With BG acquisition, Shell gets an edge in India’s LNG market

With BG acquisition, Shell gets an edge in India’s LNG market

Shell’s access to BG’s infrastructure will make it the top foreign player in the booming gas import business, say analysts

Mumbai: Royal Dutch Shell Plc is set to become the top foreign firm in India’s booming gas import and marketing business, following its $70-billion global acquisition of Britain’s BG Group Plc.

One of BG’s key strengths is in the logistics of liquified natural gas or LNG, which is natural gas cooled to liquid state for transport in ocean carriers.

Shell, which has a 2.5 million tonnes per annum (mtpa) LNG terminal at Hazira in Gujarat, can tap into BG’s vast global network to source and sell LNG in India.

According to Petroleum Planning and Analysis Cell (PPAC), a statistical body under the ministry of petroleum and natural gas, in the last 10 years, India’s production of natural gas rose by a meagre 14% from 21mtpa in 2004-05 (in terms of LNG equivalent) to 24 mtpa in 2013-14.

In contrast, LNG imports have risen by a massive 330% from 2.5 mtpa in 2004-05 to 10.76 mtpa in 2013-14.

The acquisition of BG puts Shell in a better position to take advantage of this growing segment.

BG’s worldwide gas infrastructure includes terminals, pipelines, specialized tankers, re-gasification facilities and strategic storage locations.

According to BG’s website, the company has multiple production sources around the world, including in north Africa, west Africa and the Caribbean, with Australia and the US soon to be added to the list. This is complemented by a fleet of around 25 owned and leased LNG carriers.

For rival BP Plc, exploration and production is a small share of its global portfolio, and the company is more keen on the gas logistics business, an India-based consultant from a US-based firm which offers consultancy services to the company said.

India’s huge gas demand is a big draw for international firms, the consultant said.

With the BG deal, Shell will now get a head-start on tapping this market. BP’s joint venture with Reliance Industries Ltd— India Gas Solutions Pvt. Ltd— which was formed for importing and marketing natural gas, is still to begin operations.

BP did not reply to a mail sent on Friday.

There are two other state-run companies in India that are into the gas marketing business—Petronet LNG Ltd and Gail Ltd.

“Since India’s domestic natural gas production is not increasing, importing LNG is the only option and companies which have expertise in sourcing and selling will have an upper hand. It is after all, good for India,” said an official from a private oil and gas company, who declined to be identified. The official added that access to BG’s infrastructure will make Shell the No. 1 foreign player in the Indian gas business.

Shell declined to comment for the story.

Apart from the Hazira terminal, Shell has a technology centre and a financial business services centre in India.

Earlier this year, Shell signed agreements for a floating LNG terminal. Its downstream businesses include marketing fuels and lubricants. It also has a licence to set up 2,000 fuel outlets in India.

Separately, the Shell-BG deal makes both Shell and BP stakeholders in the upstream portfolio of RIL.

While Shell gets access to a 30% stake held by BG in the Panna-Mukta-Tapti field, BP has a 30% stake in three blocks of RIL in the east coast, including the famous D6 block.


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