New Delhi faces the task of managing volatility and maintaining strategic autonomy while Kiev’s quitting a key deal has sent LNG prices soaring

The expiration of the Russia-Ukraine gas transit deal on December 31 last year marked a turning point in global energy dynamics, particularly for nations such as India. As Europe intensifies its shift to LNG, India faces critical challenges: Securing affordable energy, managing cost volatility, and preserving strategic autonomy. 

For over five decades, the Russia-Ukraine gas transit deal was the cornerstone of Europe’s energy security, facilitating the flow of Russian gas through Ukraine’s vast pipeline network. This arrangement supplied 35% of Europe’s gas imports, ensuring steady revenues for both nations while reinforcing Russia’s geopolitical leverage. However, the deal’s termination has forced Europe to diversify its energy sources, resulting in increased LNG imports from the US, Qatar, and Norway.

This pivot to LNG has driven up global prices, creating ripple effects for nations such as India. Europe’s projected 10% rise in LNG demand compared to 2024 has tightened supply chains, with the benchmark European gas price exceeding €51 per megawatt-hour, the highest since October 2023. 

For India, a net importer of natural gas, this has exacerbated competition and cost volatility, complicating its energy procurement strategy.

Strategic considerations

Europe’s heightened reliance on LNG to replace Russian gas has significantly disrupted global markets, intensifying competition among major importers like India. Analysts at Goldman Sachs warn that a tightening of European gas supplies this winter could push Asia’s LNG prices above $20 per million British thermal units (mmBtu), imposing severe cost pressures on Indian importers.

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India, as the fourth-largest LNG importer globally in 2024, accounted for 7% of total imports. The country secured over 15 billion cubic meters (bcm) in new long-term contracts, including Qatar’s 10 bcm/year agreement for 20 years starting in 2028. Rising industrial demand and oil refining activity spurred an 11% year-on-year increase in India’s gas consumption in 2024, leading to a 21% rise in LNG imports. While favorable spot prices in 2024 aligned with India’s vision to increase the share of natural gas in its energy mix to 15% by 2030, Europe’s escalating LNG consumption now threatens this trajectory by driving up procurement costs.

The renewable energy buffer

To counteract these challenges, India must intensify its renewable energy initiatives. By January 2025, India’s non-fossil fuel energy capacity surged to 217.62 GW, including record additions of 24.5 GW in solar and 3.4 GW in wind capacity during 2024. While renewables are not a direct substitute for LNG, their rapid expansion can alleviate pressure on gas supply chains, complementing India’s gas-based economy strategy.

By diversifying its energy mix, India can reduce its overreliance on LNG amid market volatility. Investments in grid infrastructure, battery storage, and domestic renewable manufacturing will be essential for sustainability. This strategic synergy between LNG and renewables can help India navigate global energy challenges and emerge as a leader in both LNG imports and renewable transitions.

Trump’s LNG policies: Competition or opportunity?

During Donald Trump’s first presidency, the US emerged as the world’s largest LNG exporter, reshaping global energy markets. India leveraged this development through partnerships such as GAIL’s agreement with Cheniere Energy and Petronet LNG Limited’s 2019 agreement with Tellurian Inc. These collaborations diversified India’s energy sources while offering competitive pricing amid global disruptions.

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With Trump’s return to power, India faces renewed opportunities and challenges. While increased US LNG exports could enable India to secure favorable contracts, heightened competition from Europe and high transportation costs for American LNG could limit price competitiveness.

New Delhi’s strategy must focus on negotiating advantageous contracts while exploring deeper technological collaborations in domestic gas exploration to enhance energy security.

However, India also has to balance energy ties with Russia against growing partnership with the US. To mitigate risks, India must diversify its energy sources by expanding LNG procurement from Qatar, Australia, and emerging suppliers. Simultaneously, strengthening domestic production through initiatives such as the Hydrocarbon Exploration and Licensing Policy (HELP) will reduce import dependency and stabilize supply chains.

The termination of the Russia-Ukraine gas transit deal has redefined global energy dynamics. Key players like Qatar and Australia are stabilizing LNG markets, while African nations such as Nigeria and Egypt ramp up production.

For India, aligning its domestic strategies with these global shifts is crucial. By engaging with key partners, negotiating competitive LNG contracts, and accelerating renewable energy adoption, India can secure energy access, sustain economic growth, and maintain its strategic autonomy in an increasingly volatile world.

By harnessing the power of renewable energy as a strategic buffer, negotiating favorable LNG contracts, and fortifying domestic production capabilities, India can carve out a path that is resilient, diverse, and strategically autonomous. This dual approach not only bolsters energy security but also cements India’s leadership in the global energy transition.