Energy was never too far from Prime Minister Narendra Modi’s mind as he embarked on his four-nation tour of Africa. There has been a long-standing trade in South African coking coal and briquettes. In Mozambique, he put a stamp on India’s ambitious investment plans in a country emerging as the world’s third largest gas exporter. Even in Tanzania, Modi offered Indian know how in that country’s nascent gas sector.
India has imported oil from Nigeria, Angola and Egypt and coal from South Africa for years, but has been a marginal player on the continent. However, global circumstances have placed India in a prime position to expand its energy stake in the continent.
The shale revolution has robbed Nigeria and many West African countries of the North American oil and gas market. This is one reason Nigeria is the second-largest source of crude imports to India in recent times. China’s attempts to reform its economy have meant its energy imports have slowed down.
The collapse in oil and gas prices has given India the opportunity to not only seek long-term supply contracts at low prices. Under some economic distress, African governments are more willing to offer equity in their energy assets. ONGC Videsh Limited says it plans to double its $8 billion worth of investments in Africa over the next three years. It already has oil and gas stakes in Mozambique, the two Sudans and elsewhere but is now eyeing North Africa, Angola and Equatorial Guinea.
India is now in a position to provide a combination package of aid, security and other forms of investment to African governments when it goes to seek energy investments. This is important as many African states lack the infrastructure to allow the extraction and transport of their oil, gas or coal or don’t have trained personnel to run mines and refineries. New Delhi is now willing and able to provide that sort of support. While this benefits Indian companies, it also supports Indian security and diplomatic interests.
India has three good reasons to try and build up an energy relationship with Africa, despite the political risks involved with dealing in such countries. OVL’s investments in Libya, for example, are not in great shape.
One is that African energy assets are often the cheapest. A McKinsey study looked at what the cost of liquefied natural gas from gas fields around the world would be for the Indian market. Most of the lowest LNG prices were from fields in Africa and North America, largely in the $ 8 to 12 mmbtu price range. Australian and Russian fields, for example, were in $12 and $14 range.
Two is that India has, until now, run a relatively balanced energy trade with Africa. While it imported a lot, this was offset by large exports of petroleum products from Indian refineries. In places like Kenya, private Indian hydrocarbon firms like Reliance and Essar invested in refineries and retail outlets. Since 2003, in fact, the rough pattern of Indian hydrocarbon trade with Africa was India importing from West and Central Africa and exporting to East Africa.
However, as India’s oil and gas consumption surges at home it will have less and less refined petroleum products to sell overseas. This seems to already be happening, with Indian petroleum products exports falling drastically the past year.