An Indo-US energy JV worth exploring

Exploring an Indo-US energy partnership: A joint refining venture opportunity

This is a broad suggestion for the Indian government and refinery companies. If found worth exploring, details need to be worked out.

The US President Trump announced “drill, drill, drill” as his energy policy in his term 2.0, and has initiated steps on that front already. Consequently, the global energy landscape is set to change rapidly.

Both the US and India are keen to further their own national interests. This is perceived as a challenge by almost every country the US has a significant trade relationship with.

But if we delve deep into the details, we may be able to discover many hidden opportunities in industry and trade, about which I had written an article earlier[1].

I want to explore one such specific opportunity in this article.

This is a unique opportunity to strengthen the Indo-US relationship in the energy sector, for immense long-term mutual benefits. It could even evolve into something much bigger.

With the US poised to expand its domestic oil production from shale, there will be an imminent need for a huge additional refining capacity to process this crude.

This presents a unique opportunity for India and the US to collaborate on a joint venture (JV) to establish state-of-the-art refineries in the US or its nearby territories.

Such a partnership would not only address US refining constraints but also solidify India’s position as a key player in the global energy market. This suggestion outlines the case for such a collaboration and its possible viability.

The case for an India-US refinery joint venture

1. Addressing refining bottlenecks in the US

The US is currently the world’s largest producer of oil and liquefied natural gas. However, much of its refining infrastructure is configured for heavier crude oil, leaving it dependent on exports of its huge surplus of light, sweet crude.

Expanding refinery capacity to process this light crude domestically is critical to fully realizing the benefits of increased production.

2. India’s expertise in refining:

India has established itself as a global refining powerhouse. Companies like Reliance Industries operate some of the world’s largest and most advanced refineries, capable of processing diverse crude blends at competitive costs.

Given the stringent US regulations and the financial challenges of building and running new refineries in the US, partnering with Indian companies, renowned for their efficiency and expertise in operating large-scale light crude refineries offers a viable solution.

3. Strengthening bilateral energy ties

A refinery JV between the world’s oldest democracy and the world’s largest democracy would deepen the India-US energy partnership, aligning with broader geopolitical and economic goals.

India, as a major consumer of energy, could benefit from access to refined products and a greater role in the global energy trade, while the US could diversify its refining capacity and reduce reliance on imports of refined products.

4. Strategic location benefits

Refineries could be set up in US territories or nearby islands like the Caribbean, where regulatory hurdles are lower, and logistics are favourable for both domestic consumption and exports. This would ensure proximity to US markets while optimizing costs making the projects viable even during oil market downturns.

Key features of the suggestion

1. Joint venture framework

Indian refinery companies (like Reliance Industries and Indian Oil Corporation) could partner with US firms, on mutually agreed investments, terms, and responsibilities.

The project would involve building new refineries or upgrading existing facilities and running them to process surplus US crude efficiently, without affecting the interests of the existing US companies.

2. Government guarantees

To ensure the project’s financial and operational viability, both the US and Indian governments should provide guarantees, including:

• Long-term crude oil supply agreements from the US.
• Commitments to off-take refined products for domestic and/ or export use.
• Tax incentives and subsidies to offset initial capital costs and ensure profitability.

3. Focus on export-oriented refineries

The JV could also focus on processing US crude for global export markets, particularly in Europe and Asia, where demand for refined products is strong. This would alleviate concerns about oversaturating the US domestic market.

4. Sustainability and environmental considerations

Though the refineries may be near shored instead of in the US, as far as possible, they should incorporate cutting-edge technology to minimize environmental impact, aligning with global sustainability goals and addressing potential regulatory concerns.

Advantages of the JV

1. For India

• Enhanced access to US crude oil and refined products.
• Strengthened geopolitical ties with the US.
• Expansion of Indian companies’ global refining footprint and technological leadership.

2. For the US

• Increased refining capacity to support domestic production growth.
• Reduced reliance on refined product imports.
• Economic growth through foreign direct investment.
• Minimizing costs and risks of creating additional refinery capacity.

3. For both the nations

• Strengthened energy security and supply chain resilience.
• Alignment with shared goals of economic growth and global trade leadership.

Ensuring viability

To make this project a success, the following steps are essential:

1. Bilateral agreements

Both governments should negotiate and finalize agreements ensuring policy stability, tax incentives, and infrastructure support for the JV.

2. Incentives for private sector participation

Provide financial incentives to encourage participation from Indian and US companies.

3. Fast-tracking approvals

Establish a joint task force to expedite regulatory approvals and address environmental and logistical challenges.

4. Market analysis

Conduct a comprehensive feasibility study to identify optimal locations, market demand, and supply chain logistics for the refineries.

Conclusion

This suggestion for an India-US refinery JV represents a win-win opportunity for both nations as explained above. Obviously, details have to be worked out.

I hope the Government of India and Indian refinery companies take the lead in proposing this partnership to the US government, leveraging the unique strengths of both nations to create a model of energy collaboration that benefits both the nations and the global market.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.

References:

[1] Win-win approach to US-India trade under Trump 2.0 – Nov 07, 2024, PGurus.com

For all the latest updates, download PGurus App.

The post An Indo-US energy JV worth exploring appeared first on PGurus.