BG Group seals long-term LNG supply deal with GSPC

Estimated at around $20 bn, agreement to benefit gas distribution and power sector

In a development that can significantly improve gas availability for the industries in Gujarat, British Gas (BG) Group on Wednesday signed a final agreement with the state-run Gujarat State Petroleum Corporation (GSPC) for long term supply of liquefied natural gas (LNG).

A preliminary agreement between the two energy majors was signed in September 2011. As per the agreement, BG will supply GSPC up to 2.5 million tonnes per annum (mtpa) of LNG. Initially, BG will supply 1.25 mtpa of LNG beginning in 2015 and for up to 20 years, potentially increasing to 2.5 mtpa after two years, BG said in an announcement on Wednesday.

At the prevailing global LNG prices, experts estimated the deal to be worth approximately $20bn (around Rs 108,000 crore). However the value of the deal will change according to the fluctuations in the global prices of LNG.

In the past, GSPC and BG had successfully implemented short-term deals for spot LNG cargoes. GSPC will be supplied from the Group’s global LNG portfolio, a BG Group statement said.

The move, industry insiders feel, will help local industries with assured gas supply. The demand for natural gas is likely to be driven largely by the city gas distribution and power sectors.

"Today, we have to depend on central government’s gas allocation, which is uncertain. Industry has been suffering due to this uncertainty. With this agreement not only the gas availability will improve but our dependence on central government will also reduce," said an industry source.

The UK-based energy giant signed a final deal confirming the full value of the arrangement and the date of its commencement, in presence of Gujarat chief minister Narendra Modi on Wednesday at Mahatma Mandir in Gandhinagar.

"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," said Chris Finlayson, Chief Executive, BG Group. The company expects India to be third among LNG importing countries by 2025, after Japan and China.

In June last year, GSPC had signed an agreement with Russian petroleum giant Gazprom Global LNG, for supply of up to 2.5 mtpa of LNG.

The recent development marks the BG Group’s attempt to move away from the gas distribution business in emerging nations such as India and Brazil, and towards supplying LNG to domestic companies in these markets.

It may be noted that BG has sold its 65.12 per cent stake in India’s largest privately held gas distribution company, Gujarat Gas Company Ltd (GGCL) to GSPC for Rs  2464 crore (approx. US $ 470 million) in October last year.