Over the past year, the surplus production of LNG in the US has given impetus to the prospect of LNG exports to strategic allies. On the other hand, the constantly growing demand for LNG in India has prompted the Indian ambassador to the US, Ms Nirupama Rao, to vocally endorse LNG trade between the two countries.

While crude oil accounts for 32% of India’s energy generation, India imports 74% of the crude oil and is largely dependent on the politically unstable Middle-East for the environmentally unfavorable fuel. Of the non-fossil fuel industries, the nuclear industry is marred by public protests and limited international collaboration due to the Indian Nuclear Liability Bill and India’s reluctance to sign the Nuclear Proliferation Treaty (NPT). While wind energy and solar energy generation is increasing steadily, these renewable sources cannot power base loads and are still not economically competitive for widespread penetration into the energy market.

Natural gas is soon emerging as a highly preferred fuel due to its environmentally benign nature, high efficiency, cost effectiveness, and suitability to serve base and peak loads. Despite very limited indigenous gas reserves, The Indian ministry of Petroleum and Natural gas has termed natural gas as the ‘Fuel of the 21st century’. This sentiment has also been echoed by the other emerging economies in Asia.

Recognizing this trend, The Chairman of the U.S. subcommittee on Terrorism, Non-Proliferation and Trade (TNT), Mr. Ted Poe, held a congressional hearing on the issue of U.S. LNG exports on April 25, 2013 in Washington DC. Congressman Poe acknowledged the significant potential for U.S. LNG exports and laid specific emphasis on exports to India, a key strategic ally. He urged the DOE to approve licenses of companies wanting to export LNG to non-FTA countries including India. Congressman Poe’s views were unanimously endorsed by all the speakers who favorably testified about the viability of U.S. LNG exports to allies such as India. They stated that more the LNG exports greater would be the economic benefits to the US.

A noted bipartisan organization on the Capitol Hill, The United States India Political Action Committee (USINPAC), was an active participant at this hearing and the organization’s President, Mr. Sanjay Puri, hailed Congressman Poe’s support for US LNG exports to India. The Chief Coordinator – Hill Outreach of USINPAC, Mr. Rahul Srinivasan, welcomed the initiative and said “The deal will pave the way for an economically and politically beneficial relationship between the two largest democracies in the world that share many common values”.

Mr. Srinivasan’s views were largely shared by the other attendees at the hearing who discussed the economic and political ramifications of the deal. The price for natural gas in the U.S. is approximately $3.2/MMBTU. The corresponding price in India ranges from $4.2/MMBtu to $17/ MMBTU and is subject to volatility. From a supply standpoint, the prices in the U.S. are extremely low because of surplus production exceeding demand. Opening up the export market to India will serve two major benefits:

a. Exporting natural gas to India will bring long-term and sustained economic profits. The trade deal will also increase drilling activity of natural gas within the U.S. to satiate the local U.S. market and will thus increase the number of jobs.

b. India would no longer need to consider importing gas from Iran and other politically unstable countries in the Middle-East. The trade deal will further cement Indo-US economic and political ties and significantly strengthen the US’s geopolitical standing in Asia and the Middle-East. Though the cost of shipping natural gas from USA rather than from the Gulf is much higher, this high cost will be offset by the long-term benefits of sustainable trade and steady country to country relations

Expectedly, U.S. LNG exports have drawn skepticism from certain quarters. Some lawmakers and industry leaders are concerned that export of LNG will lead to an increase in the price of domestic LNG and prompt further drilling and fracking unfavorable to the environment. Allaying these concerns, energy experts from various think tanks have affirmed that LNG exports will very marginally raise the domestic price and thus minimally impact local industries dependent on cheap energy. Also, natural gas is far more environmentally benign than coal as a base-load fuel. Increase in its production to offset exports will create more jobs without significantly degrading the environment. These experts have concurred that the pros of U.S. LNG exports significantly outweigh the cons.

In recent developments, U.S. companies have signed two long term deals with India for export of LNG. GAIL, India has signed a 20 year agreement with Dominion Resources, Inc to use half of the capacity (4.6 million metric tons) Dominion plans to add to a LNG terminal in Maryland. Indian state-run Petronet LNG Ltd. has signed a preliminary agreement with U.S.-based United LNG, LP to purchase around 4 million metric tons a year of liquefied natural gas for 20 years. These deals are dependent on approval from the U.S. DOE since India and USA do not share a free trade agreement (FTA).

Political expediency on the Capitol Hill will help spur many such energy deals to fuel the engine of economic and political cooperation between India and the US.