On Wednesday, an announcement was made that brings BG Group Plc (LON:BG) together with India’s state-owned Gujarat State Petroleum Corporation (GSPC).
The deal completes a long-term contract that will allow the sale of liquefied natural gas (LNG) to GSPC for the next 20 years. BG Group will make its initial sale of 1.25 million tons starting in 2015.
After the first two years of the agreement, a stipulation has been set that may potentially increase that number to 2.5 million tons per year, according to The Indian Express.
The agreement was made in the presence of Chief Minister of Gujarat Narendra Modi and U.K. Foreign Minister Hugo Swire, who together represent a bridge that bonds the two great nations moving into the future. The agreement was signed at the Mahatma Mandir convention hall in Gandhinagar.
|The Indian Express|
Talks and negotiations have been ongoing since September of 2011, and Wednesday’s agreement solidifies relations between the two countries that have soured in recent years following the riots of 2002.
The riots ensued after Hindu/Muslim violence escalated to the point where a train in Gujarat was torched and burned, killing 58 Hindus in the attack. That one act set off riots across the state; Modi was called to resign and the relations with the U.K. broke down amid the chaos.
Modi said after the agreement was signed, "Today's agreement will be proved historic yardstick in ever evolving relationship between Gujarat and Britain," reports The Indian Express.
GSPC is a public sector unit and a leader in oil and gas exploration, development, and production. It has a large hand in India’s gas trade, as well as transmission and distribution channels of gas; it has also become a player in power generation, according to The Hindu Business Line.
BG Group is a Reading, U.K. based company—a natural gas firm and the U.K.’s third-largest natural gas producer, operating in 25 countries on five continents. It has three business segments: Exploration and Production, Liquefied Natural Gas, and Transmission and Distribution. And it operates across three regions: Americas and Europe; Africa, Central, and South Asia; and Australia and East Asia.
It’s easy to recognize the similarities between the companies and see why this could be a good symbiotic partnership. With 20 years of LNG between the two of them, the bond could symbolize the importance of global commerce.
From Bloomberg Businessweek:
“We have been active in India for more than 15 years and it is a large and important market that we understand well,” BG Chief Executive Officer Chris Finlayson said. “We expect the country to lie third among LNG importing countries by 2025, behind Japan and China.”
Strategically, BG Group will be expanding its global LNG portfolio with this deal. The Indian Express reports Finlayson said:
"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."
This is prime-time to be entering into a long and prolific partnership with Indian interests. Right now, India nears the top of the world’s large economies that are bursting with growth. And for as much gas as it produces, the nation consumes even more—35 percent more, according to Bloomberg Businessweek.
West India, home to Gujarat and the strong economic leadership of Modi, seems to be the pinnacle of Indian expanse. As The Indian Express reports, the state of Gujarat has the biggest network of pipeline and handles 80 percent of all cargo, headed by two LNG terminals at Dahej and Hazira, which hold a combined capacity of more than 14 million standard cubic meters.
GSPC is also developing an LNG terminal at Mundra.
For an outside producer looking to trade in LNG, the Asian market is primed for business. The Indian Express reports that the Asian market price is right around $16.79 per million British thermal units, compared to just $3.49 in the U.S.
With India’s rapid economic growth and the ever-increasing demand for LNG in Gujarat, GSPC is poised to become the gateway for gas throughout all of India, and it is BG Group who will be there to supply it every step of the way.
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