The South Asia Channel

Can Energy Mend the Indo-U.S. Partnership?

The Indo-U.S. relationship has hogged the limelight in recent times for all the wrong reasons, be it the diplomatic dispute over the arrest of Indian diplomat Devyani Khobragade in New York or differences on trade issues. Yet the strategic partnership between the two countries still presents many areas of convergence that can steer the relationship through these temporary storms.

Energy cooperation is one such area that shows great potential for mutual benefit. In India, a huge gap yawns between the country's energy demands and its domestic capacities. India has about 17 percent of the world's population, but only 0.03 percent of the world's oil reserves, 0.7 percent of its gas reserves, and 7 percent of the proved coal reserves. India has suffered consistent and frequent power shortages since independence, most notably the 2012 blackouts that left more than half a billion people without power.

Given these shortages, both the development of advanced technology and long-term cooperation with energy exporters like the United States will be critically important for India to ensure an uninterrupted supply of energy for its economic development. Unfortunately, trade disputes and domestic roadblocks have stalled progress on promising Indo-U.S. cooperation in the nuclear and solar industries.

Almost a decade ago, Indo-U.S. energy cooperation received a major boost with the May 2005 launch of the bilateral India-U.S. Energy Dialogue -- a broad-based dialogue covering cooperation in oil and gas, clean coal, civilian nuclear energy, and renewable energy -- and the signing of the Indo-U.S. Civil Nuclear Cooperation Initiative that July. Unfortunately, the civilian nuclear agreement has remained deadlocked in the two countries' legislatures, partly due to a lack of clarity over liability in the case of an accident. Only in the last year did the countries seal their first commercial deal on civil nuclear power, with the Nuclear Power Corporation of India Limited, a state-owned company, and the U.S. firm Westinghouse signing an agreement to set up one nuclear power plant in India.

In addition to the stalemate over the Indo-U.S. nuclear deal, trade differences have crept up between the two nations on the renewable energy front as well. Despite recent cooperation on developing renewable energy resources under the aegis of the Partnership to Advance Clean Energy (PACE) established in November 2009, New Delhi and Washington have recently gone head to head at the World Trade Organization (WTO) over solar product imports.

The United States filed a dispute at the WTO earlier this year after India expanded its domestic content requirements for its National Solar Mission, a project launched in 2010 that aims to deploy 20,000 megawatts of grid-connected solar power by 2022, to include thin-film solar cells. Thin films comprise the majority of U.S. solar exports to India. New Delhi and Washington continue to go through rounds of unsuccessful consultations and talks to iron out differences on this issue.

An unconventional partnership

But while trade disputes and domestic protectionism have stalled progress on Indo-U.S. cooperation in the nuclear and solar industries, the U.S. shale gas revolution over the past decade has put the gas trade front and center as a possible game changer. These days, the future of energy cooperation between the two countries is largely being seen in the possibility of American support to India in augmenting its domestic unconventional resources like shale gas and gas hydrates.

The development of gas resources in India would have obvious benefits: A shift towards natural gas would help curb India's crude imports and pollution, and carbon dioxide emissions resulting from the burning of coal. But according to the International Energy Agency's World Energy Outlook 2013, India's low availability of gas, coupled with lower-than-planned capacity additions in the power sector (partly due to unfavorable market frameworks), have already led to tightened supply.

India's domestic gas production has fallen sharply in recent years due to water and sand ingress in Reliance Industries Limited's Krishna Godavari basin (KG-D6), once India's largest natural gas field. Some gas-based power plants have completely shut down as a result, while others are increasingly dependent on costlier liquefied natural gas imports, purchased at spot prices.

India is rigorously pursuing its gas pipeline diplomacy with countries like Turkmenistan, Iran, and Myanmar, but it is also looking at the United States to support its natural gas needs. As energy-hungry India resorts to renewed diplomacy to ensure its energy supply, the United States stands on the cusp of not only becoming energy independent, but also a major energy exporter.

The United States is helping to develop India's domestic non-conventional gas reserves; in 2010, the United States and India signed a memorandum of understanding for shale gas exploration in India. But India is also stepping up its effort to import cheap liquefied natural gas from the United States. Despite continuing debate in the United States regarding gas exports and potential importers, American companies are already moving ahead with plans to export gas to Non-Free Trade Agreement countries, including India.

One example of this is the agreement signed in 2013 between Gas Authority of India Limited, a state-owned natural gas company, and Dominion Resources Inc, a U.S. energy company. After receiving conditional "public interest" approval from the U.S. Department of Energy, the Indian natural gas company booked 2.3 million metric ton per annum of liquefaction capacity in Dominion's Cove Point liquefaction terminal project on the Chesapeake Bay. These facilities are expected to begin operation by 2017.

Given the United States' rich gas deposits and competitive technological advantages, diversified energy cooperation with the United States is clearly in the interest of India. On the other hand, the emerging geopolitics of the Asia-Pacific region also mean that the sustenance of Indian growth is in the strategic interest of the United States. After having experienced a checkered history due to the structural constraints of the Cold War, the two countries have in recent times seen a common strategic desire for a stable Asia that will help propel growth in the region and around the world. This is not to mention the economic benefits to the United States of exports: A 2014 report from NERA Economic Consulting showed that the greater the level of U.S. net exports, the greater the net economic benefits to the United States.

The strategic partnership is fundamentally about self-interested state actors; it does not entail charity and giveaways. But the mutually beneficial gains available from the energy trade show that such a cooperation can and should play an enormous role in building a strategic vision between the two countries.

Dr. Monish Tourangbam is an assistant professor in the Department of Geopolitics and International Relations at India's Manipal University.

Manish Vaid is a junior fellow with India's Observer Research Foundation.

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