India Getting Locked In to Russian Energy

Gazprom executives are wont to frequently threaten Europe, especially in response to anti-trust and competition issues, saying “hey, if you guys don’t like buying gas under our terms (or letting us own distribution assets), maybe we’ll find some new customers elsewhere…” The Europeans, for the most part, haven’t taken the threat too seriously, putting their trust into the captive pipeline market to drive a hard bargain with Russia. Perhaps they should think again.

Over the past number of months, Russia has been working very hard to build as many ties as possible with the world’s next two most important energy consumers: China and India. While the Chinese relationship has exposed some limitations, India seems to be going swimmingly well, as this month Vladimir Putin, Viktor Zubkov, and numerous energy executives made important visits. The two nations are looking to boost bilateral trade to $10 billion before 2010, and Russia is strongly pushing for more weapons sales as a quid pro quo for India’s bottomless thirst for oil and gas.Perhaps the strongest indication of what’s to come politically are the discussions between Gazprom and the Indian government – something we have seen as foreshadowing elsewhere. Petroleum Minister Murli Deora visited Viktor Zubkov in Moscow today, and emerged from the meetings with a big smile and even bigger news: “Zubkov has assured India of Moscow’s backing in its quest for energy security by adopting a favourable approach and transforming the bilateral cooperation in hydrocarbons as one of the main planks of Indo-Russian strategic partnership.“Deora said that February looks like the month that Gazprom and the Indian state energy company ONGC will firm up their deals in upstream, downstream, and midstream projects. Unlike Gazprom’s deals with the national champions in Europe, the political concessions they will seek to attach to the deal will be obtained directly instead of indirectly (as they are obtained in countries like Germany and Italy). I wonder if these sexy promises of concrete agreements have anything to do with the fact that Gazprom is asking the Sakhalin partners, which includes ONGC, to sell their gas at considerable discounts to the Russian domestic market. Perhaps Exxon and Rex Tillerson will find themselves with one less friend at Sakhalin.