The Mitt Romney-Barack Obama presidential debates in October had one man in New Delhi hooked. D.K. Sarraf, Managing Director, ONGC Videsh Ltd, the state-run overseas explorer, would plonk himself before a television early in the day and hang on to every word.

Sarraf is no avid America watcher - his interest in the three debates was the United States's energy policy and the two contenders' stance on it. The interest arises largely from recent developments in the global energy market where the US is expected to supplant Saudi Arabia as the world's largest oil producer in another decade. It's not just that which is churning the global energy market. It's also the shale gas and oil sands finds in the US and Canada in recent years that are leading to ferment in energy circles.

In addition, in August, the US adopted stringent vehicular mileage norms. The Obama administration set goals to double average mileage norms by 2025, a decision that the US auto industry has agreed with. The implication: the US will reduce oil consumption by about 10 per cent and potentially halve imports from OPEC nations before a newborn today turns 12. OPEC is short for Organization of the Petroleum Exporting Countries, a 12-country body mostly dominated by West Asian members which call the shots on how much crude oil to produce every day.The implications of the world's largest energy consumer becoming self-reliant in gas and less dependent on oil imports are enormous - it is being bandied the biggest event in the global energy market after the oil shocks of the 1970s. Estimates made by the US Energy Information Administration (EIA) and BP (formerly British Petroleum) predict the US will be self-reliant in gas before 2020, and will import almost no crude oil from West Asia and other OPEC countries.

The price of gas at Henry Hub is constantly hovering in a band of USD 3.5 to USD 5 per unit. The question is whether this gas can be brought to India: D.K. Sarraf Photo: Vivan Mehra/www.indiatodayimages.com

The US Energy Department predicts the country will need to import only a little more than one-third of its oil needs by 2020 (down from 45 per cent now), and most, if not all, of it could be catered from countries such as Canada, Mexico and Brazil. But, more than the energy independence of the world's largest economy, what excites Sarraf and his peers in other Indian energy companies is that the US is looking to export gas and its shrinking oil imports will mean more oil available in the global market for buyers such as India. Potentially, at lower prices than the average $100-andchange a barrel that India has paid in the last three years. According to the BP Statistical Review of World Energy 2012, a respected and frequently-quoted annual report, India and China, which will account for nearly half the world's incremental energy requirements, will need to import oil, gas and coal even after 2030.

Liquid Energy
In such a situation, shipping liquefied natural gas (LNG) even from halfway across the world begins to makes sense. "The price of gas at Henry Hub is constantly hovering in a band of $3.5 to $5 per unit. The question is whether this gas can be brought to India," says Sarraf, himself answering the question in the affirmative. Prices at Henry Hub, an import terminal in Southeast US that is connected to a nationwide grid of pipelines, are the benchmark for global gas prices. Even after the cost of liquefaction, transportation and then regasification after landing in India, "it is a viable business," says Sarraf.

In Asian markets, LNG is traded at $9 to $13 per unit or mmbtu (short for million metric British thermal unit) depending upon the source of the gas and purchase negotiations. In comparison, says an investment banker working for an Indian company with gas interests, in the future even with all costs factored it, LNG can be supplied at around $10 per mmbtu landed on the Indian west coast. The banker requested anonymity. India has two LNG terminals in Gujarat, one is being commissioned, and the fourth will open next year. Thirteen more terminals and floating gasification units are planned on both India's eastern and western shores in the next five years.The estimates for shale gas reserves in the US vary widely. The US Energy Department's 2012 Annual Energy Outlook projects it at 482 trillion cubic feet (tcf) across the US. BP reckons it is around 300 tcf, while some analysts' estimates are as high as three times that amount. For perspective, one tcf of gas can fire a power plant with nearly 1,000 megawatt capacity for 20 years. India's shale gas reserves are estimated at 63 tcf but little work has been done on the feasibility of extracting it, though Obama on his India visit in November 2010 had promised US cooperation. India is expected to announce its shale gas policy in the first quarter of 2013.

Cheaper oil is going to be a structural reality in the next few years if fundamentals stay as they are: Matthew Hulbert

Indian firms, meanwhile, are looking at North America as a new source for imports. "The US may become a gas exporter as LNG tankers and port infrastructure are built," says Ajit Ranade, Chief Economist, Aditya Birla Group. Proposals to set up eight LNG export terminals, with a total capacity of 12.33 billion cubic feet a day, or bcfd, on both the east and west coasts are pending before the US government, with another seven (capacity: 9.72 bcfd) potential sites identified by project sponsors.

"Some LNG projects are definitely going to get off the ground and already seeking the growing markets in Asia," says Vandana Hari, Editorial Director at Platts Asia, an energy information provider.

Indian gas pipeline utility GAIL, through unit GAIL Global (USA), has bought a 20 per cent stake in Carrizo Oil & Gas's Eagle Ford shale acreage in Texas for $95 million in September 2011. Reliance Industries has invested in three US shale joint ventures since April 2010 - one of them in the promising Marcellus Shale of Pennsylvania, eastern US, partnering Atlas Energy. GAIL also has a 20-year contract with Cheniere Energy Partners to buy and ship 3.5 million tonnes per annum of LNG from the US company's underconstruction terminal in the Gulf of Mexico in Louisiana. The first despatch of LNG is expected in 2016.

An OVL-led consortium is in talks with Houston-based ConocoPhillips to buy stake in six oil sands in the Alberta province of Canada. OVL, together with Indian Oil Corporation (IOC) and Oil India Ltd (OIL) has readied $5 billion for buying the stake, the talks for which are on. OIL and IOC have separately teamed up to acquire a 30 per cent stake in Carrizo Oil & Gas's Niobrara shale-oil acreage in Colorado, the US. OVL and GAIL are also looking to take up some equity in the LNG terminals once they get export approval.

Canada to Australia
Companies are also scouting north of the US. "What applies to the US also applies to Canada," OVL's Sarraf says. Canada expects to export 66 million tonne per annum (mtpa) of LNG by 2019. Canadian Energy Minister Joe Oliver on his India visit in September told Business Today that his country is looking at India along with Japan and Korea as probable markets. "We are a net exporter of oil and gas, but largely it is the US [that is the buyer].

The supplies in the global market are more than the demand. But the prices are not coming down: R.S. Butola Photo: Shekhar Ghosh/www.indiatodayimages.com

We are looking at newer avenues, India figures at the top of the list," he said. Helping India's case is the fact that selling most of its gas to the US means Canada has to offer hefty discounts. "Hence we are looking at the global players as new consumers."

Canada is as enthusiastic about the synthetic crude finds in its oil sand fields. Also known as shale oil, synthetic crude is the output of upgrading heavy oils such as bitumen. It can then be fed into most modern refineries to produce petroleum products, or at least blended with normal crude before refining.

Given Canada's abundance of synthetic crude, the difference with comparable varieties in West Asia is as much as 50 per cent. Between January and June 2012, Canadian synthetic crude was priced on average of $62 to $83 a barrel. Similar crude in the Asian market traded at $90 to $95 against the average price for Brent at $113.

IOC, India's biggest domestic refiner, has already told the Petroleum Ministry it can process synthetic crude. "We use various variety blends of crude in our refineries. The tough crude from Canada could also be treated there after blending," says Chairman R.S. Butola. Given the relatively young life of refineries in India, they can process synthetic crude oil, says Deepak Mahurkar, who leads the oil and gas consulting practice at audit and consultancy firm PricewaterhouseCoopers India.

Indians are doing their recces Down Under, too. Australia is estimated to have 400 tcf of recoverable shale gas - about four-fifths the estimated reserves in the US. It has four large LNG terminals and is building four more to meet the massive demand for gas from countries such as Japan, Korea, Taiwan, India and China. Indian companies have been slow to report progress in buying equity in projects or securing longterm supplies there, though. The last and only oil and gas deal an Indian company has signed to source gas from Australia is the Petronet LNGExxonMobil agreement to source 1.5 million tonnes of LNG annually from the Gorgon project in western Australia for 20 years. The gas will reach the Kochi terminal in 2017.

There is another compelling reason for India to buy LNG and crude oil from the US, Canada and Australia: derisking its sourcing from West Asia. India imported 142 million tonnes of crude oil in 2011, nearly nine-tenths of which came from OPEC countries, mainly from West Asian and North African countries. While it may seem an expensive strategy to source crude and gas from 7,500 nautical miles away, analysts such as Aashish Mehra, Managing Partner at consultancy Strategic Decisions Group (SDG)'s India chapter defend New Delhi's strategy. "This should be seen as an effort to diversify the energy sources and reduce its heavy crude oil and gas dependence on Middle East and OPEC nations," he says.Dark Lining to a Silver Cloud

For all this, it is not a clear road ahead for India in its sprint to securing its energy future. Coal, currently accounting for about 50 per cent of India's energy mix, will remain the main pillar of India's energy economy with some predictions that the share will rise to 55 per cent.

Problems on that front are unlikely to disappear any time soon partly because of global prices remaining high and policy changes in different nations against mineral stripping.

India can do little to change that tide but what about its speed of decision-making, especially when faced with much nimbler rivals? "Indian companies are very late, we are getting proposals from several companies from across the globe," Canadian minister Oliver told BT.

For instance, Shell Canada, Korea Gas Corporation, Mitsubishi Corporation and PetroChina Company came together to form LNG Canada in May 2012 to operate a two bcfd LNG export terminal in British Columbia, Canada. In Australia, while rivals such as Korea Gas and Japan's Tokyo Gas and Kansai Electric are active and have bought equities in proposed LNG terminals, Indians have little results to show. The Koreans and the Japanese also dominate other parts of the Oceania region.

Separately, there is a growing worry in oil markets of the US playing a smaller role in West Asian geopolitics as its interest in the region as an energy source wanes. Though most global experts BT interviewed discounted such a possibility, the crude price trend showcases the concern.

"The supplies in the global market are more than the demand today. But the prices of oil are not coming down. It is largely because we are paying the premium of fear... the threat of disruption of supplies," says IOC's Butola.

One fix to that fear premium, suggests Matthew Hulbert, Lead Analyst at European Energy Review, a London firm of energy publications and analysts, could be a bigger Asian role in the region. "The flag always tends to follow the trade, which means that China and India need to make sure they gain a greater security stake across the region and indeed, Indian Ocean," he says. There is little evidence of any such efforts on the Indian diplomatic front yet.

Then there is the big mismatch between reality and Indian ambitions of importing oil and gas from the US: there is no free trade pact between the two nations. This means that oil or gas exports will be restricted to India.

The prospect in North America, however, is forcing Indian establishment to push for these talks. GAIL Chairman B.C. Tripathi has led peers in seeking diplomatic intervention to persuade Washington. Even if that were to bear fruit, Indians - and indeed buyers from Japan, Korea and China - would run into local industrial lobbies in the US, which would like to keep the cost of gas low by limiting exports.

Energy High
Overall, though, there is no denying that India is faced with a life-altering phase in its energy history. In 2008, the global LNG prices shot up to $22 per mmbtu - while crude oil topped $140 a barrel - and it was projected that it would stay above $15 a unit after an earthquake swerved Japan away from nuclear energy to LNG.

But fresh global discoveries and supplies have kept prices low. With more African gas finds and China striking shale gas, Mehra, the SDG partner, says he is hopeful the price of gas on Indian shores would be in the $9 to $12 range and stay constant for the next few years. Analysts hesitate to make similar predictions for crude oil given the potential of OPEC production cuts and technologies in areas such as thin film solar energy.

Recognising that the gas market is turning into a buyer's market, India along with the other Asian LNG guzzlers, Japan, China, South Korea, and Taiwan - the five account for about two-thirds of liquid gas traded globally - is working on forming a "buyers' club" that will dictate pricing and other terms, especially in a situation that prices start going up with increased global demand.

The price currently is calculated on a freight-on-board, popularly known as FoB, basis adding up the price of gas, the cost of liquification, transport, insurance and other charges. The new club is working on the reverse principle, where they would take care of the logistics. "This would allow them to take the benefit of taking cargoes through the shortest distance possible," says a GAIL executive, asking he not be named. It would also enable gas trading among partners through cargo swaps.

Despite all the hiccups, India is taking baby steps to take advantage of the changes in global energy markets. A policy well-thought through, a domestic pipeline network, and agility could alter the Indian energy landscape.

Sanjiv Shankaran Black Future Coal seldom finds mention in discussions on strategies to secure the country's energy supply. But it is the key source of energy driving India's infrastructure sector, power, steel and cement plants, and makes up about half of India's energy mix. Its availability in the near future is bound to be a big factor deciding the trajectory of the country's economic growth. Three factors influence India's coal industry. First, over 90 per cent of India's coal production is in the hands of government companies, primarily Coal India. The country produced 554 million tonnes in 2011/12, which was inadequate to meet the demand. A report by PricewaterhouseCoopers says that, in 2012, demand likely outstripped supply by about 98 million tonnes, making India's energy security sensitive to global developments. Second, the price of coal imports has trended upwards over the past decade. The decade can be broken into three phases. In the first phase (2003 to 2007), coal price (Japan benchmark) rose gradually from about $20 a tonne to $50. In the next phase (2008 to 2009), the price first jumped rapidly to about $120 per tonne and then collapsed in the wake of the global financial crisis to about $60. Since then (2010 to 2012), the price has again risen to around $120. A coal field in Jharkhand Third, the latest projections by the International Energy Agency show that India will be the world’s largest seaborne coal importer by 2016 as there is no hope of a marked ramp-up in local output. India's key coal markets today are Indonesia and Australia. In the future, South Africa and Mozambique will likely emerge as important markets. The problem for India’s coal importers is that the level of uncertainty has increased on account of changes in policies. Australia and Indonesia have in the recent past either changed policies and enhanced tax rates or are considering doing so. These imports are no longer a stable or inexpensive input, making project completion complicated for power producers who operate in a market where output price tends to be sticky. This means that even securing coal mines in these countries may not pay off. The next few years threaten to be insecure for users of India’s most important primary source of energy on account of policy uncertainty in the world’s most important coal markets. The writer is Senior Editor, Business Today