India seeks to restore energy ties with Russia

New Delhi (Platts)--22Dec2006

India, one of the world's five largest oil importers, is making a
concerted effort to boost its energy ties with Russia to a level almost on par
with that which existed between the two countries during the Soviet era.
Indian planners see Sakhalin Island in Russia's Far East as the path to
rebuilding the two nations' former close energy ties. Sakhalin is an energy
treasure house where India's ONGC Videsh Limited already has a toehold via its
30% equity interest in the Sakhalin 1 project, which began producing oil and
gas in October.
"Sakhalin to Mangalore is the new route of integration," India's
Petroleum and Natural Gas Minister Murli Deora said in early December while
formally receiving the first parcel of equity crude from Sakhalin 1. "The
route integrates one of the largest [oil and gas] producing centers with one
of the largest consuming centers."
OVL's success in Sakhalin 1 has prompted ONGC to seek a 20% stake in
Russian oil giant Rosneft's Sakhalin 3 project.
In addition, Indian companies have been seeking active
participation in various other Russian oil and gas exploration and development
projects.
Deora, who has repeatedly talked about upgrading energy ties with Moscow,
is certain to raise the issue again during a scheduled visit to India in
January by Russian President Vladimir Putin, a government spokesman said.
Russia, meanwhile, is looking to secure diverse markets for its 10 million b/d
of crude output.
"When we think of our energy needs and security, we think of Russia,"
Deora said of the possibility of reviving the close relationship of past
decades. The Soviet Union was instrumental in helping India build its
state-owned refineries and guided India's initial exploration forays.

RUSSIA WAS INDIA'S MAIN ENERGY SUPPLIER IN THE SOVIET ERA
Before the collapse of the Soviet Union in 1991, India enjoyed a modicum
of energy security thanks to an agreement that guaranteed it Russian oil
supplies. The icing on the cake was the nature of the agreement, which
required India to pay for the oil and products in Indian rupees, which the
Soviet Union used to import commodities from India.
The agreement met around 25% of India's crude and product import needs at
a time when the country perennially faced a foreign currency crunch.
The Indian government is aware that a similar agreement is no longer
possible and that it has to pay market prices in foreign currency in order to
secure Russian crude oil and gas.
"What we hope for is an accord to secure sizable oil/gas supplies that
would flow to India uninterrupted," R.S. Sharma, chairman and managing
director of Indian upstream major Oil and Natural Gas Corporation said
December 20. His cash-rich company is seeking to invest in the Russian energy
sector in a bid to reduce India's oil and gas import bill, which accounts for
one-third of the nation's total import expenses.
The additional benefit of a link with Russia is the chance to diversify
India's import sources and reduce its dependence on supplies from the volatile
Middle East. India currently gets 80% of its more than 100 million mt/year (2
million b/d) of crude imports from the Middle East.
ONGC is ready to invest up to $5 billion in various Russian projects and
is seeking tie-ups with Russian giants Rosneft and Gazprom, Sharma said. "We
are holding talks with both the companies," he added.
India's privately owned Reliance Industries is also eyeing investments in
Russia's downstream sector
--Shiva Lingam, newsdesk@platts.com