By SELINA WILLIAMS
LONDON -- BG Group on Wednesday said it had completed its first substantial agreement for the long-term sale of liquefied natural gas to India, one of the world's most rapidly growing energy markets and a key customer for the super-cooled gas.
Under the agreement, BG will supply state-owned Gujarat State Petroleum Corp., or GSPC, with up to 2.5 million metric tpy of LNG, concluding an initial agreement announced in September 2011. Analysts estimate the 20-year contract could be worth around $20 billion.
The deal highlights BG's drive to focus on the exploration and production and LNG shipping and marketing side of its business as it exits transmission and distribution, regasification and power generation. The company has already divested some of those assets, including last year's sale of its stake in Brazilian gas distributor Comgas.
The deal also underscores the growing significance to major energy suppliers of India, where the International Energy Agency sees natural gas demand almost tripling to 178 billion cubic meters by 2025 from 64 bcm in 2010 under its base case scenario.
"We have been active in India for more than 15 years and it is a large and important market that we understand well. We expect the country to lie third among LNG importing countries by 2025, behind Japan and China," said BG chief executive Chris Finlayson.
Earlier this week, BG confirmed the natural gas resource and production potential in one of its offshore Tanzania fields and is in the process of selecting a site for an onshore LNG facility to export the gas.
Analysts say that East African countries such as Tanzania and Mozambique, locations of major recent gas discoveries, are well placed to serve growing energy demand in India, which is already ramping up LNG imports as demand from the power generation and other sectors outstrips domestic production.
Suppliers are already battling for the contracts with India. Last October, GAIL (India) clinched a 20-year deal to buy LNG from the Singapore unit of Russia's state-owned gas giant OAO Gazprom.
India currently imports about a quarter of its gas requirements. But if gas production doesn't increase faster, India may have to import as much as half its needs within a few years, analysts say. Indeed, several gas-fired power plants are already shuttered or operating below capacity due to a shortage of gas.
Under the terms of the deal signed with GSPC, BG will initially supply 1.25 million tpy of LNG beginning in 2015 and for up to 20 years, potentially increasing to 2.5 million tpy after two years.
GSPC will be supplied from BG's global LNG portfolio, which means the gas could come from any of a number of the company's projects, including giant developments in Australia.
"Our long-term agreement with GSPC adds another dimension to our global LNG portfolio with the addition of material new supplies to a fast growing market. We look forward to building our presence in the country," Mr. Finlayson said.
Dow Jones Newswires