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Geopolitics of LNG
Context
Recent developments in the global energy market, especially in the wake of the Russia-Ukraine war, U.S. policy changes, and the EU's energy strategy, have significantly altered the global supply and demand dynamics for oil and natural gas. As the world adjusts to these changes, India’s energy security, economic growth, and transition to cleaner energy are at stake.
Key Developments
- S. Energy Policy: President Trump’s executive orders in his second term aimed at boosting U.S. oil and gas production, extending the use of fossil fuels and increasing exports. This aligns with his withdrawal from the Paris Climate Agreement.
- Russia-Ukraine War Impact: Russia halted gas exports to the EU in January 2024. The EU cut its reliance on Russian gas by 80%, reducing imports from 132 bcm in 2021 to 26 bcm in 2023, replacing it with LNG from the U.S. and Norway. This pushed LNG prices up 2-3 times normal levels.
- S. as Global LNG Leader: The U.S. became the world's top LNG exporter in 2023, supplying 114 bcm, with 56.2 bcm directed to the EU. This increased U.S. influence in global energy markets.
What is LNG?
- Liquefied Natural Gas (LNG) is natural gas cooled to a liquid state, making it easier to transport globally. Unlike pipeline gas, LNG can be shipped anywhere.
- India’s LNG Imports: In 2024, India became the world’s fourth-largest LNG importer, accounting for 7% of global LNG imports.
- The growth in demand was primarily driven by the industrial and oil refining sectors, followed by residential, commercial, and transport sectors.
- India aims to increase natural gas's share in its energy mix to 15% by 2030, up from under 7% currently.
- Qatar remains India’s largest supplier of LNG, the United Arab Emirates (UAE) is second, and the United States (US) is a close third. Together, they constitute nearly 80 per cent of our gas imports. Offtakes were slightly up from all three nations in 2023.
- Reasons for Increasing LNG Imports:
- Slowing Domestic Production
- Rising Demand for Natural Gas
- Increased temperatures and higher electricity consumption
Impact on Major Regions
- European Union: The EU reduced Russian gas imports but faced economic slowdown due to high energy prices. Germany's economy contracted in 2023, and growth is projected at zero in 2024.
- Russia: Russia lost its largest energy export market (the EU), leading to a sharp decline in energy exports, from USD 193 billion in 2021 to USD 55 billion in 2023.
- Developing Countries: Countries like India, Pakistan, and Bangladesh, which depend on LNG imports, face higher costs, slowing their transition to cleaner energy. Gas price hikes also impact food prices due to increased fertilizer costs.
- S. and LNG Export Growth: U.S. LNG exports have boosted its geopolitical role, benefiting from high prices. The U.S. is now a dominant player in global energy markets.
Global Impact
- LNG Market: Liquefied natural gas (LNG) allows flexible global trade, which benefits exporters like the U.S., Australia, and Qatar.
- Sanctions on Russia and Iran: Both countries, with large gas reserves, are excluded from the LNG market due to U.S. sanctions, limiting their global energy influence.
India’s Petroleum Industry
Government Initiatives
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PYQQ: Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will the shift of subsidies from fossil fuels to renewables help achieve the above objective? Explain. (2022) |
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