Island (Western

Australia) and Chennai are almost half of the maritime route between Nigeria and Mumbai.

This considerable reduction in the distance would also lower the energy bills of India to a

Current State of India-Australia Trade

the buyers more towards spot purchasing as it was comparatively cheaper. The 2009 LNG deal

between Petronet LNG and ExxonMobil was re-negotiated in 2017, wherein it was agreed that

Petronet would purchase an extra million tonnes of natural gas at 13.9% of the Brent oil price.

Also, the transportation cost, which was earlier borne by Petronet, would be taken care of by

ExxonMobil. The deal was a breakthrough for India as it helped in saving a wealth of around

Rs 4000 crore.

The LNG trade between the two countries, however, has encountered numerous ups and downs

Australia has substantial reserves of natural gas and most of these reserves are located offshore.

Browse.

The reserves of coal bed methane (CBM) which has a share of 38% in the total gas reserves

are primarily located in the Surat and Bowen basin of the Queensland province in the northeast

region of Australia. There are other potential reserves as well, which are not proven yet, but

are being studied and analysed. These potential reserves are distributed in the Maryborough,

PetroChina and Tokyo Gas have also invested in various LNG projects in Australia. The

been significantly rising since 2016. Presently, Australia is the largest trading partner of China

in the LNG trade. It held a 43% share of the total LNG imports of China in 2020. South Korea

is also a seasoned LNG importer of natural gas and receives its second-largest supply of LNG

imports from Australia.

Australia is now looking to diversify its LNG export basket and has started trading with other

markets in South Asia, Southeast Asia and West Asia. However, with a surplus supply of

natural gas in the Asian region and a fall in global LNG prices, it is getting increasingly difficult

for Australia to sign long-term contracts with new partners in the region.

challenges, many environmental jurisdictions, and continuous investments in expansion

by China has hit the Australian economy.

down their extreme overdependence on a certain set of countries. In the backdrop of a trade

war, both countries can increase their bilateral trade links and diversify their present trade

portfolios.

and protecting the regional build-up of the Indo-Pacific region. Today, both New Delhi and

Canberra are collaborating in the strategic sphere, conducting regular military exercises and

professional exchanges between the defence forces. The contrasting capabilities of both

nations make them naturally aligned in the security framework of the larger region.

Australia has the potential to become a stable source of natural gas for India. An increase in

the energy trade would benefit both countries, as it would enhance their bilateral convergence

on several economic, as well as political constructs. The two countries must collaborate in

energy trade and should increase cooperation in the trade of energy resources.

Given the

mechanisms. Given the fall in international LNG prices, the two countries need to come up

former Australian High Commissioner to India, has identified the LNG trade as an important

pillar of the overall energy trade between the two countries.

Strategy: Australia Economic Strategy: Strengthening India-Australia Comprehensive

Partnership’ report drafted by CII and KPMG and led by Ambassador Anil Wadhwa, Former

Secretary (East), Government of India, clearly highlights the need for bilateral investment

between India and Australia in the energy sector, including natural gas.

Way Forward

Given the range of convergences between the two countries, they can work closely together

and increase trade and investment in the natural gas sector. There is, however, a need for

accelerated infrastructure development in India, specifically the construction of LNG terminals

on the eastern coast. Presently, the LNG terminals in India enjoy limited connectivity.

Australian enterprises can partner with these state-owned, as well as private entities, in the

development of the terminal. as well as pipeline infrastructure. India has allowed 100%

Foreign Direct Investment (FDI) in the natural gas sector.

Apart from LNG infrastructure projects, Australian entities can directly invest in the

exploration and production of natural gas too. The Hydrocarbon Exploration and Licensing

Policy (HELP), 2016, follows the Open-Acreage Policy through which only a single license is

required for both, exploration as well as production. The policy allows 100% FDI through the

involved in natural gas production in India.

Being the third-largest importer of natural gas in Asia, India needs to make a transition to a

With the expanding consumer base, the end-user prices will also need to be rationalised.

An investment in natural gas will also provide immense environmental benefits to the

ecosystem when compared to conventional energy resources such as coal and petroleum

products. The usage of natural gas will reduce carbon-dioxide emissions and release fewer air

pollutants. Thus, both countries can create an ecosystem that would generate the mechanisms

of better trade in natural gas.

inflexible purchases. Some state-owned enterprises have entered ‘swap agreements’ with other

gas-producing companies. India needs to smartly develop its strategy to ensure the reliable

flow of base-load supply, which can be ensured by signing a certain number of fixed contracts

and the remaining supply can be fulfilled by spot contracts. The long-term LNG contract with

Australian companies has not worked out very efficiently and therefore, a mixed regime needs

to be seriously considered.

With the current data, it is possible to predict that the demand for LNG will exceed the supply.

Therefore India needs to ensure a sustainable supply of natural gas by sourcing its supplies

from different geographical regions. India is moving in the right direction by diversifying its

Given the set of bilateral convergences between India and Australia and the presence of

plentiful resources in Australia, the increase in LNG trade will only make the Indian import

more robust. The Indo-Pacific region provides a comparatively stable and risk-free

environment, compared to West Asia. China has marked its footprints in the region, given its

favourable geographical location and trade routes. India needs to significantly enhance its

volume of trade and investment in the Indo-Pacific. which would significantly lead to the

expansion of its footprints in the region.