IOC signs $7-9 billion LNG import deal with UAE’s ADNOC Gas
Indian Oil Corporation (IOC) is actively pursuing new agreements in alignment with the government’s objective of increasing the share of natural gas in the country’s energy mix. The government aims to raise the current percentage of natural gas, which stands at 6.2 per cent, to 15 per cent by 2030. Long-term LNG contracts, such as the ones IOC has entered into, play a crucial role in achieving this goal by providing a stable and consistent supply of LNG.
The spot LNG market is known for its inherent volatility, fluctuating prices based on factors such as global demand, supply disruptions, and geopolitical events. By securing long-term LNG contracts, IOC can mitigate this volatility and ensure a more affordable and reliable supply of LNG. These contracts provide pricing, quantity, and delivery schedules stability, allowing IOC to plan and manage its LNG procurement effectively.
Affordability and reliability are key factors in LNG supply, especially for a country like India that is seeking to expand its natural gas usage. Long-term contracts provide the necessary assurances for both buyers and sellers, reducing uncertainties and facilitating long-term investments in LNG infrastructure and related projects. They also contribute to the overall energy security of the country by establishing a steady supply of LNG, which is crucial for sustaining economic growth and meeting the energy demands of various sectors.
Furthermore, long-term LNG contracts have additional benefits beyond price stability. They promote infrastructure development for LNG import, regasification, and distribution, creating a robust LNG ecosystem within the country. This infrastructure not only enables efficient and cost-effective utilization of LNG but also opens up opportunities for the growth of related industries and supports job creation.
By actively pursuing long-term LNG contracts, IOC is fulfilling its own LNG requirements and contributing to the government’s energy goals. Increasing the share of natural gas in the energy basket brings multiple advantages, including lower emissions, improved air quality, and reduced reliance on conventional fossil fuels. As a cleaner and more environmentally friendly fuel, LNG plays a vital role in achieving these objectives.
The recent agreements signed by IOC with ADNOC Gas and TotalEnergies hold significant benefits for IOC in terms of diversifying its LNG supply sources and meeting the increasing demand for cleaner and more sustainable fuel options. An official stated that these agreements would contribute to fulfilling India’s growing energy needs with a focus on cleaner energy sources.
By engaging with ADNOC Gas, which is the national oil and gas company of the Abu Dhabi government, IOC gains access to a well-established and experienced supplier of natural gas from the Middle East. ADNOC Gas is the oldest natural gas supplier in the region, and this partnership enables IOC to tap into their expertise and reliable supply chain.
Diversifying the supply source of LNG is advantageous for IOC as it reduces the dependency on a single supplier and enhances the security and reliability of LNG imports. With ADNOC Gas as an additional supplier, IOC can leverage their extensive resources and capabilities to meet the growing demand for LNG in India.
Furthermore, these agreements contribute to IOC’s efforts in transitioning towards cleaner and more sustainable fuel sources. Compared to conventional fossil fuels, LNG offers significant environmental benefits with lower emissions of pollutants and greenhouse gases. By expanding the supply of LNG from ADNOC Gas, IOC can fulfill its commitment to reducing carbon emissions and promoting a cleaner energy mix.
The partnership with ADNOC Gas, being the national oil and gas company of Abu Dhabi, also strengthens the bilateral ties between India and the UAE. It represents a significant collaboration in the energy sector, fostering economic cooperation and diplomatic relations between the two countries. The relationship between India and the United Arab Emirates (UAE) extends beyond the recent LNG agreements, as they have a Comprehensive Economic Partnership Agreement (CEPA).
This agreement includes specific provisions regarding LNG imports from the UAE, offering favourable terms for India. Under the CEPA, LNG imports from the UAE are subject to zero customs duty, whereas the standard customs duty for LNG imports is 2.5 per cent plus surcharge. This provision significantly benefits India by reducing costs associated with LNG imports from the UAE.
LNG, or liquefied natural gas, is natural gas that has been cooled to a temperature of minus 162 degrees Celsius, transforming it from a gas into a liquid state. This liquefaction process reduces its volume by approximately 600 times, enabling efficient transportation in specially designed LNG vessels. The cooling and liquefaction of natural gas facilitate its storage, transportation, and subsequent regasification for use in various applications.
India currently possesses seven LNG import facilities on the east and west coasts, which are crucial in meeting the country’s growing energy demands. One of these facilities is operated by Indian Oil Corporation (IOC) and is situated in Ennore, Tamil Nadu. With an annual import capacity of 5 million tonnes, this terminal contributes significantly to India’s LNG supply chain.
The CEPA between India and the UAE strengthens the economic ties between the two countries and provides a conducive environment for trade and investment. The favourable customs duty terms for LNG imports from the UAE further incentivize collaboration in the energy sector. By exempting LNG imports from customs duty, the CEPA encourages increased trade in LNG between India and the UAE, promoting economic growth and energy security for both nations.
Reducing customs duties on LNG imports has several advantages for India. Firstly, it makes LNG imports more cost-effective, enabling a competitive end-user pricing structure. This affordability factor is crucial for expanding the use of natural gas in various sectors, such as power generation, industry, and transportation. Secondly, the availability of LNG at a lower cost contributes to the diversification of India’s energy mix. India can reduce carbon emissions and improve environmental sustainability by relying less on conventional fossil fuels and transitioning to cleaner energy sources like LNG.
Furthermore, the existence of seven LNG import facilities in India signifies the country’s commitment to expanding its LNG infrastructure. These facilities provide the necessary infrastructure for LNG receiving, storage, regasification, and distribution. The strategic placement of these facilities along the east and west coasts allows for efficient and widespread access to LNG across the country.
In conclusion, the Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE has provisions that provide India with favourable terms for LNG imports from the UAE. The exemption of customs duty on LNG imports contributes to lower costs, making LNG more affordable and accessible for various sectors in India. Multiple LNG import facilities in India, including the Ennore terminal operated by IOC, strengthen the country’s LNG infrastructure and support its energy security objectives. These developments foster economic cooperation, energy diversification, and environmental sustainability, benefiting both India and the UAE.
