India is the fastest-growing energy market in the world as demand for
energy on the subcontinent booms. On this, analysts are unanimous. They are
also unanimous that the energy reform begun by PM Narendra Modi during his
first term in office offers a host of lucrative opportunities for foreign
energy and infrastructure companies. Now that Modi has won a second term,
these opportunities remain. Yet a brewing tariff spat with the United States
might end up closing some doors for U.S. companies.
It all began
with the U.S. refusing to exempt India from higher import duties on steel and
aluminum. Then President Trump whose administration has been actively seeking
ways to open up more of the Indian market to U.S. companies, even at the
expense of local businesses, removed India from its list of countries with a
preferential trade treatment. Now, India has responded with import tariffs on
28 U.S.-made goods.
Now, these tariffs cover things like apples and almonds and are largely
symbolic but if things escalate as we have seen them escalate with China, the
energy industry may get drawn into the spat. And while India has more to lose
from a trade war at this point, when it comes to energy, U.S. companies will
suffer, too, especially those involved in LNG exports. Related:
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There are energy projects worth US$1 trillion awaiting investments in
India. These range from pipelines to power generation capacity to
transmission lines in a country where power outages are part of life. There
are also plans to boost the share of natural gas in the energy mix from 7
percent now to 14 percent, writes
Dipka Bhambhani for Forbes. That’s a lot of opportunities for any energy
company. Chances are there will be a lot of competition for these projects
and for supplying India with the gas it will need in growing amounts. A trade
spat at this point is not the smartest move.
India is already troubled by higher oil prices and the U.S. sanctions on
Iran that have closed a door to cheap Iranian crude. India has in this
respect acted as a loyal U.S. ally, suspending oil imports from Iran the
moment the sanction waivers expired. But now it may be considering restarting
the purchases of Iranian crude because of price concerns. It is also trying
to negotiate a better oil deal with the U.S.
The country is also increasingly thirsty for LNG. So thirsty, in fact,
that the next national budget may dispense
with the import duties on the commodity, which currently stands at 2.5
percent. LNG is the greener alternative to coal for power generation, so
demand for it is bound to increase strongly and steadily in India in the
coming years. And competition in the LNG space is already intense amid a glut
and millions of tons in new capacity coming on stream in Australia and the
U.S.
Analysts have pointed
out that India’s retaliatory tactic may backfire. "If the US chose
to respond with retaliatory tariffs on labour-intensive exports such as gems,
jewellery and textiles, [or] more pushback on IT services, it would cause far
more damage to [India's] economic outlook," the head for India at Oxford
Economics, Priyanka Kishore wrote in a note earlier this week.
Yet India can do some harm to U.S. energy companies, too, by picking
competitors from elsewhere for its infrastructure projects. And LNG? Everyone
from Australia through Qatar to Russia would be happy to step in and replace
U.S. LNG for India. A lot of it would be cheaper as well. It seems it would
be best if both countries thread a bit more carefully in their trade negotiations
so they could continue reaping the benefits of their partnership.
By Irina Slav for Oilprice.com
