MOU represents milestone in oil and gas cooperation

By Raj Sahni and Karma Dolkar, Bennett Jones LLP
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India is the world’s third-largest consumer of energy and is reported to be looking to quintuple its energy supply within the next 25 years to meet an 8% energy supply gap. Canada is the world’s sixth-largest producer of oil and gas, with the third-largest proven oil reserves (including oil sands) in the world.

Raj Sahni
Raj Sahni

While India and Canada have been exploring increasing investment and trade in the oil and gas sector to meet this gap, progress has been slow, due in part to the costs and issues associated with transporting oil from Canada to India. With proposals for a trans-Canadian pipeline being pursued in earnest, there is renewed hope of Canada becoming a significant supplier of oil and gas to India. A five-year memorandum of understanding (MOU) relating to oil and gas signed by the two countries on 28 October 2013 marks a further step in the strengthening of a mutually beneficial and promising trading relationship between the two nations in the energy sector.

Background and purpose

The stated purpose of the MOU is to “establish a framework for discussions on petroleum and natural gas issues with the view to advance the trade and investment ties between Canada and India, enhance energy security and increase cooperation”.

The MOU is a result of previous efforts at cooperation between India and Canada on energy issues. The Canada-India Energy Forum was established in 2009 and has prioritized the facilitation and promotion of enhanced sustainable exploration and production of oil and gas.

Canada’s minister of natural resources and the deputy chairman of India’s Planning Commission approved the MOU at the conclusion of the first meeting under the annual Ministerial Energy Dialogue announced by the countries’ prime ministers in November 2012.

In addition to the kind of sweeping statements of cooperation usually found in MOUs – for example, the countries agree to cooperate to increase two-way trade and investment and to promote energy security through market diversification – this MOU expresses some more concrete goals.

Liquefied natural gas

First, on the development of liquefied natural gas (LNG), the countries aim to promote “diversification of energy supply and demand, and work to facilitate investment, production, and development of new and unconventional sources of petroleum and natural gas” – including oil sands, shale liquids and coal bed methane – and to explore “the potential and techno-economic viability” of Canadian LNG exports to India.

As one of the world’s largest importers of LNG, India has a special interest in Canada, the world’s third-largest gas producer. Canada has up to 1,300 trillion cubic feet in natural gas resources, potentially representing a significant supply to meet India’s growing energy demand.

Karma Dolkar
Karma Dolkar

Second, the MOU pushes for cooperation between various levels of governments and business entities. To a certain extent, this is already taking place as Canada’s engagement with India is focusing more on the state/provincial level to exploit economic opportunities of individual regions. For example, the Canada-India Business Council has signed an MOU with the Industrial Extension Bureau, an economic development organization representing the government of Gujarat. Gujarat is India’s second most industrialized and third most urbanized state with an average growth rate of 10.28%. Most notably, Gujarat has two LNG terminals and is interested in export opportunities from Atlantic Canada.

One of the challenges facing Canada has been building the infrastructure needed to export LNG. With the development of ports and liquefaction facilities on the Pacific coast of British Columbia, there is a strong likelihood that export facilities could be loading liquid gas onto trans-Pacific tankers within a few years.

Working group

Third, the MOU tasks a high-level officer in each government – the secretary of the Ministry of Petroleum and Natural Gas of India and the assistant deputy minister, energy sector, of Natural Resources Canada – with the responsibility of heading a working group to manage the MOU and implement cooperative activities under the MOU.

India and Canada have mutual interests that can make for an exceptionally productive long-term strategic partnership in trade and investment. Unlocking these enormous opportunities to reap the full benefits of the two countries’ relationship will require redoubled efforts and the energy of many people in both countries.

As India is looking to diversify its sources of energy supply and Canada is looking to increase its exports of energy resources, this MOU is represents an important milestone in the two countries’ growing relationship and cooperation on energy issues.

Raj Sahni is a partner and chair of the India Business Group and Karma Dolkar is an associate at Bennett Jones LLP, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai and Doha, and representative offices in Washington DC and Beijing.

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