Oil and gas, the twins of petroleum production, share similar marketing realities. They originate from the same geological regions and are sought by the same energy-hungry countries. India is a relatively small producer but an increasingly major consumer and importer of both oil and gas. Indians need to be far more attuned to the geopolitics of natural gas. But both the state and the public have neglected this sector as oil prices soar.

Gas is more difficult to transport than oil. This restricts the supply of gas to regional markets and even deliveries within a large country. The two main ways of transporting gas are by pipeline and through Liquefied Natural Gas (LNG) in special ships under cryogenic conditions. It is only in recent years that the world trade in gas has expanded through improved technology in transportation.

In the oil sector, international trading covered about two-thirds of the supplies and OPEC controlled half of the total exports. In the gas sector, there is no such cartel yet.  Gas trading accounts for only for 26% of the total consumption. But the gas exporting countries have floated the idea of a parallel organisation. 

In pipeline gas, the dominant exporters are Russia, Canada, Norway, Netherlands, Turkmenistan and Algeria. In LNG, the main exporters are Qatar, Indonesia, Malaysia, Algeria and Nigeria.  Since gas will surely be in pressing demand and supplies can be controlled by the producers, a counterpart cartel like OPEC for gas could well emerge.

Russia would be prominent in it, as Saudi Arabia is in OPEC. But unlike crude oil, natural gas is not traded on the world market, being sold on long-term contracts and agreements. Already, there are spot gas markets in the US and European Union. Some LNG is also traded on a spot basis. As LNG trading develops further, the different gas markets will converge. Either way, India has to book its supplies with the same alacrity as the other main consumers like China. We must be ready for rising prices and a convergence of oil and gas pricing.

India has already had to renegotiate its LNG contract with Iran. This is the logic of the oil twin dragging up the gas twin, as the world demand outruns the supply of petroleum fuels. But US opposes this deal and the Indian government is inclined to defer to the American policy on sanctions against Iran. This is partly influenced by the exuberance born of recent gas discoveries in India’s east coast. 

Russia is surging ahead on the proven strength of its oil and gas resources. Under Putin’s lead, it has unabashedly employed these assets to acquire a geopolitical clout in Europe, Central Asia and the Far East. Just three countries, Russia, Iran and Qatar, control 50% of the world’s gas reserves.

Russia is negating the geopolitical pressure from the US through NATO and its East European allies by supplying gas to West Europe by a pipeline under the Baltic Sea. The same factor influenced Russia to construct the Blue Stream pipeline under the Black Sea. The political calculus overrides the economic cost analysis.

The US-Russia rift has been obvious in the energy rivalry. Recently it has signed up with Turkmenistan and Kazakhstan to construct a gas pipeline along the Caspian coast using Russian infrastructure.

Meanwhile, the US has enticed Azerbaijan and Turkmenistan, formerly parts of the Soviet Union, to supply oil and gas through pipelines avoiding Russia. In a counter-thrust, Russia and Uzbekistan have concluded a major agreement for Uzbek gas to be carried by Russian built pipelines. Turkmenistan is rich in natural gas, but being landlocked, it has to depend on bigger powers to exploit this buried wealth.

The Central Asian countries will use their oil and gas assets to diversify their customers. China is very active in this hectic geopolitical competition. It has struck deals with Kazakhstan and Turkmenistan to build pipelines directed eastward rather than westward.  

These rivalries portend tensions ahead.

India needs to revolutionise its energy strategy. It must partner with the energy-rich countries and actively ensure supply arrangements. This effort should parallel a demand side revolution to minimise our usage of both oil and gas through drastic measures, which disregard populism.