India shines as an energy opportunity for Gulf amid China slowdown

Sheikh Khaled bin Mohamed, Crown Prince of Abu Dhabi, with India’s Prime Minister Narendra Modi before their meeting at the Hyderabad House in New Delhi on Monday, September 9. AFP

Within four days’ sail of the UAE is the world’s biggest population, its third-biggest economy by purchasing power, and third-largest energy consumer. While China’s economy is faltering, India is the fastest-growing major country in the world, its GDP anticipated to increase by 7 per cent this year. This is attracting greater interest from Gulf nations, demonstrated by the first official visit of Sheikh Khaled, Crown Prince of Abu Dhabi, to the country last week that has resulted in several energy deals.

State firm Indian Oil signed up to buy 1 million tonnes per year of liquefied natural gas from the under-construction Ruwais plant, due to start up in 2028. The company already has a contract to buy 1.2 million tonnes per year from the existing Das Island facility. This will make Indian Oil the single largest customer for the UAE’s LNG.

A production licence for Abu Dhabi’s onshore Block 1 in the Ruwais area was awarded to Urja Bharat, a joint venture of Indian Oil with Bharat Petroleum. The companies have been exploring the block since 2019.

And the existing arrangement for Adnoc to store oil at Mangalore in India was extended, and the parties discussed options to expand the volume, from the current amount of about 5.86 million barrels.

The UAE is also keen on India’s new energy sector. The Indian media has reported that Abu Dhabi’s clean energy company Masdar has been interested in buying a stake in green hydrogen manufacturer Hygenco, the Indian renewable assets of Italian group Enel, and Ayana Renewable Power, majority-owned by India’s National Investment and Infrastructure Fund. At Cop28 last year, the event’s director general, Majid Al Suwaidi, said that the UAE would develop 6.6 gigawatts of clean energy capacity in India, using some of its newly established $30 billion fund.

India is a crucial energy market for the Gulf. It imports more than five million barrels of oil per day, the largest intake in the world after China – albeit its Asian neighbour takes twice as much.

India has also moved rapidly up the list of LNG importers, although high prices since 2021 deterred it for a while. It is now the world’s fourth-biggest buyer, after its Asian peers China, Japan and South Korea.

Sheikh Khaled meets Indian Prime Minister Narendra Modi in New Delhi

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Yet, like the Ganges before the monsoon, the energy relationship is still broad but shallow. Despite the Urja Bharat award, Indian companies have little presence in the upstream, oil and gas exploration and production sector in the GCC. They are not present in Iraq, whose upstream is dominated by China.

There are no reciprocal stakes in joint-venture refineries and petrochemical complexes, unlike Saudi Arabia’s many links to China. Saudi Aramco and Adnoc have been discussing for years building a refinery with an Indian consortium in the state of Maharashtra, but progress has been slow.

And, while western and Chinese companies have acquired stakes in the new LNG plants being built in Abu Dhabi and Qatar, India is not represented.

There are strong economic and strategic reasons on both sides to strengthen these links.

India remains something of an energy island. Other than with its immediate neighbours Nepal, Bhutan, Myanmar and Bangladesh, it has no international electricity links. Despite its proximity to the Middle East and Central Asia, the geographic and political problems posed by Iran, Afghanistan and Pakistan mean no oil or gas pipelines run to it.

This puts India at an economic and security disadvantage to China, which can buy cut-price Russian and Central Asian gas through pipelines, and has a relatively secure oil pipeline from Russia. The penetration of LNG into India is limited by its cost, since power generators and industries prefer dirty but cheap domestic coal.

And US sanctions have deterred India from buying Iranian oil, while China has become virtually Tehran’s only paying customer, achieving significant savings. Like China, India does benefit from buying Russian oil, since it was banned from Europe, although discounts here have narrowed over time.

GCC links to India also don’t raise American hackles, unlike closeness to China or Russia. India could come to play a constructive security role in the Gulf neighbourhood, including in the western Indian Ocean and Red Sea. This would be something of a return to the situation under British colonial rule of the subcontinent.

For the GCC and neighbours, India offers robust and continuing oil demand growth, while China’s prospects have dimmed because of its economic slowdown and the growing use of electric vehicles.

BP forecasts India’s oil use growing by 1 million barrels per day to 2030 and rising all the way to 2045, while China’s declines after 2030. It envisages India’s gas demand growing 4.3 per cent annually up to mid-century, with China a much slower 1.1 per cent. By then, India’s gas use would be as large as that of the EU, and its import needs would be almost two-thirds of China’s.

At mid-century, BP thinks that India’s final energy consumption would be almost as large as that of the US, and India and China would be virtually the only two remaining large coal users. That represents a huge opportunity to replace with gas and renewable power.

GCC companies could invest in more liquefied natural gas import terminals in India, as well as gas infrastructure and power plants. An undersea gas pipeline to the subcontinent is a challenging but not impossible proposition. Probably more viable would be an electricity cable, that would exchange cheap renewable energy and take advantage of the differences in daily and seasonal demand, and the long-term storage in hydroelectric dams.

Local and state-level politics, and complex community relations and land acquisition, make energy projects in India challenging. A meeting with Prime Minister Narendra Modi is a good starting point but not the final word, unlike in China. Alliances with the big, politically-connected business conglomerates such as Adani Group and Reliance Industries will be important.

Even while its energy economy remains significantly smaller than its northern neighbour’s, India will increasingly overtake China as a source for demand growth. Its burgeoning consumption won’t reshape global markets with the same magnitude and speed as China has done over the last two decades. But proximity across the three hours of flight between Dubai and Mumbai mean it should couple more closely with the GCC than China has.

Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis