Russian LNG Shipments to India: Strategic Implications and Long-Term Prospects

Publication: Eurasia Daily Monitor Volume: 18 Issue: 166

Source: DNA India

In late September, Russia’s first Floating Storage Regasification Unit (FSRU)—specifically designed for emergency transportation of liquefied natural gas (LNG) via the Baltic Sea to Kaliningrad Oblast—successfully delivered its initial load of LNG from the Yamal LNG production facility to India’s Dabhol seaport. The vessel, called the Marshal Vasilevskiy, traversed the eastern part of the Northern Sea Route (NSR) in ten days without the use of icebreakers (Interfax, September 24). It carried 505 cubic meters of the specially liquefied fuel.

The modest delivery may have nonetheless opened a new chapter in Indian-Russian energy ties: India is determined to increase the share of LNG in its energy mix from 6.2 to 15 percent by 2030 (, October 26), unlocking a range of new commodity export prospects for Russia. In effect, India’s plans to boost cooperation with Russia in the realm of energy may eventually expand substantially. India’s largest gas-sector companies, including ONGC and Petronet LNG, have declared an interest in acquiring up to 9.9 percent of shares in the Russian Arktik LNG-2 mega project, which has a maximum annual capacity of up to 19.8 million tons of LNG. Moreover, India is interested in becoming a shareholder in the Rosneft-managed Taimyr LNG mega-project (between 35 million and 50 million cubic meters). As noted by Russian energy experts, by strengthening ties with Rosneft in the realm of LNG, New Delhi could kill two birds with one stone: in addition to securing its gas interests, it could also guarantee imports of “some quantities of oil” (EADaily, September 6). This was implicitly stated in March by Tarun Kapoor, the secretary to the government of India in the Ministry of Petroleum and Natural Gas, who took part in inaugurating the Indian Energy Center in Moscow (TASS, March 2).

At the same time, Russia’s interests are also satisfied. As noted by Russian Deputy Prime Minister Alexander Novak, his country—clearly seeing potential in this domain—is planning to drastically expand production of LNG, for which more than ten plants will be created. He also stated that achieving this objective will grant Russia’s national budget an additional 11.5 trillion rubles (approximately $150 billion) in the form of direct investments until 2030. In other words, if these projects develop as expected, they will add an additional 1.5 percent to Russia’s annual economic growth (, January 29).

Expanding energy ties between Moscow and New Delhi is a trend that received powerful impetus after 2014, when Russia’s political relations with its Western partners collapsed over Ukraine. In December of that year, President Vladimir Putin ordered the government to “find new ways to enter India’s gas market.” By 2018, India was already the main destination (19 percent) of Gazprom’s LNG exports (Interfax, May 28, 2019). According to Russian sources, Russia’s “LNG offensive” on the Indian market became a success primarily because the Russian energy giant was willing to take the risk. Specifically, Gazprom—which at that time produced little of its own LNG—re-exported LNG allegedly acquired from other markets, such as Australia, Qatar or Africa, to India. By doing this, Gazprom not only positioned itself as a credible supplier but convinced the Indian side that cooperation with Russia in other sectors—such as electrification and gasification—would also be possible (, June 8, 2018).

This Russian bet on LNG as the main vehicle for bolstering economic cooperation with India has led to yet another interesting development. As stated by the head of subsidiary firm Gazprom Export, Elena Burmistrova, Gazprom is no longer interested in building gas pipelines to India. In addition to being economically unsustainable and risky, it makes far greater sense to increase LNG exports to the subcontinent (and to Japan), thereby strengthening Russia’s stance across the Asia-Pacific energy markets. Nikita Blokhin, the leading analyst of Alfa-Bank, reiterated that observation, arguing that Russia is strategically interested in expanding LNG-based energy ties not only with India, which consumes around 25 million tons annually, but also with Japan, which consumes 74 million tons. It is important to note, however, that Japan is currently decreasing its rates of consumption of that fuel (Vedomosti, May 21).

Thanks to LNG being more ecologically sustainable compared to oil and coal and more easily transportable compared to conventional natural gas, this commodity is increasingly becoming a more popular and widely consumed source of energy. Use is up 20 percent from a decade ago. Russia is seeking to capitalize on this trend and become one of the world’s largest exporters of LNG. But even as it rapidly expands its exports to the growing Asia-Pacific markets, Moscow does not wish to discontinue its LNG shipments to Europe (see EDM, April 16, 2019 and July 21, 2021).

Both Western producers of LNG—mainly, the United States and Australia—and non-Western players are likely to encounter multiple difficulties in competing with Russia in the realm of LNG. In this area, Russia has several competitive advantages.

First, Russia will benefit from its vast Arctic-based deposits of natural gas—26.5 trillion cubic meters, or almost 70 percent of total Russian deposits—that are primarily located on the Yamal Peninsula. In addition to their size, the commercial exploitation of these deposits is quite inexpensive compared to US- or Australia-based LNG projects. Additionally, measures in the realm of taxation are designed to increase the investment attractiveness of the Arctic region with its vast resources. On top of that, the transportation of these resources is also advantageous to Russia: the NSR is a direct (and short) shipping path for LNG headed to the Asia-Pacific region (, October 3, 2018). While a lack of intra-Russian overland transportation might impede the development of other Arctic projects, it is unlikely to seriously affect LNG-related plans and initiatives.

Second, while competition in the global LNG industry is growing, Russia’s rivals face a range of serious challenges that will hold them back. African players are experiencing political violence and terrorist threats, while Iran faces pressure from Washington. Whereas, the United States has itself considerably decreased its LNG-related prospects.

At this stage, it would be premature to speak of Russia as destined to become the world’s leader in the realm of LNG. And yet it has definitely already become one of the most serious actors in this rapidly growing and financially lucrative area.