Russia and India are reportedly considering a $30 billion oil pipeline that would transit through China’s Xinjiang province. When seen in the context of other bilateral hydrocarbon initiatives between India and Russia, the discussions, first reported in late March, show that Russia is cultivating India in addition to China as part of its accelerated move away from dependence on European markets amid the ongoing Ukraine crisis.
For its part, India, which has been on the lookout for stable sources of hydrocarbons outside the Middle East, finds a natural fit in Russia, given the two countries’ traditional ties and Russia’s vast new unexploited offshore and unconventional reserves. Moreover, given the amount of investment under discussion for joint projects in the hydrocarbon sector, India now appears to be leaning more on its pre-existing energy relationship with Russia than pushing for greater access to U.S. unconventional hydrocarbons. But given the geographical route of direct overland supplies from Russia to India, any joint hydrocarbon initiatives will depend on how the Chinese evaluate the benefits of facilitating such linkages.
Last October, Russian President Vladimir Putin and then-Indian Prime Minister Manmohan Singh announced in a joint statement that Russia and India would set up a joint research group to study “the possibility of direct onshore transportation of hydrocarbons” from Russia to India. Since this declaration, some preliminary work on the pipeline alignment via Xinjiang has been carried out, although the route would traverse the Himalayas and would take at least seven to eight years to construct. The proposal for that pipeline actually dates from 2005, but it is only now that it has become the subject of serious analysis, reflecting a new sense of urgency on both sides to expand their hydrocarbon relationship.
India recently surpassed Japan as the world’s third-largest consumer of oil and is projected to remain dependent on foreign sources for at least three-quarters of its oil requirements, which continue to grow at around 5 percent annually. India’s potential as a growth market is what brought Igor Sechin, the chief of Russian oil company Rosneft, to India in late March for wide-ranging discussions with Indian hydrocarbon administrators and the heads of India’s Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation. ONGC’s overseas arm, ONGC Videsh Limited (OVL), seems keen on taking up Rosneft’s offer of joint development of Magadan-2 and Magadan-3 offshore blocks in the Sea of Okhotsk. While developing either block will involve risks and drilling will be expensive, they hold the promise of very large reserves if successfully exploited. India’s readiness to make upfront investments for exploration purposes in offshore Russian fields is also due to Russia’s position as one of the more stable oil-producing countries in the world.
Indeed, even though India imports only a fraction of its annual crude requirements from Russia, OVL actually produces more than 35 percent of its output from Russia’s Sakhalin-I field, which was also OVL’s first-ever overseas asset. By contrast, OVL’s prime acreages in both Syria and Sudan continue to be nonperforming due to geopolitical instability. Security of investment is also a reason behind India’s interest in sourcing Russian liquefied natural gas (LNG), with Sechin reportedly also discussing possible Indian participation in Rosneft’s Far East LNG project in Sakhalin.
The Russian gas giant Gazprom, of course, already has an LNG relationship with Indian gas distribution company GAIL for the supply of 2.5 million tons of LNG annually for 20 years beginning in 2018-2019. Moreover the company has expressed an interest in building the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, in addition to its interest in ultimately connecting its gas fields in Russia’s Altai region to TAPI. Beyond this, proposals for building a Rosneft oil pipeline parallel to TAPI, or even a Gazprom gas pipeline next to it, are being considered. Essentially Indian companies want to bring in Russia as stakeholder in the energy corridor they seek to create between Central Asia and India. Russian involvement will also make it easier to create a hub in Central Asia that can bring India oil and gas from Caspian shores, where companies like OVL have made significant investments.
But with the U.S. withdrawing from Afghanistan, the security of the TAPI corridor will depend to a great extent on the success of Indian and Russian moves to shore up Afghan security forces. Indeed, uncertainties associated with those efforts, and the need to keep Pakistan in line, might help explain why alignments via China are now being seriously discussed, despite their expense due to the terrain.
On a broader level, it seems India no longer sees the U.S. as being as crucial to its energy security as it was even a couple of years ago. That India is ready to participate in rather expensive LNG projects in the Russian Far East or in the Arctic suggests that the India-U.S. energy dialogue is not going too well.
India’s turn to Russia means that the Chinese now have to contend with the Indians in upcoming Arctic LNG projects such as Novatek’s Yamal LNG project, in which China has already beaten India to a 20 percent stake valued at $5 billion. But China may not be averse to allowing India-Russia pipelines to traverse its territory. In addition to transit fees from such pipelines, China would also stand to gain some upstream leverage that can offset the capital investments China is making into Russia-China hydrocarbon connections, like the Power of Siberia pipeline, which might include a spur to India. Ultimately China knows that its facilitation of an India-Russia relationship in the crucial energy domain will be a test for the viability of BRICS as an economic bloc where the sum of mutual interests is positive. A pipeline through Xinjiang, however, would require the settlement of the India-China border dispute.
Nevertheless, given Russia’s search for new markets and India’s search for new sources, energy cooperation is increasingly seen by both sides as low-hanging fruit for expanding non-defense trade and investment relations. As a result, energy is quite likely to become a key facet of one of Eurasia’s more enduring partnerships.
Saurav Jha studied economics at Presidency College, Calcutta, and Jawaharlal Nehru University, New Delhi. He writes and researches on global energy issues and clean energy development in Asia. His first book for Harper Collins India, "The Upside Down Book of Nuclear Power," was published in January 2010. He also works as an independent consultant in the energy sector in India. He can be reached at email@example.com.