BG Group inks 20-year, $20-bn deal to supply gas to Gujarat

The British gas company BG Group on Wednesday signed a 20-year contract worth as much as $20 billion (Rs1.089 lakh crore) to provide liquefied natural gas to Gujarat in western India.

Under the agreement, BG Group will supply state-owned Gujarat State Petroleum Corp Ltd (GSPC) with up to 2.5 million tons per annum or mtpa of liquefied natural gas, concluding negotiations announced in September 2011.

The BG Group will initially supply 1.25 million tons per annum of LNG beginning in 2015 and for up to 20 years, potentially increasing to 2.5 mtpa after two years, the company said in an announcement.

The supplies to GSPC will be from the Group's global LNG portfolio.

According to the UK business daily Financial Times, the deal could be worth $20 biullion, although its ultimate value depended on the fluctuating price of LNG.

The move is the first time the company has struck such a deal in India, adding to long-term supply contracts with other Asian customers, such as Cnooc of China and Tokyo Gas of Japan.

It also marks the latest stage in BG's attempt to move its business away from the distribution of gas in emerging nations such as India and Brazil, and towards supplying LNG to domestic companies in these markets.

As part of this strategy, BG sold its majority stake in distribution group Gujarat Gas to GSPC for Rs2,460 crore ($470 million) in October 2012. Last year it also sold its stake in Brazilian gas distributor Comgás for about $1.8 billion.

The company expects India to be the third-largest global importer of LNG by 2025, after Japan and China, with annual demand rising to 50m tonnes – a sixfold increase from 2012.

Sir Frank Chapman, chief executive, described the group's initial 2011 deal as ''a landmark agreement for BG Group, establishing long-term LNG sales into one of the world's largest and fastest growing energy markets''.

Indian imports are set to increase in part because domestic supplies are forecast to meet less than half of total demand by 2015, according to analysis by Boston Consulting Group.

''Many international companies are now looking at India, given they can get attractive prices in the market already, and tap into the country's strongly growing demand in future too,'' said Rahool Panandiker, a principal at BCG in Mumbai.

Although India's is a less gas intensive economy than most other major developing nations, Gujarat has been a pioneer of both importing natural gas and providing it to companies and consumers in the state.

BG's deal is set to coincide with a visit to the state by British Foreign Office minister Hugo Swire, part of attempts to rebuild links between the UK and the government of the business-friendly Indian state.

In October Britain reopened ties with Narendra Modi, Gujarat's controversial chief minister and potential prime ministerial candidate, after a decade-long boycott following inter-religious riots in 2002, during which around 2,000 Muslims were killed.