Russia – India Energy Cooperation: Trade, Joint Projects, and New Areas
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Russian International Affairs Council Gateway House POLICY BRIEF Russia – India Energy Cooperation: Trade, Joint Projects, and New Areas VASILY SHIKIN, Ph.D. in History, RIAC Expert AMIT BHANDARI, Gateway House Fellow for Energy & Environment No. 13, October 2017 1 Vasily Shikin, Amit Bhandari Russia – India Energy Cooperation: Trade, Joint Projects, and New Areas RUSSIAN INTERNATIONAL AFFAIRS COUNCIL BOARD OF TRUSTEES PRESIDIUM Sergey Lavrov – Chairman Mikhail Margelov Petr Aven of the Board of Trustees Yury Osipov Igor Ivanov – President Herman Gref Sergey Prikhodko Andrey Kortunov – Director General Aleksandr Dzasokhov Anatoly Torkunov Fyodor Lukyanov Leonid Drachevsky Andrey Fursenko Aleksey Meshkov Aleksandr Dynkin Aleksandr Shokhin Dmitry Peskov Mikhail Komissar Igor Yurgens Konstantin Kosachev Editors: Ivan Timofeev, Ph.D. in Political Science Timur Makhmutov, Ph.D. in Political Science Ksenia Kuzmina Daria Kholopova Russian International Affairs Council (RIAC) is a membership-based non-profit Russian organization. RIAC’s activities are aimed at strengthening peace, friendship and solidarity between peoples, preventing international conflicts and promoting crisis resolution. The Council was founded in accordance with Russian Presidential Order No. 59-rp ”On the Creation of the Russian International Affairs Council non- profit partnership,” dated February 2, 2010. FOUNDERS Ministry of Foreign Affairs of the Russian Federation Ministry of Education and Science of the Russian Federation Russian Academy of Sciences Russian Union of Industrialists and Entrepreneurs Interfax News Agency RIAC MISSION The mission of RIAC is to promote Russia’s prosperity by integrating it into the global world. RIAC operates as a link between the state, scholarly community, business and civil society in an effort to find solutions to foreign policy issues. The views expressed herein do not necessarily reflect those of RIAC. 2 Russian International Affairs Council Gateway House GATEWAY HOUSE: INDIAN COUNCIL ON GLOBAL RELATIONS EXECUTIVE BOARD ADVISORY BOARD Neelam Deo Luis Miranda Rajeev Dubey K.N. Vaidyanathan Blaise Fernandes Sunit Welling Amay Hattangadi Ishaat Hussain Satish Kamat Manjeet Kripalani Bahram Vakil Editors: Manjeet Kripalani Nandini Bhaskaran Gateway House: Indian Council on Global Relations is a foreign policy think tank that is based in Mumbai, India. It is an independent, non-partisan and membership-based organisation, established in 2009 to engage India’s leading corporations and individuals in debate and scholarship on India’s foreign policy and the nation’s role in global affairs. FOUNDER MEMBERS Mahindra Group T.V. Mohandas Pai Suzlon Energy Rakesh Jhunjhunwala TVS Motor Co. Ltd. GATEWAY HOUSE’S MISSION Gateway House’s mission is to raise public awareness and stimulate public debate among Indians on the foreign policy changes that face India, and make policy recommendations, based on serious scholarship in international affairs. Its goal is to engage Indian business and opinion leaders in dialogue on foreign policy issues and groom the next generation of foreign policy leaders from India. Its aim is to have a diverse, select membership with a genuine interest in foreign policy. AREAS OF STUDY Geopolitics Geoeconomics Multilaterals and Bilaterals Democracy and Nation Building National Security Science, Technology and Innovation Energy and Environment 3 Vasily Shikin, Amit Bhandari Russia – India Energy Cooperation: Trade, Joint Projects, and New Areas Russia – India Energy Cooperation: Trade, Joint Projects, and New Areas In 2017, Russia and India celebrate the 70th anniversary of diplomatic relations. Over the years the two states have implemented a wide range of long-term and large-scale joint projects in energy sector, first and foremost in the nuclear area, making it one of the foundations of their special and privileged strategic part- nership. However, in order to boost comprehensive ties and bring them to a new level corresponding to the changing global economic environment Russia and India are in need of innovative approaches in energy sector. The present paper is a result of Russian and Indian experts’ joint efforts to evaluate the potential of new collaboration formats and develop specific recommendations for enhancing cooperation. Russia–India Energy Partnership: The View from Russia* Russia and India have a long history of coopera- Firstly, the shale revolution started to take hold in tion in the energy sector, and the prospects for Europe in 2016 with U.S. LNG shipments arriving the development of the energy dialogue are as in Western Europe,2 and later in Eastern Europe, promising now as they were during the period of which had been traditionally considered the friendship between the Soviet Union and India. domain of Russia’s Gazprom.3 Since the late 2000s, the Russia–India energy partnership has been enjoying a renaissance. So Secondly, the European market has taken its cue why is now the time for Russia to think seriously from the Asian market, where a fierce price war about giving a new impetus to the energy dia- has been unleashed by oil producers trying to logue with India? offset the losses they suffered during the period of low prices by increasing their market share. The first delivery of Saudi oil to Poland in Sep- 4 TIME TO TURN TO THE EAST? tember 2016 was a direct consequence. India could make a significant contribution to Russian companies are still in a good position to diversifying the geographical coverage of Rus- withstand the competition for the European mar- sian energy supplies. The accession of Crimea kets, but as far as Europe is concerned, energy and the conflict that erupted in Eastern Ukraine companies are competing for a market that is in 2014 demonstrated that the Russian energy gradually shrinking. European countries are reduc- sector could very well become a target of the ing hydrocarbon consumption, including through European sanctions, even though Europe con- the widespread introduction of renewables and tinues to account for around 80 per cent of energy efficiency technologies. It is almost exclu- Russia’s gas exports, and 65 per cent of its oil sively developing countries that account for the exports.1 The main threat to Russian exports is growing energy demand, with China and India not the sanctions, which theoretically can be alone making up half of that growth.5 And India lifted, rather than the colossal changes that is taking advantage of the low energy prices by have taken place on the energy market over the increasing its oil imports faster than any other last 15 years. country in the world, including China.6 *AUTHOR: Vasily Shikin, Ph.D. in History, Expert, Russian International Affairs Council (RIAC) 1 BP Statistical Review of World Energy June 2016 // British Petroleum. June 2016. URL: https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf 2 Europe Gets First Sabine Pass LNG Export Cargo // LNG World News. April 27, 2016. URL: http://www.lngworldnews.com/europe-gets-first-sabine-pass-lng-export-cargo; U.S. LNG Expands to Eastern Europe as Poland Avoids Russian Gas // Bloomberg, April 27, 2017 URL: https://www.bloomberg.com/news/articles/2017-04-27/u-s-lng-expands-to-eastern-europe-as-poland-avoids-russian-gas 3 Lithuania Signs First Deal for U.S. LNG // Reuters. June 26, 2017. URL: http://www.reuters.com/article/us-lithuania-lng-idUSKBN19H14M; Poland Can Become a Hub for American LNG // July 6, 2017. URL: https://ria.ru/economy/20170706/1497941464.html (in Russian). 4 Russia Sees Saudi Oil Exports to Poland as a Threat // RBC. URL: http://www.rbc.ru/politics/14/10/2015/561e30179a794738c0e8027a 5 BP Energy Outlook 2017 Edition // British Petroleum. URL: http://www.bp.com/content/dam/bp/pdf/energy-economics/energy-outlook-2017/bp-energy-outlook-2017.pdf 6 India Oil Demand Seen Taking Off as China Crude Growth Fades // Bloomberg. URL: http://www.bloomberg.com/news/articles/2016-03-14/india-oil-demand-seen-taking-off-as-china-crude-growth-fades 4 Russian International Affairs Council Gateway House A similar situation is unfolding on the electricity Indian market has become the second larg- market. Demand for electricity is not growing est in terms of its planned capacity: the total in Organisation for Economic Cooperation and installed capacity of India’s nuclear power plants Development (OECD) countries, and has even is expected to reach 63 GW by 2032, up from the dropped in some regions as a result of energy current 6.2 GW.14 conservation efforts. But this is not true for India, where extensive development continues; elec- trification of the country is still not complete.7 And it is likely that India will become the Given India’s demographics situation finding a Russian nuclear industry’s largest ever cus- solution to the problem of universal access to tomer during this period. electricity will not be easy.8 This is why Narendra Modi’s government has set itself the ambitious In accordance with the Strategic Vision for task of increasing by 2022 the installed capacity Strengthening Cooperation in Peaceful Uses of of renewables to 175 GW,9 and of nuclear energy Atomic Energy between the Republic of India to 10 GW.10 and the Russian Federation, not fewer than 12 nuclear power units of Russian design are set to be built in India before the end of 2020. The situation on the global energy market affords Russia a unique opportunity to diver- Rosatom, the only foreign vendor that builds sify its energy exports with help of India. new nuclear power units in India, has already commissioned the first stage of the Kudanku- lam Nuclear Power Plant (the first and second NUCLEAR ENERGY power units, each with a capacity of around 1000 MW, were commissioned in 2014 and The resumption of the energy dialogue between 2016, respectively), and construction of the Russia and India started with nuclear energy and second stage began in 2017.