Gujarat State Petroleum Corporation (GSPC) on Thursday entered into a preliminary agreement with BG India, subsidiary here of the BG Group, a global integrated natural gas company, for the long-term supply of up to 2.5 million tonnes per annum (mtpa) of liquefied natural gas (LNG).
The agreement will help GSPC bridge the widening demand-supply deficit, both in Gujarat and across India. BG India proposes to sell the LNG volumes to GSPC for up to a 20-year period, beginning as early as 2014. GSPC and BG India intend to complete negotiations and execute a binding LNG sale and purchase agreement early next year. The LNG volumes will be sourced from BG Group's current and future global supply portfolio.
GSPC and BG India have in the past successfully implemented short-term deals for spot LNG cargoes.
Frank Chapman, chief executive of the BG Group, said: "This is a landmark agreement for BG Group, establishing long-term LNG sales into one of the world's largest and fastest growing energy markets. We have been in the Indian gas market for more than 15 years and this agreement brings essential new supplies of natural gas to the country."
LNG has been unable to compete with cheap domestic natural gas, though there is a huge demand-supply gap in the Indian market. Walter Simpson, the company's India head, told Business Standard the company sees long-term growth in the Asian market, particularly India. He cited yesterday's statement by BP global head, Bob Dudley, in support of market pricing for natural gas.
The demand for natural gas is likely to be driven largely by the city gas distribution and power sectors. Simpson said pricing of LNG was competitive, to suit the demand of power plants in the country. BG India, present in CGD through Gujarat Gas and Mahanagar Gas Ltd, plans to use the two companies as vehicles fo expansion into more cities, he said.
GSPC envisages a significant role in bringing the benefits of natural gas as a cleaner fuel to Gujarat and beyond, considering the huge latent demand. In a statement issued earlier this week, it said that on completion of the three pan-India pipelines to be set up by its group company, GSPL, in the next three years, it would have access to markets across the country.
Further, GSPC has options to import LNG at various terminals in Gujarat. It happens to have one of the largest gas trading businesses in the country, with a presence in gas transmission and distribution, and power generation.
In June this year, GSPC had signed an agreement with Russian petroleum giant Gazprom Global LNG, for supply of up to 2.5 mtpa of LNG.